The situation in the Ukraine remains highly fluid and reactions from the United States and allies continue to evolve. This is the first of a series of advisory alerts from Venable in response to the ongoing situation.

This week, the U.S. government, along with several European allies, unveiled a series of new sanctions targeting the Russian government, military, and economy in response to President Vladimir Putin's recent decision to send troops to two regions in eastern Ukraine—Donetsk People's Republic ("DNR") and Luhansk People's Republic ("LNR") (collectively referred to in this alert as the "Covered Regions"). These sanctions measures, described in detail below, were intended to punish Russia for its continued aggression in Ukraine and prevent further escalation in the region. As Russia takes further actions against the Ukraine, more severe sanctions and export restrictions will be forthcoming.

Trade Embargo on the Donetsk and Luhansk Regions

On February 21, 2022, President Biden issued an Executive Order ("EO") that broadly prohibits new investments by U.S. persons in the Covered Regions, as well as imports and exports from these regions, whether direct or indirect, without approval by the U.S. government. The EO also authorizes the Secretary of the Treasury ("Treasury"), in consultation with the Secretary of State ("State"), to issue additional sanctions on persons and entities operating in the Covered Region. These measures resemble the near-complete trade embargo imposed by the U.S. government on Crimea following its annexation by Russia in 2014.

• Alongside Monday's EO, the Department of Treasury's Office of Foreign Assets Control ("OFAC") issued a number of new General Licenses (Nos. 17–22), authorizing certain transactions in the Covered Regions that would otherwise be prohibited by the new EO. For example, Ukraine General License No. 17 authorizes the winding down of operations and contracts involving the Covered Regions through and including March 22, 2022.

Sanctions Targeting the Russian Government and Financial System

On February 23, 2022, OFAC announced additional sanctions targeting various Russian institutions and individuals for their role in the destabilization of Ukraine. These actions were all taken under the authority of the existing EO 14024, from April 19, 2021, which authorizes sanctions on certain sectors of the Russian economy as determined by the Secretary of the Treasury, in consultation with the Secretary of State.

Tuesday's measures included new sanctions targeting political and financial elites in Russia, as well as sovereign debt restrictions and designation of Russian banks, as follows:

• Sanctions Targeting Putin's Inner Circle—OFAC added three Russian political and financial elites to the Specially Designated Nationals and Blocked Persons List ("SDN List"), thereby blocking their assets and prohibiting U.S. persons from transacting with them. Additional sanctions targeting President Putin, his family, and his inner circle are expected soon.
• Expanded Sovereign Debt Restrictions—OFAC issued Directive 1A under EO 14024, which further restricts U.S. financial institutions from dealings with Russia's sovereign debt. As of June 2021, OFAC had prohibited lending funds or purchasing bonds issued by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation; Directive 1A extends prohibitions to cover participation in the secondary market for bonds issued after March 1, 2022, by any of the above Russian entities.
• Designation of Two Large Russian Banks—OFAC designated to the SDN List two major financial institutions, the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), as well as 42 of their subsidiaries. According to the Department of Treasury's press release, these institutions are "crucial to financing the Russian defense industry" and hold "combined assets worth tens of billions of dollars." The new sanctions immediately freeze all bank assets under U.S. jurisdiction and prohibit U.S. entities and individuals from doing business with these banks unless specifically authorized.

OFAC also issued two General Licenses accompanying the new restrictions on VEB and Russian sovereign debt. General License No. 2 authorizes any transaction prohibited by EO 14024 involving VEB, or any entity in which VEB owns, directly or indirectly, a 50 percent or greater interest, "that are ordinarily incident and necessary to the servicing of bonds issued before March 1, 2022 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation are authorized." General License No. 3 authorizes any transaction prohibited by EO 14024 that are "ordinarily incident and necessary to the wind down of transactions involving…[VEB], or any entity in which VEB owns, directly or indirectly, a 50 percent or greater interest" through and including March 23, 2022.

The Impact on Your Business

Companies with business in Russia or in any sanctioned region in Ukraine should carefully review the above sanctions, the corresponding General Licenses, and OFAC FAQs to determine the scope and timing of restricted activities. Furthermore, as tensions with Russia continue to rise, business must be prepared for the additional and more disruptive sanctions and export restrictions from the U.S. and NATO allies that are forthcoming. We recommend closely following developments in the region and by conducting (and updating as needed) a business risk assessment to identify potential areas of exposure in the region.