Update on the EU, UK and US sanctions against Russia and Belarus

EU sanctions 
Sanctions decided on 23rd of February:

• sanctions against the 351 members of the Russian State Duma (parliament's lower house), who voted in favour of the appeal to President Putin to recognise the independence of the self-proclaimed Donetsk and Luhansk ”republics” (names remain to be disclosed)
• sanctions against an additional 27 individuals and entities who have contributed to the undermining or threatening of the territorial integrity, sovereignty and independence of Ukraine (names remain to be disclosed)
• restrictions on economic relations with the non-government controlled areas of Donetsk and Luhansk oblasts comprising of
  - an import ban on goods
  - restrictions on trade and investment related to certain economic sectors
  - a prohibition on supplying tourism services
  - an export ban on certain goods and technologies
• restrictions on the ability of the Russian state and government to access the EU’s capital and financial markets and services

In addition, Germany has announced that it will back-pedal the formal approval of the Nord Stream 2 pipeline, meaning the commencement of the operation of the pipeline will be postponed.

Sanctions decided on 24th and 27th of February    

• Freezing the assets the Russian President and Minister of Foreign Affairs and restrictive measures on the members of the National Security Council of the Russian Federation as well as remaining members of the Duma
• Prohibition of the listing and provision of services in relation to shares of Russian state-owned entities on EU trading venues
• The addition of four banks (Alfa Bank, Bank Otkritie, Bank Rossiya and Promsvyazbank) regarding the restrictions for Russia to access capital and financial markets
• Transactions related to the reserves as well as of assets of the Central Bank of Russia, including transactions with any legal person, entity or body acting on behalf of, or at the direction of, the Central Bank of Russia
• Sale, supply, transfer or export to Russia of specific goods and technologies in oil refining and the provision of related services (insurance, technical assistance etc.)
• Goods and technology in the aviation and space industry and the provision of related services (insurance, technical assistance etc.)
• Exports of dual-use goods and technology, as well as restrictions on exports of certain goods and technology which might contribute to Russia’s technological enhancement of its defence and security sector including semiconductors and cutting-edge technologies
• Land, take-off and overfly the EU territory by Russian aircrafts and aircrafts owned, charterered or otherwise controlled by a Russian person or entity
• Withdrawal of privileged access to the EU for Russian diplomats

Furthermore, the EU Commission has announced that the following further sanctions are in the pipeline:

• Banning of Russia today and Sputnic  
• Export of various Belarusian products such as mineral fuels (coal, petroleum and natural gas), tobacco, wood, timber, cement, iron and steel
• Exports of dual-use goods and technology to Belarus
• Banning some Russian banks from Swift
• Freezing of assets of Russian oligarchs  

UK sanctions
Sanctions decided on or around 23rd of February:

UK added 10 entries to its sanctions list. Any type of transaction involving an entity on a sanction list, or an entity owned or controlled by such entity, is generally prohibited as
the listing entails that the entity’s assets shall be frozen. The additional listed entities are:

• Gennadiy Nikolayevich Timchenko
• Boris Romanovich Rotenberg
• Igor Arkadyevich Rotenberg
• Bank Rossiya
• Black Sea Bank for Development And Reconstruction
• Joint Stock Company Genbank
• IS Bank
• Public Joint Stock Company Promsvyazbank
• Bank Rossiya
• Black Sea Bank for Development And Reconstruction

Sanctions decided on 24th February

• Freezing the assets of Russia’s second largest bank
• Excluding all Russian banks from the UK financial system
• Banning Russian state and private companies from raising money in the UK
• Sanctioning over 100 individuals and entities, including Russian oligarchs and defense companies
• Limiting the amount of money Russians can maintain in British bank accounts; and
• Implementing new export controls in concert with the United States.

New legislation banning the export of dual-use items to Russia, including a range of high-end and critical technological components, will be introduced early next week. Further details on new policies to address sanctions avoidance are expected before Easter. Johnson indicated the UK’s sanctions will also apply to Belarus.

US sanctions
Sanctions decided on 23rd of February:

The following entities were added to the main US sanctions list, the SDN list:

• Nord Stream 2 AG
• State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) including the following subsidiaries:
  - VEB Leasing OJSC is a leasing company located in Russia.
  - Prominvestbank is a bank located in Ukraine.
  - VEB Capital is a financial company located in Russia.
  - VEB Engineering LLC is an investment project implementation services company located in Russia.
  - JSC Infraveb is an investment project support company located in Russia.
  - JSC VEB.DV is an investment project support company located in Russia.
  - VEB Asia Limited is a financial company located in Hong Kong.
  - LLC Infrastructure Molzhaninovo is an electric energy company located in Russia.
  - LLC Resort Zolotoe Koltso is a real estate and construction company located in Russia.
  - JSC Russian Export Center is an export-related company located in Russia.
  - LLC VEB Ventures is a financial company located in Russia.
  - LLC VEB Service is a business and management advisory company located in Russia.
  - LLC Special Organization for Project Finance Factory of Project Finance is a financial company located in Russia.
  - LLC SIBUGLEMET Group is a coal mining company located in Russia.
  - JSC ANGSTREM-T is a technology company located in Russia.
  - LLC NM-TEKH is a technology company located in Russia.
  - JSC SLAVA is a real estate company located in Russia.
  - JSC PFC CSKA is a sporting activities company located in Russia.
  - LLC Torgovy Kvartal-Novosibirsk is a property leasing company located in Russia.
  - LLC Baikal Center is a construction company located in Russia.
  - LLC Progorod is an infrastructure company located in Russia.
  - LLC VEB.RF Asset Management is a financial company located in Russia.
  - Eximbank of Russia JSC is an export support institution located in Russia as well as a commercial bank regulated by the Central Bank of the Russian Federation.
  - Russian Agency for Export Credit and Investment Insurance OJSC is an insurance agency located in Russia.
• Promsvyazbank Public Joint Stock Company (PSB) including the following subsidiaries:
  - VEB Leasing OJSC is a leasing company located in Russia.
  - Prominvestbank is a bank located in Ukraine.
  - VEB Capital is a financial company located in Russia.
  - VEB Engineering LLC is an investment project implementation services company located in Russia.
  - JSC Infraveb is an investment project support company located in Russia.
  - JSC VEB.DV is an investment project support company located in Russia.
  - VEB Asia Limited is a financial company located in Hong Kong.
  - LLC Infrastructure Molzhaninovo is an electric energy company located in Russia.
  - LLC Resort Zolotoe Koltso is a real estate and construction company located in Russia.
  - JSC Russian Export Center is an export-related company located in Russia.
  - LLC VEB Ventures is a financial company located in Russia.
  - LLC VEB Service is a business and management advisory company located in Russia.
  - LLC Special Organization for Project Finance Factory of Project Finance is a financial company located in Russia.
  - LLC SIBUGLEMET Group is a coal mining company located in Russia.
  - JSC ANGSTREM-T is a technology company located in Russia.
  - LLC NM-TEKH is a technology company located in Russia.
  - JSC SLAVA is a real estate company located in Russia.
  - JSC PFC CSKA is a sporting activities company located in Russia.
  - LLC Torgovy Kvartal-Novosibirsk is a property leasing company located in Russia.
  - LLC Baikal Center is a construction company located in Russia.
  - LLC Progorod is an infrastructure company located in Russia.
  - LLC VEB.RF Asset Management is a financial company located in Russia.
  - Eximbank of Russia JSC is an export support institution located in Russia as well as a commercial bank regulated by the Central Bank of the Russian Federation.
  - Russian Agency for Export Credit and Investment Insurance OJSC is an insurance agency located in Russia
• Denis Aleksandrovich Bortnikov, son of Aleksandr Vasilievich Bortnikov
• Petr Mikhailovich Fradkov
• Vladimir Sergeevich Kiriyenko

Sanctions were also imposed against the Central bank of the Russian Federation, Ministry of Finance of the Russian Federation and the National Wealth Fund of the Russian Federation. It would appear that these sanctions do not restrict payments generally with Russia but instead serve purpose to prevent dealings in Russia’s sovereign debt.

Notably, the relevant sanction text (Executive Order 14024) caters for a possibility to sanction further entities determined to operate in the Russian financial services sector. OFAC (the US agency responsible for sanctions) has clarified that this language does not mean that all persons that operate in the Russian financial services sector are sanctioned. Instead, an express listing is required.

In terms of activities; sanctions have been imposed against the following:

• New investments in the Donetsk People’s Republic and Luhansk People’s Republic (applies to US persons only)
• The importation of goods into the United States from the above regions (applies to US persons only)
• The exportation, re-exportation, sale or supply of goods, services or technology from the US or by a US Person to the above regions (applies to US persons only)
• Any approval, financing, facilitation or guarantee by a US Person of a transaction by a foreign person if the transaction would be prohibited if performed by a US person
• Any person operating in the above regions (applies to anyone)
• Any person being a leader, official or similar in the above regions (applies to anyone)
• Any person being owned or controlled by a person whose property and interests in property is blocked pursuant to the sanctions (applies to anyone)
• Any person materially assisting, sponsoring or providing financial, material or technological support for or goods or services to any blocked person (applies to anyone)
• Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions as well as any conspiracy formed to violate any of the prohibitions (applies to anyone)

As to the proviso of goods or services there are some exceptions by way of so called General Licenses for goods relating to the combat of the COVID-19 pandemic, telecommunication and mail services, and flow of personal remittances and operation of bank accounts as well as internet services.

US also sanctioned five Russian vessels (Baltic Leader, Linda, Pegas, Fesco Magadan and Fesco Moneron).

Sanctions decided on 24th of February

The following entities became subject to “Correspondent and Payable-Through Account Sanctions” meaning the bank essentially will be unable to make and receive payments in US dollars

• Sberbank (which is the largest financial institution in Russia) and 25 Sberbank foreign financial institution subsidiaries

The following entities were placed on the SDN list:

• VTB Bank and 20 subsidiaries
• Otkritie and 12 subsidiaries
• Novikom
• Sovcom and 22 subsidiaries
• Joint Stock Company Alfa-Bank
• Credit Bank of Moscow Public Joint Stock Company

Further sanctions include:

• Expanded debt and equity prohibitions against major state-owned and private entities to include 13 additional firms.
• Additional sanctioned individuals belonging to the Russian elite
• Export control measures imposed on sensitive items Moscow relies on for its defense, aerospace, and maritime industries. These items include semiconductors, computers, telecommunications, information security equipment, lasers, and sensors (the EU, Japan, Australia, United Kingdom, Canada, and New Zealand have announced plans to implement substantially similar restrictions)
• Imposition of stringent controls on 49 Russian military end users have been added to BIS’s Entity List (the EU, Japan, Australia, United Kingdom, Canada, and New Zealand have announced plans to implement substantially similar restrictions)

The following exceptions for certain transactions in relation to the following will apply:

• International organisations and entities;
• Agricultural and medical commodities and the COVID-19 pandemic
• Overflight and emergency landings
• Energy
• Dealings in certain debt or equity
• Derivative contracts
• The wind down of transactions involving certain blocked persons
• The rejection of transactions involving certain blocked persons.

Conclusion

It would seem that the EU, UK and US sanctions essentially are aligned. One other observation is that although it may seem that, at a glance, some trade with Russia and Belarus relating to non-sanctioned sectors can continue it is important to recognize that payments to and from Russian/Belarusian entities/interests are severely hampered given the comprehensive sanctions against the financial sector. Furthermore, the sanctioning of the vast amount of Russian individuals will prohibit business operations involving companies owned or controlled by those individuals, something which expands the scope of the sanctions. One final observation is that the EU member states have become increasingly aligned (certain Member States were initially opposed tough sanctions) and that therefore further significant sanctions are expected unless Russia withdraws its military forces from Ukraine.

Recommendations
Companies are recommended to:

• Review operations and identify any connection with Russia/Belarus, Russian/Belarusian entities and products.
• Map the risks and make a risk analysis. It is advisable to terminate as quickly as possible business with entities that are targeted.
• In case of any other connection, risk mitigating actions should be explored
• Ensure there are no U.S. persons involved in transactions in the regions and that no US dollars are used regarding activities that are subject to US sanctions
• Ensure employees responsible for regulatory compliance review the sanction texts and consider these new restrictions when assessing existing or prospective business relationships; and
• Monitor closely further sanctions imposed

Sanctions update 3 of March