On February 22, 2022, the United States announced and implemented new economic sanctions targeting the Russian Federation’s financial services sector and persons that operate in the sector. These sanctions are designed to cut off Russia’s access to the U.S. dollar and global financial markets and were the direct result of the Russian Federation’s continued aggression towards Ukraine. The United States designated two key Russian financial institutions, State Corporation Bank for Development and Foreign Economic Affairs Venesheconombank and Promsvyazbank Public Joint Stock Company, and a number of their subsidiaries as blocked persons (SDNs), thereby prohibiting U.S. persons from conducting any business with them and requiring U.S. persons to block their property and interests in property. The United States also designated five vessels owned by a subsidiary of Promsvyazbank Public Joint Stock Company and three individuals with ties to the Kremlin as SDNs. An SDN designation is one of the most restrictive, if not most restrictive, sanctions that the United States can implement and the SDN prohibitions apply not only to the actual designated person or entity (designated person) but also to any entity owned 50% or more by a designated person notwithstanding the fact that the 50% owned entity is not itself included on the SDN List. In addition, the United States further limited U.S. person participation in investing in new debt issued by a number of Russian financial entities.
The February 22 sanctions, which were issued pursuant to the Executive Order 14024 issued in April 2021, supplement the February 21 sanctions that were issued pursuant to the February 21, 2022 Executive Order on Blocking Property of Certain Persons and Prohibiting Certain Transactions With Respect to Continued Russian Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine, which was the subject of our previous alert.
A. Blocking of State Corporation Bank for Development and Foreign Economic Affairs Venesheconombank and Promsvyazbank Public Joint Stock Company and Their Subsidiaries
The most significant of the February 22 sanctions is the inclusion of VEB and 25 of its subsidiaries (collectively VEB) and PSB and 17 of its subsidiaries (collectively PSB) on the SDN List. As stated above, U.S. persons are now barred from conducting any business, directly or indirectly, with any of these entities and any property of any of these designated entities held by U.S. persons must be blocked.
VEB, one of Russia’s largest banks, services Russia’s sovereign debt, provides financing for exports and finances domestic development, including for Russia’s infrastructure and industrial production. The 25 designated subsidiaries, which are in Russia, Belarus, Hong Kong and Ukraine, finance businesses in a variety of sectors, including financial institutions, electronic component manufacturers, a coal mining company, and sporting activities. See Appendix A for the list of designated subsidiaries.
The U.S. Government blocked PSB due to its ties with the Russian defense sector. PSB services nearly 70% of state contracts signed by the Russian Ministry of Defense. The 17 PSB subsidiaries designated as SDNs are all in Russia. The United States also imposed full blocking sanctions against five vessels owned by one of the designated PSB subsidiaries, PSB Lizing OOO. See Appendix A for the designated subsidiaries and vessels.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued two limited authorizations with respect to VEB. General License 3 (GL 3) allows U.S. persons to wind down business involving VEB. GL 3 license authorizes U.S. persons to engage in transactions that are ordinarily incident and necessary to the wind down of transactions by March 24, 2022, so long as no other SDN is involved in the winding down of such transactions. OFAC also issued General License 2 (GL 2) authorizing transactions with any VEB entity subject to the sanctions that are ordinarily incident and necessary to the servicing of bonds that were 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 prior to March 1, 2022. No general licenses were issued relating to transactions with PSB.
B. Individuals Designations
The United States also imposed full blocking sanctions against three Russian individuals due to their connections to the Kremlin. The individuals designated as SDNs are:
- Aleksandrovich Bortnikov, the Director of the Federal Security Service (FSB) of the Russian Federation and a permanent member of the Security Council of the Russian Federation, and son of Aleksandr Vasilievich Bortnikov, who is also an SDN;
- Sergei Vladilenovich Kiriyenko, the First Deputy Chief of Staff of the Presidential Office and the son of Vladimir Sergeevich Kiriyenko, who is also an SDN; and
- Petr Mikhailovich Fradkov, the Chairman and CEO of PSB.
C. Sovereign Debt
Sanctions further limiting U.S. persons from participating in secondary markets for certain new debt issued were also imposed. The new sanctions, imposed via Directive 1A under Executive Order 14024, prohibit participation by U.S. persons in the secondary market for ruble or non-ruble denominated bonds issued by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation. These sanctions, which will cut off Russia’s access to key U.S. markets and investors, become effective March 1, 2022. These sanctions also resulted in the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation being added to OFAC’s Non-SDN Sanctions List.
D. Key Takeaways
As a result of these sanctions and the high likelihood of further sanctions being imposed, it is important for a U.S. person to:
- Verify whether it has any business involving VEB or PSB, including verifying with customers in Russia, Ukraine, Belarus and Hong Kong that no payments are processed by these financial institutions, and if it does, then to immediately implement the steps necessary to ensure compliance with U.S. sanctions;
- Ensure that sanctioned person screening is being conducted and being conducted against the up-to-date SDN List as well as the other U.S. export control and economic sanctions proscribed persons lists;
- Remember that the U.S. sanctions cover not only those entities and individuals listed on the SDN List but those that are owned 50% or more by a listed SDN and take steps to ensure no business is conducted with an SDN; and
- Continue to monitor ongoing developments. The February 22 sanctions were the result of the Russian Federation’s recognition of the Donetsk and Luhansk People’s Republic Regions of Ukraine and President Putin’s deployment of additional troops to Ukraine. The United States has declared that it will impose broader and even more severe sanctions should the Russia Federation take further aggressive action towards Ukraine.
Authors: Barbara D. Linney, Melissa B. Mannino, Lana Muranovic
APPENDIX A
The property and interests in property of the following VEB subsidiaries are blocked:
- Bank BELVEB OJSC is a bank located in Belarus.
- 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.
The property and interests in property of the following PSB subsidiaries are blocked:
- Alkes Treid OOO is a financial company located in Russia.
- Antares OOO is a financial company located in Russia.
- Elitnye Doma OOO is a real estate company located in Russia.
- PSB Innovations and Investments Limited Liability Company is a technology company located in Russia.
- Era Fund Limited Liability Company is a technology company located in Russia.
- PSB-Foreks OOO is a financial company located in Russia.
- Kholtsvud OOO is a financial company located in Russia.
- Kourf OOO is a financial company located in Russia.
- Management Company Promsvyaz LLC is an investment company located in Russia.
- Paskal OOO is a company that provides management consulting services in Russia.
- PSB Biznes OOO is a hospitality company located in Russia.
- Saint-Petersburg International Banking Conference LLC is a financial company located in Russia.
- Sergievo-Posad Lend OOO is a financial company located in Russia.
- PSB Avializing OOO is a financial company located in Russia.
- Tekhnosoft OOO is a technology company located in Russia.
- Trinitex OOO is a real estate company located in Russia.
- PSB Lizing OOO is a financial company located in Russia.
The property and interests in property of the following five vessels are blocked:
- Baltic Leader (IMO: 9220639), a Russian-flagged roll-on roll-off cargo vessel with a gross registered tonnage of 8831;
- Linda (IMO: 9256858), a Russian-flagged crude oil tanker with a gross registered tonnage of 61991;
- Pegas (IMO: 9256860), a Russian-flagged crude oil tanker with a gross registered tonnage of 61991;
- Fesco Magadan (IMO: 9287699), a Russian-flagged container ship with a gross registered tonnage of 7519; and
- Fesco Moneron (IMO: 9277412), a Russian-flagged container ship with a gross registered tonnage of 7519.
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