US escalates its sanctions regime against Russia, targeting its financial system

As the conflict in Ukraine entered its second week, the Department of State and Department of the Treasury announced new sanctions targeting the Russian financial sector under Executive Order 14024.

Secretary of State Antony Blinken stated that these most recent measures are intended to “impair Russia’s ability to use its international reserves in ways that undermine the impact of our sanctions, as well as to prevent Russia from accessing its wealth fund for use in its ongoing war against Ukraine.”

Today’s sanctions represent a significant escalation of the sanctions imposed on Russian financial institutions, which we described in prior client alerts published on February 23 and February 25. They also follow additional sanctions, described below, announced late last week against senior officials of the Russian Federation, including Vladimir Putin.

US sanctions Vladimir Putin and key officials

On February 25, 2022, OFAC added the following Russian senior officials to its Specially Designated Nationals List, which prohibits US persons, including financial institutions, from engaging in transactions or conducting business with them and freezing their assets in the US:

• Vladimir Putin, President of the Russian Federation
• Sergei Lavrov, Foreign Minister
• Sergei Shoigu, Minister of Defense
• Valery Gerasimov, Chief of the General Staff of the Armed Forces

Today, OFAC also added Kirill Aleksandrovich Dmitriev, CEO of the Russian Direct Investment Fund (RDIF), a Russian sovereign wealth fund, to the SDN List.

Non-blocking restrictions of transactions with Russian government entities

OFAC imposed non-blocking restrictions of transactions with the following three Russian entities:

• the Central Bank
• the Ministry of Finance and
• the National Wealth Fund.

These entities were added to the Non-SDN Menu-Based Sanctions (NS-MBS) List pursuant to Directive 4 under Executive Order 14024, as a result of which US persons are prohibited from engaging in any transactions involving those entities, including any transfer of assets or any foreign exchange transaction for or on behalf of those entities.

New blocking sanctions announced against RDIF, its CEO, and management companies

OFAC imposed blocking sanctions on RDIF, a Russian sovereign wealth fund, which the Department of State characterized as “a known slush fund for President Putin and his inner circle.” The Treasury Department stated that RDIF has exposure to the US financial system and has been used “to raise funds abroad, including in the United States.”

Together with RDIF, OFAC also blocked two RDIF subsidiaries, Joint Stock Company Management Company of the Russian Direct Investments Fund and Limited Liability Company RVC Management Company, as well as RDIF’s CEO, Kirill Aleksandrovich Dmitriev.

Energy-related transactions

Blocked transactions with Russian financial institutions remain subject to an exception for “transactions related to energy,” pursuant to the newly issued General License 8A, which supersedes the previously issued General License 8, and limits such transactions to the following six Russian financial institutions:

• State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB Bank)
• Public Joint Stock Company Bank Financial Corporation Otkritie (Bank Otkritie)
• Sovcombank Open Joint Stock Company (Sovcombank)
• Public Joint Stock Company Sberbank of Russia (Sberbank)
• VTB Bank Public Joint Stock Company (VTB Bank) and
• the Central Bank of the Russian Federation.

Entities owned more than 50 percent or more by VEB Bank, Bank Otkritie, Sovcombank, Sberbank, and VTB Bank are also subject to General License 8A. As with General License 8, General License 8A expressly limits the time for this authorization until June 24, 2022.

Additional measures, including SWIFT restrictions, are expected to be forthcoming

The US and its allies, including the United Kingdom, Canada, the European Union, and Japan, issued a Joint Statement on Further Restrictive Economic Measures on February 26, 2022 in which they announced that additional measures were forthcoming, including measures intended to cut off the Russian Central Bank and other Russian financial institutions from the SWIFT system. At the time of publication of this alert, these measures have not yet been announced, but additional countries, including South Korea, have announced that they will join.

Going forward

As noted above, additional measures are expected to be announced by the US and its allies in the coming days. Our global team continues to monitor developments as they arise and will update this alert as changes take place.

If you have any questions regarding these sanctions and their implications, please contact any of the authors or your DLA Piper relationship attorney.