First Batch of New Sanctions Imposed on Russia

The European Union, the United States and the United Kingdom have adopted first round of additional sanctions targeting Russia. These measures follow Russia’s recognition of the independence of the so-called Donetsk and Luhansk People’s Republics as well as the entry of Russian forces into these territories. New measures include asset freezes and travel bans imposed on listed individuals, entities, and financial institutions, restrictions on Russia’s access to western capital and financial markets as well as investment and trade restrictions.

Taking into account the recent developments on the ground and Russia’s military operations targeting Ukraine, further measures are expected very soon. It is likely that the next steps will cut deeper into the economic and financial relations between Western countries and Russia. In the current situation, it is important for companies to identify any possible links to the restrictions that have already been imposed and take the appropriate measures to comply with any new sanctions.

The Council of the European Union imposed new sanctions on Russia on 23 February 2022 by adopting a set of legal acts building on existing frameworks of sectoral and targeted sanctions on Russia. The Council also created a new legal framework for restrictive measures that apply to the so-called Donetsk and Luhansk People’s Republics.

All in all, the European Union has adopted the following measures:

Restrictions imposed by Council Regulation (EU) 2022/263 regarding the Donetsk and Luhansk regions not controlled by the Government of Ukraine introduce an import ban that applies to all goods from the two regions, a prohibition to supply tourism services, and restrictions on investments and exports of certain goods and technologies. The adopted measures are comparable to those that have been in place in the EU since it restricted economic relations with Crimea in 2014.

The abovementioned legal acts were published in the Official Journal of the EU on 23 February 2022 and have entered into force.

In addition, on 22 February, the High Representative of the EU for Foreign Affairs and Security Policy Josep Borrell stated that the EU is currently working on extending the listing criteria to target more broadly those who “provide support or benefit from the Russian Government”. This is aimed to cover especially the aid and support Belarus has given Russia during the escalation of the crisis.

On 22 February 2022, the US Treasury imposed sanctions on two Russian financial institutions and three individuals and restricted dealings in Russia’s sovereign debt. These actions were taken pursuant to Executive Order 14024:

Additionally, on 23 February 2022, OFAC added Nord Stream 2 AG and its CEO Matthias Warnig to the SDN list pursuant to Executive Order 14039.

The first Executive Order that US president Joe Biden issued during the current crisis was Executive Order 14065 concerning economic restrictions that apply to the so-called Donetsk and Luhansk People’s Republics. This Executive Order was issued on 21 February 2022, and the measures put in place under this Executive Order prohibit:

Executive Order 14065 also granted additional authorisations to impose sanctions (asset freezes and travel bans) on individuals and entities operating or facilitating commercial activities in the two regions. OFAC has also issued six general licences allowing a wind down period of one month for transactions involving the two regions as well exemptions for humanitarian work, communications services, and international organisations.

The United Kingdom recently amended its Russia Sanctions Regulations on 10 February 2022, adopting wider designation criteria allowing sanctions to be imposed on persons obtaining benefits from or supporting the Russian Government. Sanctions imposed by the UK are applied to conduct by any person within the jurisdiction of the UK.

Pursuant to its Russia Sanctions Regulations, UK sanctioned three individuals for actions undermining the territorial integrity, sovereignty and independence of Ukraine or benefiting from the Russian Government on 22 February 2022 (Gennadiy Timchenko, Boris Rotenberg, and Igor Rotenberg). In addition, the UK has imposed asset freezes on five Russian banks (Bank Rossiya, Black Sea Bank for Development and Reconstruction, Genbank, IS Bank, and Promsvyazbank).

The United Kingdom is also expected to issue further sanctions.

The situation is deteriorating quickly, and Western allies have already emphasised their readiness to adopt new measures in response of Russia’s actions. There is no doubt that the further escalation and the violations of the territorial integrity of Ukraine that we have seen so far will result in more measures that are expected to go deeper and hit harder. These measures are expected to include trade restrictions, including import and export bans, as well as restrictions that will further isolate Russia’s banking system from the Western capital and financial markets.

The sanctions adopted so far on Russia are not very exceptional in volume and scope. No major new sectoral trade sanctions have been imposed as of the moment of writing. More importantly, despite this being the case, the measures adopted by Western countries have been well aligned and coordinated, making it less complicated for businesses to adapt to the new sanctions requirements.

As new and broader sanctions are on the horizon, companies should consider making the appropriate updates to their internal compliance processes and review their existing contractual obligations. Further measures may also cause disruptions to supply chains and to the availability of financial services.

We will continue to monitor the situation and provide timely updates on any further sanctions and how they could impact your business. Borenius lawyers are available to answer any questions you may have with regard to the situation in Ukraine.