Transactions Affected by the Russian/Ukrainian Conflict Since 2014
In 1989, seeking asylum, I immigrated to the United States from a country that no longer exists, the Soviet Union. At that time and for a number of years thereafter, when Americans asked me where I was from, to avoid a long explanation or a history lesson, I would simply reply, “Russia.” This was a common response of émigrés from the former Soviet Union. Regardless of what part of the Soviet Union we came from (I was born in and came from the republic of Moldova), many of us referred to ourselves as “from Russia,” and in return, received warm and curious responses from most Americans. We were associated with the great achievements Russia was known for: Dostoyevsky’s writings, Tchaikovsky’s music, the Bolshoi Ballet, the arts, the architecture of St. Petersburg, etc. Many of us felt proud to have that connection.
No longer does “I am Russian” receive a warm response, and no longer can we feel proud to be associated with the Russian Federation (Russia) and its regime. The purported annexation of Crimea, Ukraine, in March 2014 and certainly the invasion of Ukraine on February 24, 2022, changed the way the democratic world, and the U.S. in particular, feels about Russia.
This article provides a brief summary of the types of transactions affected, since 2014, by the Russian/Ukrainian conflict and references resources that may be helpful to legal practitioners in navigating the rapidly evolving regulatory framework. This article focuses mainly on the effects of the economic and trade sanctions administered and enforced by the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC). This article does not intend to be and is not a detailed summary of all laws, regulations, and export controls implemented as a result of the invasion of Ukraine. Rather, it is meant to help legal practitioners and businesses to identify whether their transactions with Russia, Belarus, or Ukraine may be prohibited under the imposed sanctions, the extent and scope of the restrictions, and whether a license may be required. Review and analysis of the pertinent regulations to each situation will be necessary to determine specific restrictions and licensing requirements.
Russian/Ukrainian Sanctions: My First Experience
Since the collapse of the Soviet Union, many U.S. companies in various industries have participated in trade with Russia. As recently as 2019, U.S. goods and services trade with Russia totaled an estimated $34.9 billion, with exports totaling $10.9 billion and imports totaling $24.0 billion. The U.S. goods and services trade deficit with Russia was $13.1 billion in 2019.
In July 2014, during my engagement in an exciting and complex transaction between a U.S. public company and an entity in Russia, the Russian entity was added to the Specially Designated Nationals (SDN) List. Needless to say, the work stopped instantaneously. At that time, the Russian/Ukrainian sanctions were fresh, the guidance was scarce, and the U.S. individuals and entities engaged with Russia and the former Soviet Union territories navigated with heightened caution. Guidance on proper compliance and the legal framework was very much needed. Now, eight years later, the U.S. government, through its agencies, including but not limited to OFAC; the U.S. Department of State; the U.S. Department of Commerce, Bureau of Industry and Security (BIS); the U.S. Department of State, Directorate of Defense Trade Controls (DDTC); and the U.S. Securities and Exchange Commission, provides guidance and resources for those who may be impacted by the Ukrainian/Russian conflict.
Genesis of the Russian/U.S. Sanctions
The Ukraine/Russia-related sanctions program, implemented by OFAC, commenced on March 6, 2014, when President Obama, in Executive Order (EO) 13660, declared a national emergency to deal with the threat posed by the actions and policies of certain persons who had undermined democratic processes and institutions in Ukraine; threatened the peace, security, stability, sovereignty, and territorial integrity of Ukraine; and contributed to the misappropriation of Ukraine’s assets.
In further response to the actions and policies of the government of the Russian Federation, including the purported annexation of the Crimea region of Ukraine, President Obama issued three subsequent EOs that expanded the scope of the national emergency declared in EO 13660. Together, these orders authorized, among other things, the imposition of sanctions against persons responsible for or complicit in certain activities with respect to Ukraine, against officials of the government of the Russian Federation, against persons operating in the arms or related materiel sector of the Russian Federation, and against individuals and entities operating in the Crimea region of Ukraine. EO 13662 authorized the imposition of sanctions on certain entities operating in specified sectors of the Russian Federation economy. EO 13685 also prohibited the importation or exportation of goods, services, or technology to or from the Crimea region of Ukraine, as well as new investment in the Crimea region of Ukraine by a U.S. person, wherever located.
The affected transactions most often fall within one of three categories: 1) blocking sanctions, 2) sectorial sanctions, and 3) trade embargo.
• Blocking Sanctions — Unless otherwise authorized or exempt, transactions by U.S. persons (or within the U.S.) in the property or interests in property of an entity or individual listed on OFAC’s SDN List are prohibited. The property and interests in property of an entity that is 50% or more owned by individuals whose property and interests in property are blocked under any part of 31 C.F.R. Ch. V are also blocked, regardless of whether the entity itself is listed.
On February 24, 2022, the U.S. government imposed correspondent and payable-through account (CAPTA) sanctions on SberBank and its subsidiaries. SberBank is one of the largest banks in Russia.
Sanctions were announced on February 22, 2022, under EO 14024 of April 15, 2021, “Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation,” and on February 24, 2022, OFAC blocked transactions with the following Russian banks: State Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB), Promsvyazbank Public Joint Stock Company (PSB), VTB Bank Public Joint Stock Company (VTB Bank), Public Joint Stock Company Bank Financial Corporation Otkritie (Otkritie), Open Joint Stock Company Sovcombank (Sovcombank), and Joint Stock Commercial Bank Novikombank (Novikombank).
Between February 22 and March 24, 2022, OFAC designated several dozen individuals as SDNs, including Vladimir Putin himself. The designations include “influential Russians in Putin’s inner circle and in elite positions of power within the Russian state” and their family members, certain individuals in Russian government positions, certain persons related to SDN companies, persons engaged in destabilizing disinformation efforts, persons operating in the technology and defense sectors of Russia, persons in Russia’s State Duma (a house of Russia’s legislature), and more.
Under EO 14024, “Prohibitions Related to New Debt and Equity of Certain Russia-Related Entities,” OFAC issued Directive 3 to prohibit transactions and dealings by U.S. persons (or within the U.S.) in new debt of longer than 14 days’ maturity and new equity of 13 major firms. Designated entities will be heavily restricted from raising money through the U.S. market. The following entities were identified as being owned or controlled by, or having acted or purposed to act for or on behalf of, directly or indirectly, the government of Russia, and subject to Directive 3: SberBank, Gazprombank Joint Stock Company, Joint Stock Company Russian Agricultural Bank, Public Joint Stock Company Gazprom, Public Joint Stock Company Gazprom Neft, Public Joint Stock Company Transneft (Transneft), Public Joint Stock Company Rostelecom, Public Joint Stock Company RusHydro, Public Joint Stock Company Alrosa, Joint Stock Company Sovcomflot, Open Joint Stock Company Russian Railways, Joint Stock Company Alfa-Bank, Credit Bank of Moscow Public Joint Stock Company, the Russian Direct Investment Fund (RDIF), Joint Stock Company Management Company of the Russian Direct Investment Fund (JSC RDIF), RDIF’s management company, and Limited Liability Company RVC Management Company (LLC RVC), a subsidiary of JSC RDIF.
On February 23, 2022, President Biden directed his administration to impose sanctions on Nord Stream 2 AG and its corporate officers. Nord Stream 2 AG is now designated an SDN under EO 14039.
OFAC has designated dozens of Belarusian individuals and entities SDNs due to Belarus’s support for, and facilitation of, the Russian invasion. The designations focus on Belarus’ defense sector, financial institutions, and elites, including Belarusian President Lukashenka and his wife. The designation means that all property and interests in property in the U.S. or in the possession or control of U.S. persons are blocked unless authorized by OFAC.
The names of those persons and entities listed in an annex to, or designated pursuant to, EO 13660, EO 13661, EO 13662, and EO 13685, whose property and interests in property are blocked, are published in the Federal Register and incorporated into OFAC’s SDN List with the prefix “UKRAINE” in the program tag associated with each listing.
• Sectorial Sanctions — Sectorial sanctions are prohibitions on U.S. persons and within the United States for certain specified transactions with entities made subject to the relevant Directive, as identified on the Sectorial Sanctions Identifications (SSI) List. It also affects the property and interests in property of an entity that is 50% or more owned by sanctioned persons, regardless of whether the entity itself is listed on the SSI List. Unlike blocked transactions, the property and interests in property of these persons are not blocked, nor are transactions with them prohibited beyond these restrictions.
Directive 1, as amended, prohibits the following transactions by U.S. persons and within the United States: 1) all transactions in, provisions of financing for, and other dealings in new debt of longer than 30 days’ maturity or new equity of persons determined to be subject to Directive 1, their property, or their interests in property; and 2) all activities related to debt or equity issued before September 12, 2014, that would have been prohibited by the prior version of Directive 1 (which extended to activities involving debt of longer than 90 days’ maturity or equity if that debt or equity was issued on or after the date a person was determined to be subject to Directive 1).
Directive 2, as amended, prohibits the following transactions by U.S. persons and within the United States: transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days’ maturity of the persons subject to Directive 2, their property, or their interests in property.
Directive 3 prohibits the following transactions by U.S. persons and within the U.S.: transacting in, providing financing for, or otherwise dealing in new debt of longer than 30 days’ maturity of the persons subject to Directive 3, their property, or their interests in property.
Directive 4 prohibits the following transactions by U.S. persons and within the United States: providing, exporting, or re-exporting, directly or indirectly, goods, services (except for financial services), or technology in support of exploration or production for deep-water, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation, or in a maritime area claimed by the Russian Federation and extending from its territory, and that involve any person subject to Directive 4, its property, or its interests in property.
The names of those entities that are subject to Directives 1, 2, 3, or 4, according to EO 13662, are published in the Federal Register and incorporated into OFAC’s SSI List with the prefix “UKRAINE-EO 13662” in the program tag associated with each listing.
On February 28, 2022, OFAC issued Directive 4 under EO 14024, “Prohibitions Related to Transactions Involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation,” and on March 24, OFAC issued FAQ 1029 suggesting that OFAC intends to target gold assets held by the Russian Central Bank to hinder Russia’s ability to evade sanctions.
On March 8, 2022, President Biden issued EO 14066, “Executive Order on Prohibiting Certain Imports and New Investments with Respect to Continued Russian Federation Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine,” prohibiting 1) the importation into the U.S. of the following Russian-origin products: crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products; and 2) new investment in the energy sector in the Russian Federation by a U.S. person, wherever located. As with other sanctions’ prohibitions, U.S. persons are also prohibited to facilitate, approve, finance, or guarantee transactions if they are prohibited to undertake the transaction themselves.
On March 11, 2022, President Biden issued “Executive Order on Prohibiting Certain Imports, Exports, and New Investment with Respect to Continued Russian Federation Aggression,” which prohibits 1) the importation into the U.S. of Russian-origin fish, seafood, and “preparations thereof”; alcoholic beverages; and non-industrial diamonds; 2) the direct or indirect exportation, re-exportation, sale, or supply of luxury goods to Russia from the U.S. or by a U.S. person; 3) the direct or indirect exportation, re-exportation, sale, or supply of USD banknotes to Russia from the U.S. or by a U.S. person; and 4) new investment in any sector of the Russian Federation economy as may be determined by the secretary of the treasury, in consultation with the secretary of state, by a U.S. person.
On May 8, 2022, OFAC issued broad restrictions against the provision of accounting, trust, and corporate formation, as well as management consulting services, to parties located in the Russian Federation, following which BIS released a rule expanding the scope of items subject to licensing requirements for export to Russia. The new restrictions intend to restrict U.S. persons from engaging in many corporate activities involving Russia. U.S. persons are prohibited from providing a broad range of professional services to Russia, and U.S. and non-U.S. persons may face sanctions if they engage in activities contrary to OFAC’s policy objectives. In addition, the range of general licenses issued by OFAC and new export licensing requirements suggest that the U.S. government is interpreting the existing restrictions on Russia broadly. The consolidated SDN and SSI lists are available on OFAC’s website.
• New Investment Ban and Trade Embargo — The following transactions involving the Crimea region of Ukraine are generally prohibited, effectively creating an embargo on any transactions from these territories: new investment in the Crimea region of Ukraine; the importation into the U.S. of any goods, services, or technology from the Crimea region of Ukraine; the exportation, re-exportation, sale, or supply of any goods, services, or technology to the Crimea region of Ukraine; and any approval, financing, facilitation, or guarantee of a transaction by a foreign person where the transaction by that foreign person would be prohibited if performed by a U.S. person or within the U.S.
On February 21, 2022, Russia declared the separatist regions in the so-called Donetsk People’s Republic (DNR) and so-called Luhansk People’s Republic (LNR) to be Russian territories. In response, President Biden issued EO 14065 along with a series of sanction designations. Modeling the current sanctions on the Crimea region, they specifically prohibit: new investment in the DNR or the LNR (or any other regions identified by the Treasury); the import into the U.S. of any goods, services, or technology from the DNR or the LNR; the export, re-export, sale, supply from the U.S. or by a U.S. person of any goods, services, or technology to the DNR or the LNR; and financial services (including financing, facilitating, approvals, guarantees) by a U.S. person of a transaction by a foreign person where that transaction by a U.S. person would be prohibited.
• Licenses — OFAC may authorize certain types or categories of activities and transactions that would otherwise be prohibited under the Ukraine/Russia-related sanctions program by issuing a general license. For a current list of all general licenses relating to the Ukraine sanctions program, one should refer to the OFAC updates and alerts.
On a case-by-case basis, OFAC considers applications for specific licenses to authorize transactions that are neither exempt nor covered by a general license. Requests for a specific license must be submitted to OFAC’s Licensing Division.
U.S. sanctions and export restrictions targeting Russia continue to evolve, and the recently published determinations and rules reflect a substantial escalation of those restrictions. It is important for legal practitioners to conduct screening at the time of engagement or the order and prior to the export, re-export, or transfer (in-country) to verify that no party to a transaction is covered by any applicable sanctions. The tools provided by the U.S. government should be utilized, including BIS’s Denied Persons List or Entity List or OFAC’s List of Specially Designated Nationals and Blocked Persons.
 Office of the United States Trade Representative, Russia, https://ustr.gov/countries-regions/europe-middle-east/russia-and-eurasia/russia.
 U.S. Department of State, Targeting Russia’s War Machine, Sanctions Evaders, Military Units Credibly Implicated in Human Rights Abuses, and Russian Federation Officials Involved in Suppression of Dissent: Fact Sheet (June 28, 2022), https://www.state.gov/targeting-russias-war-machine-sanctions-evaders-military-units-credibly-implicated-in-human-rights-abuses-and-russian-federation-officials-involved-in-suppression-of-dissent.
 Since Feb. 24, 2022, BIS has implemented numerous new export control restrictions in response to the invasion of Ukraine by Russia. These restrictions, which significantly restrict exports, re-exports, and transfers (in-country) of technology, commodities, and software destined to or transiting Russia or Belarus as well as to certain persons affiliated with Russia and Belarus, can be found in the Export Administration Regulations 15 C.F.R. Parts 730-774 (EAR). See also U.S. Department of Commerce, Bureau of Industry and Security, Resources on Export Controls Implemented in Response to Russia’s Invasion of Ukraine (Jan. 6, 2023), https://www.bis.doc.gov/index.php/policy-guidance/country-guidance/russia-belarus.
 DDTC ensures that commercial exports of defense articles and defense services advance U.S. national security and foreign policy objectives. U.S. Department of State, Directorate of Defense Trade Controls, https://www.pmddtc.state.gov/ddtc_public.
 Companies may have disclosure obligations under the federal securities laws related to the direct or indirect impact that Russia’s invasion of Ukraine and the international response have had or may have on their business. To satisfy these obligations, the Division of Corporation Finance (the Division) believes that companies should provide detailed disclosure, to the extent material or otherwise required, regarding 1) direct or indirect exposure to Russia, Belarus, or Ukraine through their operations, employee base, investments in Russia, Belarus, or Ukraine, securities traded in Russia, sanctions against Russian or Belarusian individuals or entities, or legal or regulatory uncertainty associated with operating in or exiting Russia or Belarus; 2) direct or indirect reliance on goods or services sourced in Russia or Ukraine or, in some cases, in countries supportive of Russia; 3) actual or potential disruptions in the company’s supply chain; or 4) business relationships, connections to, or assets in, Russia, Belarus, or Ukraine. See also U.S. Securities and Exchange Commission, Sample Letter to Companies Regarding Disclosures Pertaining to Russia’s Invasion of Ukraine and Related Supply Chain Issues, https://www.sec.gov/corpfin/sample-letter-companies-pertaining-to-ukraine.
 On Mar. 6, 2014, President Obama issued EO 13660 according to the International Emergency Economic Powers Act (50 U.S.C. §1701, et seq.) (IEEPA) and the National Emergencies Act (50 U.S.C. §1601, et seq.) (NEA). Office of Foreign Assets Control, Ukraine/Russia-Related Sanctions Program (June 16, 2016), available at https://home.treasury.gov/system/files/126/ukraine_overview_of_sanctions.pdf.
 Blocking sanctions against individuals and entities designated under EO 13660, EO 13661, EO 13662, or EO13685 and listed on the List of Specially Designated Nationals and Blocked Persons (SDN List).
 Complete CAPTA List, Department of Treasury, Office of Foreign Assets Control, List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (Apr. 6, 2022), available at https://www.treasury.gov/ofac/downloads/capta/captalist.pdf.
 Office of Foreign Asset Control, Ukraine/Russia-Related Sanctions Program.
 U.S. Department of Treasury, Specially Designated Nationals and Blocked Persons List (SDN) Human Readable Lists (Jan 6. 2023), http://www.treasury.gov/sdn.
 See also 31 C.F.R. part 589 subpart E.
 Office of Foreign Assets Control, Application Instructions, https://licensing.ofac.treas.gov/Apply/Introduction.aspx.
 U.S. Department of Commerce, Bureau of Industry and Security, Recent Changes to the Denied Persons List (Jan. 18, 2023), https://www.bis.doc.gov/index.php/recent-changes-to-the-denied-persons-list.
 Office of Foreign Assets Control, Sanctions List Search Engine, https://sanctionssearch.ofac.treas.gov/.
This column is submitted on behalf of the International Law Section, Jacqueline Villalba, chair, and Jeffrey Hagen and Neha Dagley, editors.