Beginning on 21 February 2022, the US, EU, and UK announced a set of economic sanctions in response to the unfolding events in Ukraine. These sanctions seek to restrict Russia and the so-called Donetsk and Luhansk People’s Republics (the DPR and LPR) from accessing Western financing, while imposing additional pressure on the Russian government with sanctions on individuals close to President Vladimir Putin. These new sanctions, if exercised and enforced in a consistent and coordinated manner among the relevant nations, may ultimately result in a substantial financial burden on Russia and the separatist regions.
Sweeping and unprecedented new sanctions against Russia by the US and its allies in response to Russia’s invasion of Ukraine.
The White House met Russia’s 21 February 2022 recognition of the sovereignty of the so-called DPR and LPR with swift action. The Biden administration expanded on previous Executive Orders that impose restrictions on the Russian government with a near-total ban on US persons and companies from conducting business with the DPR and LPR, similar to the jurisdiction-based designations in place against Crimea. The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) also issued six general licenses to allow for the provision of limited humanitarian services to the population of the DPR and LPR in the areas of COVID-19-related assistance, telecoms, software, and remittances, as well as transactions that relate to divestitures or the winding down of operations in the region.
As the crisis continued to escalate, the US intensified its pressure on the Russian government by designating two of Russia’s largest financial institutions (FIs) – the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), along with 42 of their subsidiaries on 22 February 2022. VEB is one of Russia’s top FIs with $53 billion in assets, and one of the primary sources of funding for the Russian government. According to OFAC, PSB services nearly 70% of Russia’s defense contracts and provides banking and personal finance to Russian military personnel.
The US government simultaneously targeted a handful of “elites close to Putin,” including Aleksandr Bortnikov, head of Russia’s Federal Security Service (FSB); Sergei Kiriyenko, Putin’s First Chief of Staff; Bortnikov’s son, Denis Bortnikov, a deputy president of Russian state-owned VTB Bank; Vladimir Kiriyenko, CEO of VK Group, the parent company of Russia’s top social media platform, VKontakte; and Petr Fradkov, chairman and CEO of Promsvyazbank. President Biden announced that the US government would continue to pursue sanctions against persons linked to the Russian regime and their families over the coming days.
On 23 February 2022, OFAC issued sanctions against Nord Stream 2 AG, the company that operates the Nord Stream 2 pipeline. OFAC also issued a general license that allows for the wind down of transactions involving the pipeline.
Most recently, on 24 February 2022, the US instituted significant additional economic sanctions targeting Russia’s two largest FIs, the Public Joint Stock Company Sberbank of Russia (Sberbank) and VTB Bank Public Joint Stock Company (VTB Bank), along with roughly 90 international subsidiaries. Both institutions account for approximately $46 billion dollars of foreign transactions each day. OFAC is enacting correspondent banking and payable-through account sanctions on Sberbank, and will require all US FIs to close such accounts with Sberbank within 30 days and reject any future transactions with the FI or its foreign subsidiaries. For VTB Bank, OFAC is enacting full blocking sanctions, effectively freezing its assets held in US FIs, rendering them inaccessible. Additional blocking sanctions were issued for Russian FIs — Otkritie, Novikom, and Sovcom. Lastly, the US expanded debt and equity prohibitions against large Russian state and privately owned entities, restricting their ability to raise new money in an effort limit Russia’s access to capital sources to aid in its invasion of Ukraine.
Finally, also on 24 February 2022, the US Department of Commerce’s Bureau of Industry and Security (BIS) imposed a wide-ranging set of export controls that target Russia’s defense, aerospace, and maritime sectors. These new measures place stringent new controls on US-origin goods destined for Russia, such as semiconductors, computers, telecommunications, information security equipment, lasers, and sensors, which are now subject to a “policy of denial.” In addition, BIS added 49 Russian military end users to the BIS Entity List, which prohibits exporters from sending US items to listed foreign parties without first securing a license.
On 22 February 2022, the UK followed the US as one of the first countries to announce sanctions on Russian persons over the events in Ukraine. In what British Prime Minister Boris Johnson described as the “first barrage of what we are prepared to do,” the UK sanctioned five Russian FIs and three oligarchs.
The five entities sanctioned by the UK are: Bank Rossiya, IS Bank, General Bank, Promsvyazbank, and the Black Sea Bank. The five FIs are exposed to the annexed region of Crimea, and either have close links to key members of the Russian government or have been described by the UK government as playing a role in Russia’s defense sector. The three individuals sanctioned by the UK—Gennady Timchenko, Igor Rotenberg, and his uncle Boris Rotenberg—have historically been described as close to Putin. Timchenko is the founder of Bank Rossiya, while the Rotenbergs have benefited extensively from contracts with Russian state-owned entities.
On 24 February 2022, as part of a joint effort with the US, EU, and other G7 partners, the UK outlined more comprehensive sanctions targeting Russian elites, companies and FIs. The UK sanctions will include 120 Russian businesses and oligarchs, VTB Bank and other state-owned Russian banks, 571 members of the Duma and Federation Council, and Belarus for its role in the Ukraine conflict.
The UK plans to issue new sanctions measures in the form of secondary legislation that will freeze all assets of Russian FIs; prevent Russian entities from issuing transferable securities and money market instruments in the UK; prevent designated banks from accessing Sterling and clearing payments in the UK; implement further restrictions on the export of critical technical equipment and components relied on within the electronics, telecommunications, and aerospace sectors; as well as specific sanction designations of five major defense companies, Rostec, Uralvagonzavod, Tactical Missile Corporation, United Aircraft Corporation and United Shipbuilding Corporation.
Additional individuals sanctioned by the UK include: Kirill Shamalov, Russia’s youngest billionaire and previously married to Vladimir Putin’s daughter Katarina; Petr Fradkov, head of the recently sanctioned Promsvyazbank; Denis Bortnikov, Deputy President of Russia’s largest bank VTB; Yury Slyusar, director of United Aircraft Corporation, a major aircraft manufacturer; and Elena Aleksandrovna Georgieva, chair of the board of Novikombank, a state-owned defense conglomerate.
The EU and some of its member states individually have also pledged a coordinated response with the US and UK governments. On 22 February 2022, the EU Council announced the designation of 351 members of Russia's Duma who voted in favour of the recognition of the DPR and LPR as independent entities, as well as 27 individuals and entities accused of destabilising Ukraine, including: Sergei Shoigu, Russia’s defence minister; Anton Vaino, Putin’s chief of staff; the commanders-in-chief of the Russian Air Force and Black Sea Fleet, as well as VEB, Bank Rossiya, and Internet Research Agency, which EU leaders described as a “company engaged in online influence operations on behalf of Russia.”
Commentators expect the EU package to also include the designation of several Russian FIs, restrict trading with the DPR and LPR, and block Russia’s ability to raise capital in European markets. Certain EU member states have also begun implementing unilateral restrictions. On 22 February 2022, Germany announced it would halt the certification of the Nord Stream 2 pipeline.
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Special thanks to Jeremy Robb for contributing to this article.