US and EU intensify sanctions in response to Russian actions in Ukraine; Australia, Canada, Japan announce sanctions

8 min read

Authored by our Global Sanctions, Export Controls and Customs Teams

On 22 February 2022, the United States announced new sanctions on Russia, blocking the property of two major Russian banks, dozens of their subsidiaries, and five individuals, and imposing additional restrictions on dealings in Russia's sovereign debt. Additionally, on 23 February 2022, the US imposed sanctions on Nord Stream 2. These sanctions, which President Biden described as closely coordinated with US allies and partners and subject to escalation, follow earlier measures imposed by the US and the UK following Russia's recognition of the Donetsk and Luhansk People's Republics as independent states.

The EU followed on 23 February 2022 with a package of sanctions including asset freeze designations of 351 members of Russia's State Duma as well as 27 individuals and entities including companies and individuals active in the Russian defense and media sectors and three Russian banks. It also imposed broad trade restrictions in relation to the non-government controlled areas of the Donetsk and Lugansk oblasts of Ukraine, and measures to restrict access to EU capital markets by the Russian State, its Government and Central Bank.


US Intensifies Sanctions

SDN Designations of VEB and PromSvyazBank, three individuals and five vessels

On 22 February 2022, OFAC designated Vnesheconombank ("VEB") and PromSvyazBank ("PSB") as Specially Designated Nationals ("SDNs"), as well as 42 of their subsidiaries. These banks and all the listed subsidiaries are now blocked, as are all other subsidiaries that are owned 50% or more in the aggregate (i.e., under the "50% Rule") by one or more blocked persons. VEB and all of its 50% Rule subsidiaries continue to be subject to Directive 1 of the US Sectoral Sanctions Identifications List.

Concurrently, OFAC issued two general licenses authorizing transactions otherwise prohibited by the new measures:

  • General License 3 authorizes (with conditions) all transactions that are ordinarily incident and necessary to the wind-down of transactions involving VEB and its 50% Rule subsidiaries until 12.01am EDT on 24 March 2022. Thus, for the duration of General License 3, US persons that engage in business with VEB and its 50% Rule subsidiaries, and non-US persons engaged in business with such entities having a US nexus (such as US dollar payments), have until 24 March to wind down that business, provided that such wind-down activity is consistent with General License 3 (i.e., generally, no new business, or transactions involving sanctioned parties other than VEB or its 50% Rule subsidiaries). This general license has no impact on the prohibitions of Directive 1 under EO 13662.
  • General License 2 authorizes (with conditions) transactions involving VEB and its 50% Rule subsidiaries related to the servicing of bonds issued before 1 March 2022 by the Central Bank, the National Wealth Fund, or the Ministry of Finance of the Russian Federation. This general license has no impact on the prohibitions of Directive 1 under EO 13662.

OFAC also designated three individuals on 22 February, and re-designated two others:

  • Denis Aleksandrovich Bortnikov, a Deputy President of Russian state-owned financial institution VTB Bank and a Chairman of the VTB Bank Management Board was designated. His father, Aleksandr Vasilievich Bortnikov, Director of the Federal Security Service ("FSB") of the Russian Federation and a permanent member of the Security Council of the Russian Federation, was re-designated.
  • Petr Mikhailovich Fradkov, Chairman and CEO of PSB, was designated.
  • Vladimir Sergeevich Kiriyenko, who previously worked as a vice president at the Russian state-controlled company, Rostelecom, and is presently the CEO of VK Group, the parent company of Russia's top social media platform, VKontakte, was designated. His father, Sergei Vladilenovich Kiriyenko, First Deputy Chief of Staff of the Presidential Office, was re-designated.

Further, OFAC added five vessels owned by a designated subsidiary of PSB to the SDN List: Baltic Leader, Fesco Magadan, Fesco Moneron, Linda and Regas.

By operation of OFAC's 50% Rule, any entities that are owned, directly or indirectly, 50 percent or more by one or more SDNs, are also automatically blocked, whether or not they appear on the SDN List.

Trading in Russian Sovereign Debt

OFAC also amended Directive 1 under EO 14024, to prohibit participation in the secondary, as well as in the primary, market for ruble or non-ruble denominated bonds issued by, or the lending of ruble or non-ruble denominated funds to, the Central Bank, National Wealth Fund, or Ministry of Finance of the Russian Federation.1

Specifically, OFAC re-issued Directive 1 as Directive 1A, and added three entities to the Non-SDN Menu-Based Sanctions List (NS-MBS List):2 the Central Bank, the National Wealth Fund, and the Ministry of Finance. As a result, US financial institutions (the definition of which was expanded, but only for the purposes of Directive 1A) are now prohibited from participating in the secondary market for ruble or non-ruble denominated bonds issued after 1 March 2022 by any of these three entities. The 50% Rule does not apply to this measure.

Finally, the Secretary of the Treasury issued a Determination pursuant to EO 14024 naming the financial services sector of the Russian Federation economy as being subject to that EO. As a result, OFAC may designate under EO 14024 entities that operate in Russia's financial services sector. We would expect that the consequences of future listings under this authority would be limited to the application of this same Directive 1A, but the consequences could be a full blocking. This is similar to the existing authority under EO 13662, which has normally been used to apply Directive 1 to listed entities, even though the legal authority is broader. In an FAQ, OFAC clarified that the Treasury Secretary's determination regarding the financial services sector does not mean that those operating in it are all automatically sanctioned.3

OFAC has updated other FAQs to conform to the new sanctions measures: #891, #890, #889, #888, and #678.4

Nord Stream 2 Sanctions

On 23 February 2022, the White House announced additional sanctions on Nord Stream 2 AG and its corporate officers. Specifically, OFAC has added Matthias Warnig, CEO of Nord Stream 2 AG to the SDN list, along with Nord Stream 2 AG itself.5 OFAC also issued General License No. 4 authorizing (with conditions) all transactions that are ordinarily incident and necessary to the wind-down of transactions involving Nord Stream 2 AG and its 50% Rule subsidiaries until 12.01am EDT on 2 March 2022. PEESA, the statutory authority on which these sanctions are based, also authorizes the US Department of State to deny and revoke visas to those blocked under its authority.


EU Adopts First Tranche of Sanctions

On 23 February 2022, the EU adopted a first package of new sanctions in response to Russia's recognition of the non-government controlled areas of the Donetsk and Luhansk oblasts of Ukraine as independent and sending Russian troops to the region. At the time of writing, the legal acts containing the details have yet to be published, but the EU has announced that these include:6

Designations of Entities and Individuals

The EU added to its asset freeze list:

  • 351 members of the Russian State Duma, who voted in favor of Russia's recognition of the "self-proclaimed Donetsk and Luhansk 'republics'"; and
  • 27 individuals and entities, include government officials, banks and businesspersons and senior military officers. The names have yet to be published.

Trade restrictions in relation to the Donetsk and Luhansk Regions

The EU measures include an import ban on goods from the non-government controlled areas of the Donetsk and Luhansk oblasts, restrictions on trade and investments related to certain economic sectors, a prohibition to supply tourism services, and an export ban for certain goods and technologies.

Capital Market Sanctions on the Russian Government

The EU introduced a prohibition on financing the Russian Federation, its government or Central Bank, aimed at restraining the ability of the Russian state and government to access the EU's capital and financial markets and services.


Japan, Australia and Canada announce Sanctions


Japan's Prime Minister Fumio Kishida announced on 23 February 2022, that Japan will apply sanctions. The following potential measures were mentioned:

  • Freezing of assets and suspension visas for designated persons involved in Donetsk People's Republic and Luhansk People's Republic regions.
  • Restriction on imports from and exports to the Donetsk People's Republic and Luhansk People's Republic regions.
  • Restrictions on the issuance or offering for subscription of securities in Japan by the Russian government.


On 23 February 2022, Prime Minister Scott Morrison announced that the Australian government is imposing sanctions against Russian individuals, organizations and banks as part of the international effort to target Russia for its actions in relation to Ukraine.7 According to the Prime Minister's statement, relevant measures will include travel bans and financial sanctions on eight members of Russia's Security Council, as well as targeted financial sanctions in relation to Rossiya Bank, Promsvyazbank, IS Bank, Genbank and the Black Sea Bank for Development and Reconstruction (in addition to existing restrictions on VEB). In addition, Prime Minister Morrison has stated that Australian sanctions legislation will be amended to extend existing sanctions that apply to Crimea and Sevastopol to the regions of Donetsk and Luhansk, including in relation to trade in the transport, energy, telecommunications, and oil, gas and minerals sectors.


On 22 February 2022, Prime Minister Justin Trudeau announced that Canada would implement a "first round" of sanctions. The Canadian government has not released the text of a regulation yet, but noted that the measures will be under the Special Economic Measures (Russia) Regulations and the Special Economic Measures (Ukraine) Regulations. In a news release,8 the Prime Minister announced the following measures:

  • Restrictions on members of the Russian State Duma who voted for the decision to recognize the independence of Donetsk and Luhansk;
  • A dealings ban on the non-government controlled areas of Donetsk and Luhansk, which will effectively prohibit Canadians from engaging in specific transactions and activities in these regions;
  • New prohibitions on direct and indirect dealings in Russian sovereign debt; and
  • Sanctions on "two significant Russian financial institutions."


1 FAQ #965 explains the changes to Directive 1A.
2 The NS-MBS List identifies persons subject to certain non-blocking menu-based sanctions.
3 FAQ #964.
4 See here.
5 See OFAC's announcement here.
6 See Council of the EU Press release of 23 February 2022, available here.
7 See Statement of 23 February 2022 by Prime Minister Scott Morrison here.
8 See News Release of 22 February 2022 by Prime Minister Justin Trudeau here.


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