On February 23, 2022, the White House announced sanctions on the Nord Stream 2 pipeline following the announcement that Germany would halt certification of the project. Shortly after, the US Treasury Department’s Office of Foreign Assets Control (OFAC) named Nord Stream 2 AG and its managing director as Specially Designated Nationals (SDNs) pursuant to the Protecting Europe’s Energy Security Act (PEESA) and Executive Order (EO) 14039 of August 20, 2021. OFAC also issued General License No. 4 (GL-4) under EO 14039 authorizing US persons to engage in transactions that are ordinarily incident and necessary to the wind down of transactions involving Nord Stream 2 AG and any entity owned 50 percent or more by it, until March 2, 2022.

The day before, on February 22, 2022, OFAC named more than 40 entities, five individuals, and five vessels as SDNs under EO 14024 of April 15, 2021. The targets included two banks: Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB). US persons are prohibited from engaging in any transfer, transaction, export, import, withdrawal, or other dealing involving property or interests in property of SDNs, including the two banks and Nord Stream 2 AG, and if in the possession of a US person or otherwise in the United States, such property or interest in property must be blocked and reported to OFAC in no more than ten days. The prohibitions also apply to any legal entity owned 50 percent or more by one or more SDNs, even if not specifically named or included on the OFAC SDN list.

Concurrently with the designation of VEB, OFAC issued two general licenses.  General License No. 2 (GL-2) under EO 14024 authorizing US persons to engage in transactions involving VEB or any legal entity owned 50 percent or more by VEB  if those transactions are ordinarily incident and necessary to the servicing of bonds issued before March 1, 2022, by Russia’s Central Bank, National Wealth Fund, or Ministry of Finance.  The issuance of GL-2 indicates that the US government does not intend for its sanctions on VEB to trigger a Russian sovereign default.  General License No. 3 (GL-3) under EO 14024 provides broad authorization until March 24, 2022 for transactions that are ordinarily incident and necessary to the wind-down of transactions involving VEB or any entity owned 50 percent or more by VEB.  Notably, GL-3 does not authorize any similar wind-down period for transactions involving PSB.

Also on February 22, 2022, OFAC issued Directive 1A under EO 14024 prohibiting “US financial institutions from participating in the secondary market for bonds issued by Russia’s Central Bank, National Wealth Fund, or Ministry of Finance after March 1, 2022, unless licensed or otherwise authorized by OFAC. Directive 1A updates an earlier directive issued in April 2021 which prohibited US financial institutions from participation in the primary market for bonds issued by, and lending to, those entities. Directive 1A defines the term “US financial institution” as:

“any U.S. entity (including its foreign branches) that is engaged in the business of accepting deposits, making, granting, transferring, holding, or brokering loans or credits, or purchasing or selling foreign exchange, securities, futures or options, or procuring purchasers and sellers thereof, as principal or agent. It includes depository institutions, banks, savings banks, money services businesses, operators of credit card systems, trust companies, insurance companies, securities brokers and dealers, futures and options brokers and dealers, forward contract and foreign exchange merchants, securities and commodities exchanges, clearing corporations, investment companies, employee benefit plans, dealers in precious metals, stones, or jewels, and U.S. holding companies, U.S. affiliates, or U.S. subsidiaries of any of the foregoing. This term includes those branches, offices, and agencies of foreign financial institutions that are located in the United States, but not such institutions’ foreign branches, offices, or agencies.”

For a summary of the April 2021 version of Directive 1, see this Steptoe blog post.

In conjunction with Directive 1A, OFAC issued two new FAQs:

  • FAQ 964 clarifying that OFAC’s determination that Russia’s financial sector is covered by EO 14024 does not result in sanctions on all Russian financial companies, unless they are identified as such (e.g., VEB and PSB); and
  • FAQ 965 explaining the impact of Directive 1A.

Earlier in the week, the White House issued a new EO imposing comprehensive sanctions on the disputed Donetsk and Luhansk regions of Ukraine following President Vladimir Putin’s announcement that Russia would recognize the independence of the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) and place Russian military forces in those territories for purported peacekeeping operations. For more information on the new EO see this Steptoe blog post.

This is a fluid and quickly developing situation. More sanctions from the United States and other countries expected following the events of February 24, 2022.

For information on EU sanctions announced on February 23, 2022, see this Steptoe blog post.

For information on UK sanctions announced against three individuals and five banks, on February 22, 2022, see this Steptoe blog post.

Visit this link to sign up to receive a recording of Steptoe’s recent webinar “Possible Sanctions Against Russia: What You Need to Know.”

For more information on how these developments may impact your organization, contact a member of Steptoe’s Economic Sanctions team.