On February 21, 2022, the White House issued a new Executive Order (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.
The new EO prohibits:
- new investment in the DNR or LNR by US persons, wherever located;
- the importation into the United States, directly or indirectly, of any goods, services, or technology from the DNR or LNR;
- the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a US person, wherever located, of any goods, services, or technology to the DNR or the LNR; and
- any approval, financing, facilitation, or guarantee by a US person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited if performed by a US person or within the United States.
The comprehensive sanctions of the new EO mirror those that have been in place since 2014 in relation to the disputed Crimea region of Ukraine pursuant to EO 13685 of December 19, 2014.
The EO also allows the US Treasury Department, in consultation with the US State Department, to designate other regions of Ukraine that would be subject to these comprehensive sanctions. The EO refers to these areas, together with the DNR and the LNR, as “Covered Regions.” Because these regions are not recognized as countries by the United Nations, but rather as territories or jurisdictions, screening systems will need to account for geographic indicators such as city names, addresses, or other location identifiers. (See this 2015 OFAC guidance on Crimea for more information.)
The Biden administration could use the EO to impose similar comprehensive sanctions on any other regions in Ukraine that come under Russian control in the future.
Following the White House’s announcement, the US Treasury Department’s Office of Foreign Assets Control (OFAC) issued a series of general licenses (GLs) authorizing US persons to engage in certain transactions in relation to the DNR and the LNR regions. The GLs include:
- GL No. 17 – authorizing US persons to engage in transactions ordinarily incident and necessary to the wind down of transactions involving the DNR or the LNR, including divesting or transferring pre-existing investments to non-US persons, and winding down operations, contracts, or other agreements in effect before February 21, 2022 until 12:01 am Eastern Daylight Time of March 23, 2022 (i.e., approximately 30 days);
- GL No. 18 – authorizing US persons to engage in transactions related to the exportation or reexportation of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices, or software updates for medical devices to the DNR or the LNR, or to third countries for reexport to the DNR or the LNR, as well as transactions related to the prevention, diagnosis, or treatment of COVID-19;
- GL No. 19 – authorizing US persons to engage in transactions related to telecommunications and mail involving the DNR or the LNR;
- GL No. 20 – authorizing US persons to engage in transactions related to the official business of the following organizations by their employees, grantees, or contractors: (i) the United Nations (including UN Programs, Funds, and Other Entities and Bodies, as well as its Specialized Agencies and Related Organizations); (ii) the International Centre for Settlement of Investment Disputes (ICSID) and the Multilateral Investment Guarantee Agency (MIGA); (iii) the African Development Bank Group, the Asian Development Bank, the European Bank for Reconstruction and Development, and the Inter-American Development Bank Group (IDB Group), including any fund entity administered or established by any of the foregoing; (iv) the International Committee of the Red Cross and the International Federation of Red Cross and Red Crescent Societies; and (v) the Organization for Security and Co-operation in Europe;
- GL No. 21 – authorizing US persons to engage in transactions related to noncommercial personal remittances to or from the DNR or the LNR. GL No. 21 does not cover charitable donations of funds to or for the benefit of an entity or funds transfers for use in supporting or operating a business, including a family-owned business; and
- GL No. 22 – authorizing US persons to engage in transactions that are ordinarily incident and necessary to the exportation or reexportation, directly or indirectly, to the DNR or the LNR of services incident to the exchange of personal communications over the internet.
Additionally, the EO delegates authority to the US Department of Treasury, in consultation with the US Department of State, to block the property of any person determined to operate in the DNR or LNR, as well as making or contributing any goods, services, or technology to, or receiving any goods, services, or technology from, such persons. As a result, any US person would be prohibited from engaging in any transfer or transaction involving property or interests in property of such Specially Designated Nationals and Blocked Persons (SDNs). The GLs noted above would not apply to transactions involving such persons. The EO provides authority to designate leaders, senior executives, and board members of entities that are determined to operate in the DNR or LNR, which could result in additional designations of Russian oligarchs.
Also, such SDNs who are noncitizens will be denied entry into the United States under immigrant visa categories. Although the EO did not identify any specific SDNs, media reports indicate that additional sanctions could be announced soon. The White House also made clear that these restrictive trade measures are separate from and would be in addition to the economic measures being taken in coordination with allies and partners in the context of Russian troops entering Ukraine.
Finally, the EO prohibits any person (not just US persons) from undertaking any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions, or forming any conspiracy to violate the prohibitions involving SDNs named under the EO.
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For more information on how these developments may impact your organization, contact a member of Steptoe’s Economic Sanctions team.