No more US sanctions against Russia: VEB, PSB and Russian sovereign debt | Kelley Drye & Warren LLP

In a coordinated move with American allies, the United States imposed a “first tranche” of sanctions on Russia today following the country’s recognition of the Donetsk People’s Republic (DNR) and the Lugansk People’s Republic (LNR) as independent countries. These measures follow the imposition of a US embargo on the breakaway regions yesterday and US government officials, including President Biden, stressed that additional sanctions were possible.

Today’s action adds Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), along with 42 of their subsidiaries, to the SDN list. This move effectively cuts banks off from the US financial system and will likely lead non-US global financial institutions to cut their ties with banks. The United States also extended sanctions on Russian sovereign debt transactions, barring U.S. financial institutions from participating in the secondary debt market for ruble-denominated or non-ruble-denominated bonds issued after March 1, 2022.

VEB & PSB

The addition of VEB, PSB and their affiliates to the SDN list means that U.S. persons, including U.S. corporations and financial institutions, U.S. citizens and permanent residents, and anyone located in the United States are prohibited from engage in direct or indirect dealings with banks, except as authorized by the United States Office of Foreign Assets Control (OFAC). Any VEB or PSB property or interest in property in the possession or control of US Persons must be formally blocked (frozen) and reported to OFAC within 10 days, unless a license applies. Non-US Persons are also prohibited from engaging in transactions or other business relationships involving the Banks if such activities have a direct or indirect connection with the United States or US Persons. Non-U.S. financial institutions and businesses could also be subject to secondary sanctions, including possibly being added to the SDN list themselves, if they engage in a “material” transaction with either institution after the imposition of penalties.

U.S. persons are permitted to conduct transactions usually incidental and necessary to the termination of pre-existing transactions with VEB until 12:01 a.m. EST on March 24, 2022 pursuant to the new General License No. 3 to EO 14024 and to engage in certain transactions involving VEB which are usually incidental and necessary to the service of Russian sovereign bonds issued before March 1, 2022 in accordance with General License No. 2.

The complete list of subsidiaries identified by OFAC in today’s announcement is provided below.

More banks could be targeted

The Secretary of the Treasury issued a Formal notice today authorizing new sanctions against any financial institution in Russia under EO 14024, paving the way for additional sanctions against the Russian financial sector. A Fact sheet released by the White House today notes that more than 80% of Russia’s foreign exchange transactions are in US dollars and half of Russia’s foreign trade is conducted in dollars. Today’s advisory is a warning that the United States could cut off Russia’s access to US dollar transactions by imposing broader sanctions on Russia’s financial sector, a move that would have significant implications for companies that do business in or with Russia.

Secondary market restrictions on sovereign debt

Expanded OFAC existing sanctions on Russian sovereign debt by issuing Guideline 1A to EO 14024. The updated directive prohibits U.S. financial institutions from participating in the secondary debt market for ruble-denominated or other bonds issued by the Russian Central Bank, National Wealth Fund or Ministry of Finance after March 1 2022. The directive applies to all US financial institutions in the United States, but not to their branches, offices or agencies abroad.

Russian elites

OFAC added three Russian individuals to the SDN list – Denis Aleksandrovich Bortnikov, an executive of VTB Bank, Petr Mikhailovich Fradkov, the Chairman and CEO of PSB, and Sergei Vladilenovich Kiriyenko, the CEO of VK Group, the parent company of the main Russian social media. platform, VKontakte.

Allied Measures

US allies have imposed or are about to impose sanctions on Russia in response to the situation in Ukraine. Germany announced today that it will suspend the certification process for the Nord Stream 2 gas pipeline. UK imposed limited sanctions, including sanctions against PSB, earlier today. The European Union Approved a series of sanctions likely to be similar in scope to the sanctions imposed by the United States. Canada, Australia and Japan have also indicated that new sanctions against Russia will be issued.

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“Subsidiaries of Russian financial institutions sanctioned on February 22, 2022 in accordance with EO 14024

The real estate assets and interests of the following VEB subsidiaries are blocked:

  1. Bank BELVEB OJSC is a bank located in Belarus.
  2. VEB Leasing OJSC is a leasing company located in Russia.
  3. Prominvestbank is a bank located in Ukraine.
  4. VEB Capital is a financial company located in Russia.
  5. VEB Engineering LLC is an investment project implementation service company located in Russia.
  6. JSC Infraveb is an investment project support company located in Russia.
  7. JSC VEB.DV is an investment project support company located in Russia.
  8. VEB Asia Limited is a financial company located in Hong Kong.
  9. LLC Infrastructure Molzhaninovo is an electric power company located in Russia.
  10. LLC Resort Zolotoe Koltso is a real estate and construction company located in Russia.
  11. JSC Russian Export Center is an export-related company located in Russia.
  12. SARL VEB Ventures is a financial company located in Russia.
  13. SARL VEB Services is a business and management consulting company located in Russia.
  14. LLC Special Organization for Project Finance Project Finance Factory is a financial company located in Russia.
  15. SIBUGLEMET Group SARL is a coal mining company located in Russia.
  16. JSC ANGSTREM-T is a technology company located in Russia.
  17. SARL NM-TEKH is a technology company located in Russia.
  18. JSC SLAVA is a real estate company located in Russia.
  19. JSC PFC CSKA is a sports activities company located in Russia.
  20. LLC Torgovy Kvartal-Novosibirsk is a real estate rental company located in Russia.
  21. LLC Baikal Center is a construction company located in Russia.
  22. Progorod SARL is an infrastructure company located in Russia.
  23. SARL VEB.RF Asset Management is a financial company located in Russia.
  24. Eximbank of Russia JSC is an export support institution located in Russia as well as a commercial bank regulated by the Central Bank of the Russian Federation.
  25. Russian Export Credit and Investment Insurance Agency OJSC is an insurance agency located in Russia.

The property and real estate interests of the following PSB subsidiaries are blocked:

  1. Alkes Treid OOO is a financial company located in Russia.
  2. Antares OOO is a financial company located in Russia.
  3. Elitnye Doma OOO is a real estate company located in Russia.
  4. PSB Innovations and Investments Limited Liability Company is a technology company located in Russia.
  5. Era Fund Limited Liability Company is a technology company located in Russia.
  6. PSB-Foreks OOO is a financial company located in Russia.
  7. Kholtsvud OOO is a financial company located in Russia.
  8. Kurf OOO is a financial company located in Russia.
  9. Management company Promsvyaz LLC is an investment company located in Russia.
  10. Pascal OOO is a company that provides management consulting services in Russia.
  11. PSB Biznes OOO is a hotel company located in Russia.
  12. St. Petersburg International Banking Conference LLC is a financial company located in Russia.
  13. Sergievo-Possad Lend OOO is a financial company located in Russia.
  14. PSB Aviation OOO is a financial company located in Russia.
  15. Tekhnosoft OOO is a technology company located in Russia.
  16. Trinitex OOO is a real estate company located in Russia.
  17. PSB Lizing OOO is a financial company located in Russia.

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John A. Bogar