New US sanctions in response to Russian aggression. EU sanctions to come
Earlier this month, we noted the possibility of increase in US and EU sanctions against Russia, should Russia take aggressive steps towards Ukraine. Yesterday, 21 February, Russia took steps to recognise the so-called Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR) regions of eastern Ukraine as independent entities.
Russia's purported recognition of the DNR and LNR regions contradicts Russia's commitments under the Minsk agreements, and the US immediately responded by issuing new sanctions. The EU will likely follow (our previous Sanctions Alert is available here).
New US sanctions
President Biden immediately signed an Executive Order on Blocking Property of Certain Persons and Prohibiting Certain Transactions With Respect to Continued Russian Efforts to Undermine the Sovereignty and Territorial Integrity of Ukraine (the "EO").
The EO expands on previous executive orders relating to Russia. In brief, the new EO imposes restrictions relating to the DNR and LNR regions of Ukraine. In brief, key restrictions essentially concern:
- prohibitions on new investments in the DNR and LNR regions by a US person (wherever located);
- prohibitions on importation into the US of goods, services, or technology from the DNR and LNR regions;
- prohibitions on export, sale or supply from the US of goods, services, or technology from the DNR and LNR;
- financial restrictions, i.e. that 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 by the first three prohibitions above if performed by a US person or within the US; and
- blocking restrictions (asset freezing measures) against those determined by the US inter alia to operate or to have operated the DNR and LNR regions.
It should be noted that the new restrictions are rather limited in scope and not likely to lead to severe business disruptions for businesses who are not active in LNR and DNR regions. For business that may have exposure to the LNR and DNR regions, any touchpoints related to those areas – such as customers or suppliers – should be mapped against the restrictions to ensure compliance.
Further, the imposition of the EO is a sign that the US is serious about it sanctions threats towards Russia, and shows that the situation should be monitored closely. The US has made it clear that the new sanctions are separate from and would be in addition to the "swift and severe" economic measures the US has been preparing in coordination with its allies and partners, should Russia further invade Ukraine (see e.g. press briefing from the White House available here).
EU sanctions will follow
The EU has strongly condemned the Russian decision to proceed with the recognition of the non-government controlled areas of Donetsk and Luhansk oblasts of Ukraine as independent entities, and informed that the EU "will react with sanctions against those involved in this illegal act" (press statement is available here). The content of the new EU sanctions has not yet been announced.
Russia's announcement has drawn international condemnation, and the situation should be monitored closely for further developments.