From the U.S. Chamber of Commerce
The U.S. and its allies in Europe and elsewhere announced severe new limits on business transactions with Russian companies and persons on February 27-28. In perhaps the most consequential move yet, the Treasury Department’s Office of Foreign Assets Control (OFAC) prohibited U.S. companies and individuals from engaging in transactions with Russia’s central bank. The action blocks the central bank from accessing approximately 80% of its foreign exchange reserves, which are held in Western institutions.
The measures spurred bank runs in Russia, shuttered its stock market, and led quickly to a partial shutdown in payment systems. The ruble fell dramatically. These sanctions further cuts financial links between Russia and the rest of the world and follows sweeping sanctions on Russia’s banks that have hit approximately 80% of its banking system by assets.
Energy remains an exception: OFAC issued a general license authorizing ongoing transactions related to energy sales through June 24, 2022. Find updated Federal Register notices from the Treasury Department’s Office of Foreign Assets Control here.
These sanctions on Russia’s central bank, which took effect immediately, aim to prevent it from moving its assets from international institutions in ways that could undermine the impact of the sanctions. The U.S. also sanctioned the National Wealth Fund of the Russian Federation, the Ministry of Finance of the Russian Federation, the Russian Direct Investment Fund (RDIF)(a sovereign wealth fund), and its CEO Kirill Dmitriev, who has connections to Russian President Vladimir Putin, to prevent Russia from being able to raise funds for its invasion and other priorities.
The U.S. also officially sanctioned Russian President Vladimir Putin, Russian Foreign Minister Sergei Lavrov, and other Russian elites. These sanctions block all U.S. property held by those individuals and prohibit transactions with these individuals unless authorized by a general license. A host of “oligarchs” have also been sanctioned.
Most of these sanctions are being taken under Executive Order (E.O.) 14024, which authorizes sanctions against Russia for its harmful foreign activities, including violating well-established principles of international law such as respect for the sovereignty and territorial integrity of other states.
These actions follow on the formidable sanctions President Biden announced on February 24, which include financial sanctions and new export controls to impose severe costs on Russia’s economy, specifically its financial system and access to advanced technology. These measures include:
- Severing the connection to the U.S. financial system for Russia banks representing nearly 80% of all banking assets in Russia, including Sberbank, the country’s largest bank;
- Full blocking sanctions on Russia’s second largest financial institution, VTB Bank (VTB), and three other major Russia financial institutions;
- New debt and equity restrictions on 13 of the most critical major Russian enterprises and entities;
- Additional full blocking sanctions on Russian elites and their family members; and
- Costs on Belarus for supporting a further invasion of Ukraine.
Over the weekend, the White House also joined the European Commission, France, Germany, Italy, the United Kingdom, and Canada in announcing the removal of select Russian banks from the SWIFT messaging system. On top of blocking sanctions issued earlier, this move will greatly hinder their ability to operate globally. Japan later followed suit.
In another highly consequential move, the Department of Commerce published a new final rule on export controls applicable to Russia on February 24. The rule aims to cut off Russia’s access to cutting edge technology, primarily targeting the Russian defense, aviation, and maritime sectors. It imposes two new Foreign Direct Product (FDP) rules—a Russia-wide rule and a more extensive rule targeting Russian military end users—that restrict access to sensitive U.S. technologies produced in foreign countries using U.S.-origin software, technology, or equipment. It also imposes new license requirements, a review policy of denial to license applications for the in-country movement of certain products, and expands other restrictions on items subject to the export administration regulations. These restrictions took effect immediately on February 24.
For further details on these actions, see the White House announcement, the Department of the Treasury announcement, and a Department of Commerce fact sheet. Earlier, President Biden imposed sanctions on the company responsible for building Nord Stream 2 (Nord Stream AG) and its corporate officers. The administration made clear this was also part of the initial tranche. The move follows Germany’s decision earlier this week to halt the Nord Stream 2 pipeline project.
The Chamber will continue to monitor developments and engage with the administration and Congress as these policies are implemented. For further information, please contact Senior Vice President for International Policy John Murphy (firstname.lastname@example.org) or Director for International Policy Isabelle Icso (email@example.com). On matters related to Ukraine’s humanitarian crisis, please contact Marc DeCourcey (firstname.lastname@example.org)