On February 21, 2022, the White House issued a new Executive Order that imposes comprehensive sanctions on the so-called Donetsk People’s Republic (“DNR”) and Luhansk People’s Republic (“LNR”) regions of Ukraine. Concurrently with the issuance of the Executive Order, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) published six general licenses (“GLs”) authorizing certain transactions involving the targeted regions. These sanctions were imposed in response to the Russian Government’s decision to recognize the DNR and LNR as independent from Ukraine on the same day. Previously, certain parties in these regions, including their purported governments, were designated on the Specially Designated Nationals and Blocked Persons List (“SDN List”) but there were no sanctions imposed generally on the DNR and LNR.
The new Executive Order does not explain which parts of the Donetsk and Luhansk regions (the DNR AND LNR represent approximately 30% of the larger Donetsk and Luhansk regions of Ukraine) are subject to these US sanctions, leaving to the US Treasury and State Departments to define the “Covered Regions” now targeted. It is likely that the scope of Covered Regions will be clarified in public guidance from OFAC.
As a result of the new Executive Order, it is now prohibited for US Persons (i.e., entities incorporated under US laws and their non-US branches; parties physically located in the United States; US citizens and permanent resident aliens wherever located or employed) to:
- Export, reexport, sell, or supply, directly or indirectly, any goods, services, or technology to the Covered Regions;
- Engage in new investments in the Covered Regions;
- Import into the United States any goods, services, or technology from the Covered Regions; and
- Provide any approval, financing, facilitation, or guarantee of a transaction by a non-US party where the transaction would be prohibited if performed by a US Person with respect to the Covered Regions.
The new Executive Order also provides authority for OFAC to designate to the SDN List parties that operate in the Covered Regions or provide “material” support to SDNs designated pursuant to the new Order.
These sanctions appear to be modelled on those imposed on Crimea since late 2014 under Executive Order 13685 (“EO 13685”). Similarly to the Crimea-related sanctions, OFAC issued a number of GLs on February 21 for the Covered Regions, as follows:
- Ukraine GL 17 to allow a wind-down of operations and contracts involving the DNR and LNR by March 23, 2022;
- Ukraine GL 18 for the export to the Covered Regions of agricultural commodities, medicine and medical devices and transactions related to the COVID-19 pandemic;
- Ukraine GL 21 to ensure personal remittances can continue to flow and the operation of bank accounts;
- Ukraine GL 19 to allow telecommunications and mail services to continue ;
- Ukraine GL 22 for internet services to remain operational; and
- Ukraine GL 20 to allow international organizations (e.g., United Nations, certain international development banks, Organization for Co-operation and Security in Europe) to engage in activities related to the Covered Regions.
The White House announcements do not refer to new US export controls from the US Commerce Department targeting the Covered Regions, but it is possible that they may be imposed in the near future. Pursuant to EO 13685, the US Commerce Department’s Bureau of Industry and Security (“BIS”) has imposed a comprehensive export/reexport ban on Crimea with respect to goods, software, or technology subject to US jurisdiction, with the exception of EAR99 food and medicine. The BIS restrictions targeting Crimea are imposed under Section 746.6 of the Export Administration Regulations. Similar restrictions may be imposed on the Covered Regions.
In a statement, the White House said that the new Executive Order’s measures “are separate from and would be in addition to the swift and severe economic measures we have been preparing in coordination with Allies and partners should Russia further invade Ukraine.”
Outside the United States, the EU and UK have announced that they intend to impose further sanctions in response to the Russian Government’s decision to recognize the independence of the Donetsk and Luhansk regions. The details of such sanctions have not yet been made public. The UK has stated that its sanctions will be announced today (February 22).
Baker McKenzie will continue closely monitoring developments related to the Russia-Ukraine situation and will update this blog accordingly.