On February 21, 2022, U.S. President Joseph R. Biden Jr. issued an Executive Order (the “Ukraine Order”) in response to action taken earlier in the day by Russian Federation President Vladimir Putin to recognize the Donetsk People’s Republic (“DNR”) and Luhansk People’s Republic (“LNR”) of Ukraine as “independent states”. The DNR and LNR are two separatist bodies which have asserted governmental authority over the Donetsk and Luhansk regions of Ukraine, respectively, without authorization from the Government of Ukraine. In 2014, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) added the DNR and LNR to its Specially Designated Nationals and Blocked Persons List (the “SDN List”) in their capacities as individual entities. Since then, OFAC has also added multiple officials associated with the DNR and LNR to the SDN List.
The new Ukraine Order extends those sanctions to the entire DNR and LNR regions of Ukraine. The Ukraine Order effectively imposes a comprehensive sanctions embargo on the DNR and LNR regions of Ukraine and specifically prohibits the following:
- Any new investment in the DNR or LNR regions of Ukraine by any U.S. person, wherever located;
- The importation into the U.S., directly or indirectly, of any goods, services or technology from the DNR or LNR regions of Ukraine;
- The exportation, reexportation, sale, or supply, directly or indirectly, from the U.S. or by a U.S. person, wherever located, of any goods, services or technology to the DNR or LNR regions of Ukraine; and
- Any action by a U.S. person, wherever located, to approve, finance, facilitate or guarantee any transaction by a foreign person if the Ukraine Order would prohibit a U.S. person from performing that same transaction.
The Ukraine Order provides the U.S. Secretary of Treasury with discretionary authority to designate additional regions of Ukraine as “Covered Regions” going forward which will then automatically impose the above-described sanctions on those Covered Regions. Additionally, the Ukraine Order authorizes the U.S. Secretary of Treasury, in consultation with the U.S. Secretary of State, to impose SDN List designations on the following:
- Any natural person or entity operating in the DNR or LNR regions or any subsequently sanctioned Covered Region;
- Any natural person who is a leader, official, senior executive officer, or member of the board of directors of any entity described in the previous bullet point;
- Any natural person or entity who is owned or controlled by, or who has acted or purported to act for or on behalf of, directly or indirectly, any natural person or entity who is added to the SDN List pursuant to the Ukraine Order; and
- Any natural person who has materially assisted, sponsored, or provided financial, material or technological support for, or goods and services to or in support of any natural person or entity who is added to the SDN List pursuant to the Ukraine Order.
OFAC has issued the following General Licenses in order to authorize certain transactions and activities which would otherwise be prohibited under the Ukraine Order:
- General License No. 17, which authorizes transactions that are “ordinarily incident and necessary to the wind down” of transactions involving the DNR and LNR regions of Ukraine. These authorized transactions include: (i) transactions to divest any U.S. person’s ownership interest acquired in any investment in the DNR or LNR regions of Ukraine prior to February 21, 2022 (if transferred to a non-U.S. person), and (ii) transactions related to the winding down of operations, contracts, or other agreements in effect prior to February 21, 2022. The authorizations provided under General License No. 17 expire at 12:01 a.m. eastern daylight time on March 23, 2022.
- General License No. 18, which authorizes transactions that are ordinarily incident and necessary to: (i) the exportation and reexportation of agricultural commodities, medicine, medical devices, replacement parts and components for medical devices and software updates for medical devices to the DNR and LNR regions of Ukraine and any other region which might later become a Covered Region, and (ii) prevent, diagnose or treat COVID-19 in the DNR and LNR regions of Ukraine and any other region which might later become a Covered Region.
- General License No. 19, which authorizes certain transactions involving the DNR and LNR regions of Ukraine which are ordinarily incident and necessary to the receipt or transmission of telecommunications.
- General License No. 20, which authorizes transactions for the conduct of business by certain specified international organizations and entities which include the United Nations and the Red Cross.
- General License No. 21, which authorizes transfers of noncommercial, personal remittances: (i) to or from the DNR and LNR regions of Ukraine and any other region which might later become a Covered Region, and (ii) for or on behalf of individuals ordinary resident in those regions.
- General License No. 22, which authorizes exports to the DNR and LNR regions of Ukraine and any other regions which might later become a Covered Region of: (i) services incident to the exchange of personal communications over the internet, such as instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, and blogging, and (ii) software necessary to enable those services, provided that the software is classified as either EAR99 or ECCN 5D992.c (if it is “subject to the EAR”) or otherwise not listed under any multilateral export control regime (if it is not “subject to the EAR”).
Anyone seeking to utilize any of the above-described General Licenses should be aware that the General Licenses impose specific terms and conditions which must be carefully complied with. Additionally, General License Nos. 17, 19, 21 and 22 are not available for any transactions which involve a counter-party that has been designated as a SDN pursuant to the Ukraine Order.
The White House issued a Fact Sheet to accompany the Ukraine Order which stated that “[The Ukraine Order] is distinct from the swift and severe economic measures we are prepared to issue with Allies and partners in response to a further Russian invasion of Ukraine. We are continuing to closely consult with Ukraine and with Allies and partners on next steps and urge Russia to immediately deescalate.” Therefore, the regulated community should expect additional and more severe sanctions to follow the Ukraine Order if Russia does proceed with military action against Ukraine.
OFAC typically publishes accompanying Frequently Asked Questions (“FAQs”) to provide interpretive guidance for these types of sanctions announcements, but as of this writing OFAC has not yet issued any FAQs related to the Ukraine Order. If OFAC does eventually issue any FAQs to clarify the scope of the Ukraine Order then we will update this post accordingly.
Husch Blackwell’s Export Controls and Economic Sanctions Team continues to monitor sanctions developments in Russia and Ukraine closely and will provide further updates if or when additional developments occur. Should you have any questions or concerns, please contact Cortney Morgan, Grant Leach or Tony Busch of our Export Controls and Economic Sanctions Team.