Following the United States sanctions on Ukraine’s so-called Donetsk People’s Republic and Luhansk People’s Republics on February 21, US President Joe Biden has now announced a new set of fiscal and economic sanctions against Russia after their recognition of Donetsk and Luhansk as independent and sovereign countries, deeming the deployment of Russian ‘peacekeeper’ troops into the region as the beginning of a Russian invasion. It is more accurately called an occupation of Ukrainian territory previously invaded in 2014.
“He’s setting up a rationale to go further. This is the beginning of a Russian invasion of Ukraine,” Biden said. “Who in the Lord’s name does Putin think gives him the right to declare new so-called countries on territory that belongs to his neighbors. This is a flagrant violation of international law and demands a firm response from the international community.”
Today, I announced the first tranche of sanctions in response to Russia’s actions in Ukraine. And if Russia goes further with this invasion, we stand prepared to take further steps as necessary. pic.twitter.com/8t87wyMq6q
— President Biden (@POTUS) February 23, 2022
Biden imposed the first tranche of sanctions on Russia that goes hand in hand with other sanctions made by US and other countries that support Ukrainian These sanctions target Russia’s financial institutions, sovereign debt, and Russian elites and oligarchs that have allegedly supported Putin and pillaged the Russian state. The administration believes that these sanctions will cripple Russia’s economy.
Biden also announced other moves, including providing more ‘defensive’ assistance to Ukraine of an unknown amount and additional support and movement of US forces who are already in Europe, strengthening US allies Estonia, Latvia, and Lithuania. Eight hundred troops based in Italy were said to be deployed to the Baltics, with small numbers of aircraft also deployed to NATO allies. Biden emphasized that these military movements are to defend NATO territory and completely defensive and that there is no intention of fighting a war with Russia. Note that Ukraine is not a NATO member, and its membership has been more or less been on hold since they expressed interest in applying for membership.
“We have no intention of fighting Russia. We want to send an unmistakable message though — that the United States, together with our allies, will defend every inch of NATO territory and abide by the commitments we made to NATO,” said the President.
Sanctions Directed to Donetsk and Luhansk
On February 21, President Joe Biden had imposed sanctions separately for the so-called Donetsk and Luhansk People’s Republics (DNR and LNR) quickly after Putin had signed the decrees recognizing their independence.
This set of sanctions includes the prohibition of new investments in Ukraine based companies DNR and LNR by citizens of the United States, importation of any goods, services, and technology by the US from the DNR and LNR, the exportation of any goods, services, and technology by the US to the aforementioned regions, and to approve any financing of a US citizen toward any person connected to the DNR and LNR. These were not sanctions on Russia per se but Ukrainian companies doing business with Russia in the break away regions.
Furthermore, it also imposes sanctions on any person that will operate or have operated any business or financial transactions in the disputed regions after the sanctions have been imposed. Officers, leaders, and members of the board of directors of any entity operating in said regions, as well as those who have assisted the DNR and LNR financially, technologically, and materially are also covered by the sanction. In point of fact, these sanctions would affect American and European companies that might do business there.
However, humanitarian aid to the regions is permitted provided that organizations and individuals who want to pursue humanitarian missions in Donetsk and Luhansk obtain licenses to do so. These humanitarian licenses are designed for people who had no choice but to live in the DNR and LNR and prevent Russia from profiteering from the population residing in these breakaway regions. Under the six general licenses, the export of food, medicine, medical devices, and personal remittances are allowed. Telecommunications, internet, and mail services are also permitted to operate.
Sanctions Directed on Russian Banks
A new set of sanctions ranging from fiscal and economic policies were implemented by the United States designed to punish individuals who have supported the recognition of the breakaway regions and those closest to Putin, as well as Russian financial institutions to hamper Russia’s ability to pay back its national debt.
“We’re implementing full blocking sanctions on two Russian financial institutions, VEB and their military bank. We’re implementing comprehensive sanctions on Russia’s sovereign debt. That means we’ve cut off Russia’s government from Western financing. It can no longer raise money from the West and cannot trade in its new debt on our markets or European markets either,” said the US president.
According to a press release by the US Department of Treasury specifically enumerating the sanctions to be imposed on Russia, the following salient provisions comprise the aforementioned sanctions:
Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), along with 42 of their subsidiaries, can no longer engage in business with the United States or any United States citizen. VEB is mainly Russia’s bank of choice to service its sovereign debt and also functions as one of the main financers of Russia’s domestic infrastructure that generates revenue for the Kremlin. It reportedly holds an investment loan portfolio of over $20 billion and a $53 billion asset portfolio. The PSB, on the other hand, is the 8th largest bank in Russia which was nationalized in 2018 to finance Russia’s Ministry of Defense and the Russian defense sector. It holds 70% of Russia’s defense contracts and provides personal finances to the Russian military.
Collectively, they hold tens of billions of dollars that enable the Russian economy and Russian military to function. Its subsidiaries reportedly operate in the banking sector and other financial firms, electronics producing fields, coal mining companies, and sporting activities companies. In addition to these sanctions, all Russian assets owned by these banks held under US jurisdiction are now frozen. US citizens and entities are barred from doing business with these Russian banks unless authorized by the OFAC. Cargo containers and oil tanker ships owned by PSB Lizing, a subsidiary of PSB, had also been blocked, namely Baltic Leader, Linda, Pegas, Fesco Magadan, and Fesco Moneron.
Sanctions Directed at Russian Elites
Several noteworthy individuals who are members of the Russian elite, many of whom are in Putin’s inner circles, who engage in moving assets illegally in an attempt to conceal wealth have also been blacklisted and sanctioned.
Among the sanctioned elites include Denis Aleksandrovich Bortnikov. He is the son of Aleksandr Vasilievich Bortnikov, the Director of the Federal Security Service (FSB), the successor of the Soviet-era KGB. The elder Bortnikov was sanctioned last March 2021 due to acting on behalf of the FSB. The younger Denis Bortnikov serves as a Deputy President of Russian-state owned financial institution VTB Bank Public Joint Stock Company (VTB Bank) and a Chairman of the VTB Bank Management Board.
Another individual is Petr Mikhailovich Fradkov, the Chairman and CEO of the PSB. You might be familiar with his last name as he is the son of former Prime Minister of Russia Mikhail Efimovich Fradkov, who was also designated by the OFAC last April 2018 for being an official of the Russian government. He was integral in transforming PSB into the defense bank it is today. Additionally, Fradkov also serves as the General Director of Joint Stock Company Russian Export Center, which was also blocked today as it was a subsidiary of VEB.
Lastly, you have the Kiriyenko family. Specifically, Vladimir Sergeevich Kiriyenko, son of Sergei Vladilenovich Kiriyenko. The elder Kiriyenko, Sergei, is the First Deputy Chief of Staff of the Presidential Office who crafts Putin’s domestic policies. Like Fradkov, he was also once the Prime Minister of Russia and had served as the General Director of Rosatom State Atomic Energy Corporation. Like the other oligarchs, he was designated in 2021 as part of the Russian government. His son, Vladimir, is the CEO of the VK group, which owns the top Russian social media site, Vkontakte.
All of them are now blocked from doing business with the United States. All of their property and interests located in the United States or in possession of any US citizen are blocked and frozen and must be reported to the OFAC. Questions remain as to the amount of money involved in these sanctions and whether they are sufficient to have a significant impact on Russia.
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