Russia Sanctions Year in Review: Impact on Financial Services Sector

On February 24, 2022, the United States (“US”), European Union (“EU”), United Kingdom (“UK”), and other countries issued a barrage of sanctions against the Russian financial sector, cutting off many major banks from the global financial system. These initial measures were coordinated among the US, EU, UK and other G7 countries and largely mirrored one another. As the year progressed, the US, EU, and UK each imposed new and distinct measures to restrict Russia’s ability to raise capital. Over time, important deviations between jurisdictions began to emerge, creating a vast and multijurisdictional impact on Russia’s financial sector. Russia, in turn, imposed its own measures in an attempt to mitigate that impact. In order for companies to operate in global markets, it became increasingly necessary to understand how to navigate multiple sanctions regimes. Below, we describe several of the key measures levied against the Russian financial sector over the past year.

Blocking Sanctions and SWIFT Delisting: As an initial response to the conflict, each jurisdiction imposed sanctions through asset freezes against key Russian and Belarusian financial institutions. In the US, these measures were imposed by designation on the Specially Designated Nationals and Blocked Persons (“SDN”) List of the Treasury Department’s Office of Foreign Assets Control (“OFAC”). US persons are prohibited from entering into any transaction with SDNs, or with entities that are owned 50% or more by one or more SDNs (“OFAC’s 50% Rule”). Similarly, the EU and the UK added Russian financial institutions to their consolidated lists of financial sanctions targets. Similar to the SDN List, designation on these lists means that all funds and economic resources that are owned, held, or controlled by listed entities, and that are under EU or UK jurisdiction, must be frozen, and no funds or economic resources can be made available (directly or indirectly) to or for the benefit of these entities unless permitted by a license.

In a further effort to cut Russia’s financial sector off from wider markets, the US, EU, and UK banned certain Russian banks from the Belgian-based Society for Worldwide Interbank Financial Telecommunication (“SWIFT”), which serves as the primary messaging network for international payments. These measures imposed a prohibition on the provision of Financial messaging services to delisted banks or any Russian-established subsidiary that is directly or indirectly owned (50% or more) by a delisted bank.

Practically speaking, the Western measures cut off sanctioned Russian financial institutions from transacting in major currencies and engaging in transactions and transfers in Western–and, to some extent, Asian–markets. Although many Russian banks, including VEB, Sberbank, and PSB, are currently blocked in the US, UK, and EU, some institutions, such as Gazprombank and Transkapitalbank, face narrower, more targeted financial restrictions. In addition, there are certain authorizations, such as OFAC General License 8E, that permit energy-related transactions involving several Russian banks that otherwise are subject to sanctions.

Importantly, there are the differences in the scope of national rules, circumstances in which licenses are and are not required, and how sanctions are applied to affiliates. For example, similar to OFAC’s 50% Rule, under the EU and UK regulations subsidiaries that are owned 50% or more by listed entities are also subject to the asset freeze restrictions. However, unlike OFAC’s 50% Rule, the EU’s and UK’s asset freeze restrictions also apply to entities that are “controlled” by listed entities, whether by shareholdings or other means.

Further complicating these issues for financial institutions and companies, Russia quickly responded by taking measures to prop up the Russian ruble.  These measures included placing restrictions on exports of funds and transactions paid in Western currencies.

Restrictions on New Debt and Equity for Russian Banks:  Although some Russian banks are subject to asset freezes, others face restrictions on new debt and equity. In the US, restrictions under Executive Orders 13662 and 14024 prevent transactions and dealings by US persons in new debt of specified durations, as well as new equity transactions. Similarly, the EU and the UK each extended the scope of existing financing and capital markets restrictions targeting Russian stated-owned banks and companies. The UK also adopted new restrictions on certain new debt to Russian parties or relating to Russian investments, as well as dealings in certain capital market instruments issued by Russian or Russian-owned parties.

Banking Deposit Restrictions: Some measures are aimed at prohibiting individual transactions rather than cutting off entire financial institutions. For example, the EU adopted restrictions preventing the acceptance of deposits from Russian companies (or Russian owned non-EU companies) and Russian nationals/residents where such deposits would bring the account holder’s balance above EUR 100,000 per financial institution (across all accounts).  Reporting obligations were also introduced requiring financial institutions to report to their national competent authority a list of deposits above EUR 100,000 currently held by such individuals or entities. The UK announced similar measures in February 2022, but at this point in time, these have not been implemented.

Other Financial and Professional Services Prohibitions: Finally, the US, UK, and EU have sought to restrict how their own citizens may provide financial services to Russian entities. In early 2022, the EU and UK banned certain financial services. In the EU, this restriction included the provision of credit rating services and central securities depository services to Russian parties. In the UK, this restriction prevented the provision of services to the Russian Central Bank relating to foreign exchange reserves. As the year progressed, further prohibitions to inhibit the Russian financial sector were introduced. In May 2022, the US prohibited the export of certain services to the Russian Federation, including accounting, trust and corporate formation, and management consulting services. Later in the year, the EU and UK followed suit and prohibited the provision of trust, accounting, business, and management consulting services to Russian companies.

Russian Countermeasures: As Western sanctions continue to evolve, so do Russian efforts to counter those sanctions. In some ways, the Russian government had prepared for Western sanctions. For example, it had already implemented MIR, the payment platform that has replaced Mastercard and Visa in Russia following their voluntary departure from the Russian market. The result has been a myriad of issues that will likely end up in litigation and arbitration for several years.

For many financial transactions, such as the sale of debt/equity instruments, the only avenue for investors is to receive the proceeds in a so-called Ruble “S” account that does not allow for conversion or repatriation of funds outside of Russia.

Russian authorities are also slowing down any further exit of foreign-owned financial institutions. In October 2022, President Putin issued a Presidential Decree that prohibited the sale of shares in over 40 foreign-owned banks without Presidential approval. This action has made the share sales process lengthy and unpredictable. As time progresses, it is likely that the Russian government and Russian actors will continue to search for ways to mitigate Western sanctions.


By Stephan E. Becker, Nancy A. Fischer, Steven P. Farmer, Aaron R. Hutman, Luke Wochensky, Oleg Khokhlov, Roya Motazedi, Mark Booth and Iris Karaman, 10th February 2023