On February 22, 2022, the US Department of the Treasury’s Office of Foreign Assets Control issued Directive 1A under Executive Order 14024 to prohibit US financial institutions from engaging in certain transactions with the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation after the Director of OFAC, in consultation with the Department of State, deemed these banks to be political subdivisions, agencies or instrumentalities of the Government of the Russian Federation. More specifically, Directive 1A prohibits US financial institutions from participating in primary market for ruble or non-ruble denominated bonds issued by these banks after June 14, 2021 and lending ruble or non-ruble denominated funds to these banks as of June 14, 2021. The Directive also prohibits US financial institutions from participating in the secondary market for ruble or non-ruble denominated bonds issued by these banks after March 1, 2022.
The release of Directive 1A is one of many actions taken by the US in response to Russian President Putin’s declaration that Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LPR) were “independent” states and deployment of troops to Ukraine. OFAC also designated the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company (PSB), two state-owned financial institutions in Russia that support Russia’s economy and defense program. In light of the VEB’s designation, OFAC issued General Licenses 2 and 3 to authorize certain transactions related to VEB’s servicing of bonds issued before March 1, 2022 (GL 2) and enable wind down transactions with the VEB through March 24, 2022 (GL 3).
OFAC also issued new Frequently Asked Questions 964 and 965 and updated several FAQs to provide the public with further clarity on the impact of Directive 1A and the GLs 2 and 3.