This is what the rules say:
So, banning the entire country is exactly within the rules.
http://www.isu.org/vsite/vfile/page/fileurl/0,11040,4844-203191-220414-166536-0-file,00.pdf
Each Member must ensure that Skaters entered for Senior and Junior Competitions, ISU Championships and Olympic Winter Games fulfill the requirements of the Rules. In case of violation, the Member concerned may lose the right to send Skaters the following year to all Senior and Junior (as the case may be) ISU Championships and International Competitions.
So, banning the entire country is exactly within the rules.
http://www.isu.org/vsite/vfile/page/fileurl/0,11040,4844-203191-220414-166536-0-file,00.pdf