The U.S.Treasury Department’s Office of Foreign Assets Control (“OFAC”) added Rosneft Trading SA (“Rosneft Trading”), a subsidiary of Russian oil major Rosneft Oil Company (“Rosneft”), to the List of Specially Designated Nationals (“SDN List”) on February 18, 2020. U.S. Treasury officials, including Secretary Mnuchin, indicated that the new sanctions were due to Rosneft Trading’s involvement in selling and transporting Venezuelan crude oil and thereby supporting the embattled Maduro government. Rosneft Trading’s chairman, Didier Casimiro, was also sanctioned for his alleged involvement in exploring new business with Petroleos de Venezuela ("PDVSA") on behalf of Rosneft Trading. The move represents a modest, yet noteworthy expansion of sanctions intended to further pressure President Nicolas Maduro to allow free and fair elections and to indicate support for Interim President and National Assembly President Juan Guaido.  

The sanctions may have a more limited practical effect than it first appears, as they only affect U.S. persons who are engaging in business with Rosneft Trading and its subsidiaries rather than Rosneft itself (or other Rosneft subsidiaries). However, U.S. persons will need to cease their business with Rosneft Trading by May 20, and any non-U.S. company that has ongoing business with Rosneft Trading should assess its potential exposure under U.S. sanctions and consider winding down that business to mitigate such risks. The action also highlights the secondary sanctions risk for non-U.S. companies transacting with the Government of Venezuela or PDVSA more broadly, as the U.S. government seeks to increase sanctions pressure on the Maduro regime.

Overview of Prior Sanctions on Rosneft

Since 2014, Rosneft has been subject to limited sanctions under Directives 2 and 4 of the U.S. Sectoral Sanctions Identification List (“SSI List”). These restrictions – which also apply to all Rosneft subsidiaries, including Rosneft Trading – prohibit U.S. persons from dealing in certain debt instruments issued by Rosneft and from providing goods, services or technology in support of certain deepwater, Arctic or shale oil projects involving Rosneft. However, U.S. persons were not otherwise restricted from engaging in activities involving Rosneft, Rosneft Trading or other Rosneft entities.  

Effect of New Sanctions and New General License

The addition of Rosneft Trading to the SDN List means that U.S. persons generally are restricted from engaging in any activities with Rosneft Trading and are required to block any property in which Rosneft Trading has an interest that is under the possession or control of U.S. persons. However, OFAC also issued General License (GL) No. 36, “Authorizing Certain Activities Necessary to the Wind Down of Transactions Involving Rosneft Trading S.A.,” to facilitate an orderly wind down of existing transactions. Under GL 36, U.S. persons are authorized until May 20, 2020 to engage in all transactions and activities that are incident and necessary to wind down transactions involving Rosneft Trading or its subsidiaries. Such activities cannot, however, involve any other SDNs or any debits to U.S. bank accounts of Rosneft Trading or its subsidiaries. 

The U.S. Government also has the authority to impose sanctions on any non-U.S. person that has materially assisted, sponsored or provided financial, material or technological support for, or goods or services in support of, Rosneft Trading, PDVSA, the Government of Venezuela or any other SDN sanctioned pursuant to Executive Order 13850, as well as on non-U.S. persons operating in the gold, defense/security, financial or oil sectors of Venezuela. Such non-U.S. persons can be added to the SDN List itself. OFAC published guidance, however, to state that non-U.S. persons may utilize the window provided by GL 36 to wind down their own transactions with Rosneft Trading before May 20, 2020 without triggering sanctions for that activity. According to that same guidance, however, non-U.S. persons entering into new business during the wind down period, or continuing to engage in business with Rosneft Trading after May 20, 2020, may be exposed to potential sanctions. 

Finally, unlike many other general licenses issued by OFAC, GL 36 only authorizes the wind down of existing transactions involving Rosneft Trading (rather than wind down and maintenance of such business). This means that U.S. persons may not engage in transactions for the continuity of operations with Rosneft Trading, enter into contingent contracts with Rosneft Trading or otherwise engage in any other new business that is not for the purpose of winding down existing transactions. Non-U.S. persons would be exposed to sanctions if they engaged in such transactions. 

Additional Points to Consider

The new measures tighten restrictions on Rosneft Trading and its subsidiaries but do not affect transactions involving other Rosneft entities. As noted above, SSI List restrictions related to certain Rosneft debt and certain oil projects remain in effect. The new measures, however, do not generally impose any new restrictions on the ability of U.S. persons to trade in existing Rosneft debt traded on secondary markets (as such instruments are issued by Rosneft itself rather than by Rosneft Trading) or to engage in activities involving Rosneft subsidiaries other than Rosneft Trading.

In recent weeks, OFAC has sanctioned various companies, persons, aircraft and ships that have been used in connection with Venezuela’s oil sector and other activities involving the Venezuelan government. When announcing the new sanctions against Rosneft Trading, Treasury officials stated that they are considering additional Venezuela-related sanctions to further pressure the Maduro government. As a result, any company that continues to engage in business involving Venezuela’s oil sector or with the Venezuelan government more generally risks potential penalties under U.S. sanctions, including by being added to the SDN List themselves. Such companies should consider whether it is possible to wind down activities by mid-May and if not, whether to apply for a license from OFAC to permit ongoing activities for an additional period of time.