In response to Russian President Vladimir Putin's decision earlier this month to reclaim the Crimean Peninsula as a part of the Russian Federation, President Barack Obama issued three executive orders authorizing the Secretary of the Treasury to block the property of targeted Russian and Ukrainian individuals as well as institute a travel and visa ban on certain officials. Additionally, the Commerce Department's Bureau of Industry and Security (BIS) has placed a hold on the issuance of all export licenses to Russia.
The European Union and Canada have issued similarly targeted sanctions and the United Kingdom suspended all licenses and license applications for exports to the Russian military that could be used against Ukraine. These actions represent the broadest sanctions placed on the Russian Federation since the close of the Cold War.
Current U.S. Sanctions
President Obama issued three executive orders on March 6, 2014, March 16, 2014, and March 20, 2014, under his International Emergency Economic Powers Act (IEEPA) authority authorizing the Secretary of the Treasury to block the property of individuals and entities falling into three groups: (1) former or current Russian, Ukrainian, and Crimean government officials tied to the situation in the Ukraine; (2) individuals and entities operating in the arms sector in Russia; and (3) those who operate in certain sectors of the Russian economy such as financial services, energy, metals and mining, engineering, and defense/related material. These executive orders also extend to those persons providing material support to, as well as those owned or controlled by, individuals sanctioned under the orders. To date, approximately 30 individuals and a single entity, Bank Rossiya, have been added to the Office of Foreign Assets Control's (OFAC's) list of Specially Designated Nationals ("SDN list") under these orders. Specifically, parties sanctioned under these orders include: current and former Russian, Crimean, and Ukrainian government officials, including former Ukrainian President Viktor Yanukovych; certain members of Vladimir Putin's "inner circle"; and Bank Rossiya, whose shareholders include many close associates of the Russian president. While the number of individuals and entities sanctioned thus far remains small, the language of the three executive orders is sufficiently broad as to allow for the imposition of sanctions across much of the Russian economy and political structure.
On March 25, 2014, BIS announced on its website that, as of March 1, 2014, a hold had been placed on the issuance of all export licenses to Russia. It also announced that this policy would continue until further notice. While no further official explanation has been provided, there is no indication that BIS plans to revoke existing licenses.
Related to the sanctions imposed under these executive orders, the Financial Crimes Enforcement Network (FinCEN) issued several advisories reminding U.S. financial institutions of their responsibility to: take reasonable, risk-based steps in regards to the potential suspicious movement of assets related to the crisis in Ukraine; apply enhanced scrutiny to the private accounts related to senior foreign political figures; and enforce the blocks put in place under the new U.S. Russian sanctions regime.
What the Sanctions Mean to You
Effective immediately, no U.S. company can deal in any way with property owned or controlled by any individual or entity sanctioned under these orders, including transferring funds, exporting goods, and providing any services. This includes individuals and entities added to the SDN list along with any entity that is "owned" or "controlled" by a prohibited person. OFAC presumes ownership and/or control if a sanctioned party owns a 50 percent or more interest, directly or indirectly—regardless of whether the entity itself is on the SDN list. This puts a premium on conducting quality due diligence in all transactions in the region.
These new sanctions reinforce the importance of export control compliance screening. U.S. companies should always ensure that all relevant lists, including OFAC's SDN list, are screened prior to providing a service, download, or export to anyone outside of the United States. You may want to ensure that your SDN screening provider has updated their lists or, if you do your own SDN screening, please ensure that your in-house personnel has the most updated lists.
Although the current OFAC sanctions are limited to designated individuals and entities, President Obama has made it clear that as long as Russia continues its occupation of the Crimean Peninsula, the U.S. will maintain and expand its sanctions as appropriate. Currently, OFAC is not expected to impose a full-scale embargo against Russia such that U.S. assets there would be impacted. Globally, in addition to the measures already enacted in the E.U., Canada, and the U.K., Russia has been removed from the G-8, and President Obama is pressing foreign leaders for more comprehensive international sanctions to address Russia's behavior in Crimea. Given the uncertainty in the region and the sanctions imposed thus far, U.S. companies will want to carefully screen their transactions in Russia.
We will keep you informed of any major additional sanctions.
