On April 28, 2014, the Office of Foreign Assets Control (OFAC) imposed a new round of Ukraine-related sanctions on more than two dozen Russian companies and government officials. The latest sanctions, supplementing previous rounds, will freeze assets in the United States or that come within the possession or control of U.S. Persons, including their foreign branches, and will prohibit U.S. Persons from doing business with the specified individuals and companies, as well as certain companies under their 50 percent, or greater, ownership. The Department of Commerce has added 13 Russian (or Russian owned) companies to its Entities List, which means that all exports to those companies subject to Commerce Department export controls will need a license and most of those license applications would be denied. Further, the Departments of Commerce and State, acting jointly, have announced a tightened policy to deny export licenses for any high-technology items that could enhance Russia's military capabilities. Any existing export licenses that meet these conditions will be revoked.
On March 6, 2014, President Obama, in Executive Order 13660, declared a national emergency, stating that Russian actions in Crimea “undermine democratic processes and institutions in Ukraine; threaten its peace, security, stability, sovereignty, and territorial integrity." Shortly thereafter, President Obama signed additional Executive Orders on March 16, 2014, (E.O. 13661) and March 20, 2014 (E.O. 13662). These Executive Orders set the stage for the multiple rounds of sanctions recently imposed by OFAC.
On March 17, 2014, OFAC added former Ukrainian President Viktor Yanukovych and 10 other individuals to its Specially Designated Nationals List pursuant to Executive Orders 13660 and 13661. On March 20, 2014, OFAC sanctioned 20 more individuals, including high-ranking Russian officials and associates of Russia’s President Vladimir Putin. Bank Rossiya, Russia’s 17th largest bank, reputed to be the bank used by many Russian officials close to President Putin, and by other wealthy Russians, was also listed. On April 7, 2014, OFAC added seven more individuals and another entity, Chernomorneftegaz, a gas company based in the Crimea region, to the list of sanctioned entities.
The United States was not alone in imposing Russian sanctions: the European Union, Canada, Japan, and Australia also imposed sanctions against Russia.
New OFAC Sanctions Imposed on April 28, 2014
Last week, OFAC imposed new sanctions, listing seven individuals and 17 entities. New sanctions were announced on April 28, 2014, as a direct result of Russia's failure to comply with its commitment to deescalate the crisis in Ukraine, contrary to promises of Russian officials at the Geneva accord on April 17, 2014. The new sanctions target banks, investment firms, and several companies connected to the energy sector, including the Stroytransgaz Group, a pipeline construction arm of Gazprom. Among others, OFAC imposed sanctions on two additional members of President Putin's inner circle: Igor Sechin, president and chairman of the state-owned Rosneft oil company, and Sergei Chemezov, the director general of Rostec, a state-owned corporation focusing on high-technology industries. Rosneft is a major publicly-traded oil company in Russia, one with substantial connections to ExxonMobil and BP. Rostec is also a leading Russian company, one that currently has a joint venture with Boeing. Even though Rosneft and Rostec are not yet listed as Specially Designated Nationals, the fact that their top-level executives appear on the list will have a meaningful impact on U.S. company dealings with those entities and related companies.
Our comprehensive list of individuals and entities that have been placed on the Specially Designated Nationals List pursuant to the Ukraine-related sanctions is provided here.
Additional Restrictions Announced by Departments of Commerce and State
In early March, the Department of Commerce placed a hold on licenses that would authorize the export or re-export of items to Russia. Similarly, the State Department suspended the issuance of licenses that would authorize the export of defense articles and defense services to Russia at the same time.
In the latest round of sanctions, following the previously issued holds, the Department of Commerce added 11 Russian and two Russian-owned companies in Cyprus and Luxembourg to its Entities List, which means that any export, re-export, or other foreign transfer of U.S.-origin items to those companies would require a license. There is a general policy of denying any such license applications. The companies added to the Entities List are: Stroytransgaz Holding, located in Cyprus; Volga Group, located in Luxembourg and Russia; and Aquanika, Avia Group LLC, Avia Group Nord LLC, CJSC Zest, Sakhatrans LLC, Stroygazmontazh, Stroytransgaz Group, Stroytransgaz LLC, Stroytransgaz-M LLC, Stroytransgaz OJSC, and Transoil, all located in Russia.
The Departments of Commerce and State have also announced a tightened policy to deny export licenses for any high-technology items destined for Russia or occupied Crimea that could enhance Russia's military capabilities. Any existing export licenses that meet these conditions will be revoked. All other license applications to export items to Russia or occupied Crimea will be subject to case-by-case review, which is likely to result in even more license applications being denied and even those that are granted are likely to take substantially longer to process.
Further Sanctions Are Likely
President Obama, in a joint news conference with German Chancellor Merkel on May 2, 2014, stated that "[t]he Russian leadership must know that if it continues to destabilize eastern Ukraine and disrupt this month’s presidential election, we will move quickly on additional steps, including further sanctions that will impose greater costs." Such additional sanctions can be put in place very quickly as the March 20, 2014, Executive Order already authorizes the imposition of sanctions against companies in important sectors of the Russian economy, such as financial services, energy, metals and mining, engineering, and defense services and related materials.
At this time, U.S. companies should:
Review all contracts and transactions with Russia, especially for operations falling into the specific sectors set forth in the Executive Orders;
Remain vigilant not do business with the individuals and companies that OFAC has designated as subject to these sanctions, nor with any entities that are at least 50 percent owned by one of the designated individuals and companies;
Be mindful that identifying true ownership interests in Russian companies may prove tricky, as ownerships interests are not always publicly disclosed;
Maintain a "prohibited business partner" list and ensure that the list is continuously updated; and
Evaluate the impact of any retaliation sanctions by the Russian government which may affect their business.