On July 16, the U.S. government further expanded the sanctions imposed in response to Russian President Vladimir Putin's decision to reclaim the Crimean Peninsula as a part of the Russian Federation. These expanded sanctions include the introduction of the Sectoral Sanctions Identifications List (SSI List), which restricts financial transactions with certain entities that operate in the financial and energy sectors of the Russian economy, as identified by the U.S. Treasury Secretary pursuant to Executive Order 13662.1 The new sanctions represent a significant escalation in the tensions between Russia and the United States and target large banks, energy, and defense firms. In addition to the introduction of the SSI List, five individuals and eleven entities were added to the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) List of Specially Designated Nationals (SDN List) under these sanctions. Further, the U.S. Commerce Department's Bureau of Industry and Security (BIS) also added the same 11 entities to its Entity List. These actions build upon the prior sanctions imposed by the U.S. government in response to Putin's decision to reclaim the Crimean Peninsula.2 Both the Departments of State and Commerce continue to impose a presumption of denial for license requests regarding exports and re-exports of "high technology" items to "Russia or occupied Crimea."3 Given the uncertainty in the region and the recent crash of Malaysia Airlines Flight 17, we recommend that companies closely monitor their business in the areas affected by these restrictions, as we believe further sanctions are likely.
OFAC Introduces the SSI List: Restricting Access to U.S. Capital Markets
On July 16, OFAC the introduced the SSI List. Like the SDN List, entities must be specifically added to the list in order to be affected by the sanctions. However, the SSI sanctions affect only certain financial transactions and do not impose broad prohibitions on the export and import of goods and services to and from these individuals and entities. Affected entities include:
Gazprombank: Russia's largest private bank and the financial arm of Gazprom, the Russian state-controlled natural gas company
Novatek: Russia's largest, independent natural-gas producer
Rosneft: the country's largest oil company
Vnesheconombank: a large economic-development lender
Consistent with other OFAC sanctions, the SSI List also covers any entity that is "owned" or "controlled" by an SSI-listed entity (ownership or control is presumed by OFAC whenever a sanctioned person owns a 50 percent or more interest, directly or indirectly). Also, unlike an SDN-listed entity, the property of an SSI-listed entity is not blocked as a result of being listed.
The Designation of Five Additional Individuals and Eleven Additional Entities
In addition to the above designations, OFAC placed five additional individuals and eleven entities on its SDN List and BIS also added the same eleven entities to its Entity List. The sanctioned individuals are primarily Russian government officials, and the entities include separatist groups, defense firms, weapons manufacturers, and energy-related companies.
These designations are broader than SSI designations, as U.S. persons, including U.S. companies, are prohibited from exporting and importing goods and services to or from an SDN-listed entity, prohibited from financing transactions involving an SDN entity, as well as prohibited from financing or investing in an entity that includes an SDN person as an officer or member of the board of directors. These prohibitions also apply to any entity that is "owned" or "controlled" by a sanctioned person.
What the Sanctions Mean to You
These new sanctions reinforce the importance of export control and sanctions compliance screening. U.S. companies should always ensure that all relevant lists, including OFAC's SDN and SSI lists as well as BIS's Entity List, are screened prior to providing a service, download, or export to anyone outside of the United States. Engaging in a transaction prohibited by the OFAC sanctions or BIS regulations is a strict liability violation. As a result, a company can violate the sanctions and regulations even if they lacked knowledge that the transaction violated relevant laws. Companies should further ensure that SDN-screening providers have the updated lists. If a company conducts its own SDN screening, then it should ensure that its in-house personnel have the most updated lists. Even though the SSI List does not specifically prohibit the import and export of goods and services to the entities on the list, transactions with entities on the list should be carefully reviewed.
1 See http://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_eo3.pdf.
2 See "U.S. Expands Sanctions on Russia in Light of Crisis in Ukraine," WSGR Alert, March 26, 2014, available at http://www.wsgr.com/WSGR/Display.aspx?SectionName=publications/PDFSearch/wsgralert-russia-ukraine-crisis.htm and "More Restrictions on Business with Russia," WSGR Alert, May 1, 2014, available at http://www.wsgr.com/publications/PDFSearch/wsgralert-russian-business-restrictions.pdf.
3 The Department of State's announcement is available at http://www.state.gov/r/pa/prs/ps/2014/04/225241.htm, and the Department of Commerce's announcement is available at http://www.bis.doc.gov/index.php/about-bis/newsroom/press-releases/107-about-bis/newsroom/press-releases/press-release-2014/665-commerce-dept-announces-expansion-of-export-restrictions-on-russia.