President Obama announced yesterday the creation of the new Sectoral Sanctions Identification List (“SSI List”) issued pursuant the Russian sanctions program and the addition of two Russian energy companies and two Russian banks to that list. This action falls short of the broader, industry-wide sanctions many U.S. lawmakers have called for, but it shows an increased willingness by the administration to move closer to the sweeping sanctions threatened in Obama’s last executive order.
As part of the creation of the SSI List, OFAC issued two new “Directives” under Executive Order 13662. While Directive 1 targets Russian banks and Directive 2 targets the energy sector, both Directives prohibit the named Russian entities from accessing the U.S. debt markets for loans exceeding 90 days. This permits those entities to conduct normal business operations but cuts them off from U.S.-based financing for medium- to long-term projects. Interestingly, the Directives do not block the property of the named entities, prohibit U.S. persons from doing business with the named entities, or place the named entities on the SDN List.
The new companies added to the SSI List include the large, state-owned energy company Rosneft OAO, and Russian natural gas company, Novatek. The two banks added to the SSI List are Gazprombank, the financial arm of Russian energy giant Gazprom, and Vnesheconombank, or “VEB”. Several individuals and eight Russian defense companies (including the Kalashnikov Concern, maker of the AK-47) were also added to the SDN List yesterday. U.S. companies are prohibited from transacting with any parties identified on the SDN List.
The European Union is currently mulling its own new round of sanctions on Russia, but they are not anticipated to match the scope or depth of those issued by the U.S. This is due to Europe’s closer economic ties with Russia and fears of repercussions on European markets.
The creation of the SSI List signals the Obama administration’s growing frustration with Russia’s support of the separatists in Eastern Ukraine and its refusal to deescalate tensions. Although failing to make good on the threat of true sectoral sanctions, yesterday’s announcement inches closer to that possibility. U.S. companies should expect to see true sectoral sanctions become a reality if violence in Eastern Ukraine continues for much longer.