Given the magnitude of current events gripping the country and the world, many otherwise noteworthy governmental actions are passing largely unnoticed. One such under-the-radar action occurred on July 22, 2020, when the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued two new General Licenses (“GL”), GL 13O and GL 15I, related to GAZ Group, a Russian automotive conglomerate owned by Oleg Deripaska. Mr. Deripaska, a Russian oligarch with close ties to Russian President Putin, has been implicated in allegations of Russian interference in the 2016 U.S. presidential election, among other actions. The new GLs purportedly extend authorizations under existing GLs, which have already been extended several times, but in reality broadly expand the scope of authorized activities pertaining to GAZ Group, essentially allowing it to operate largely as business as usual.
Oleg Deripaska and U.S. Sanctions
OFAC sanctioned Mr. Deripaska in April 2018, along with several other Russian oligarchs closely associated with the Putin government, for the Russian government’s “malign activity around the globe, including continuing to occupy Crimea and instigate violence in eastern Ukraine, supplying the Assad regime with material and weaponry as they bomb their own civilians, attempting to subvert Western democracies, and malicious cyber activities.” Specifically, Mr. Deripaska was designated for having acted or purported to act for or on behalf of, directly or indirectly, a senior official of the Government of the Russian Federation, as well as for operating in the energy sector of the Russian Federation economy. This action, which sanctioned Mr. Deripaska and companies in which he owns 50% or more, including GAZ Group, attracted significant attention because of the inclusion of Mr. Deripaska’s other major holding, Rusal, the world’s second-largest aluminum firm.
In conjunction with these designations, OFAC issued GLs authorizing certain wind-down and divestment activities related to GAZ Group and other sanctioned entities. The issuance of such GLs is common when OFAC sanctions large companies or individuals with global reach. OFAC reauthorized these GLs as related to GAZ Group numerous times, most recently on July 22, 2020.
New General Licenses
Extending the existing authorization for divestment activities, new GL 13O authorizes, through January 22, 2021, certain transactions necessary to divest or transfer debt, equity, or other holdings in GAZ Group and its 50% or greater owned subsidiaries. Notably, however, new GL 15I not only reauthorizes the existing authorization for wind-down activities, but also greatly expands the scope of permitted activities pertaining to GAZ Group. Specifically, GL 15I authorizes the following additional activities with GAZ Group:
- Transactions and activities that are ordinarily incident and necessary to the manufacture and sale of existing and new models of vehicles, components, and spare parts, including automobiles, light commercial vehicles, trucks, buses, and engines/powertrains, produced by GAZ Group, or any entity in which GAZ Group owns (“Paragraph (a)”);
- Research, design, development, production, modification, upgrade, certification, distribution, and marketing;
- Provision or receipt of services, including warranty, maintenance, logistics, storage, shipping, insurance, security, brokerage, legal, banking and financial (including financing and renegotiation of debt), technical and engineering, advertising, and customer services;
- Entry into joint ventures, contract manufacturing agreements, supplier contracts, and other new contracts associated with activities authorized by paragraph (a);
- Payment and receipt of dividends and other funds owed by or to GAZ Group relating to activities authorized by Paragraph (a);
- The conduct of financial transactions associated with activities authorized by Paragraph (a); and
- Activities necessary for compliance with reporting requirements contained within the GL.
As you can see, many of the above activities go beyond the normal scope of “maintenance” or “wind-down” activities. As our friends at the Atlantic Council recently noted, it seems, then, that OFAC may have used a GL reauthorization to broadly expand the scope of permissible activities as pertaining to GAZ Group. This is a relatively unusual course of action, and not one that we expect will escape the notice of Congress and other potential critics. One consideration at play that might help explain this action is that OFAC apparently has been negotiating a divestment deal with Mr. Deripaska, whereby he would remove himself from GAZ Group and other holdings.
While it permits a wider range of activities with GAZ Group, the GL also imposes reporting requirements. For example, under GL 15I(f), GAZ Group is required to submit to OFAC audited financial statements, board meeting minutes, changes to its board of directors, notices of new joint ventures, and certain financing agreements. Despite these reporting requirements, the end result of the new GLs appears to be that GAZ Group is largely back in action.
MoFo’s National Security practice closely monitors U.S. sanctions, including those on Russia, and will keep you updated on any noteworthy developments.