In a Major Move, US Sanctions Key Russian Oligarchs, Officials, and Related Entities

by Dechert LLP

Dechert LLP

The Trump Administration, on April 6, 2018, imposed sanctions on a number of Russian oligarchs with vast business interests, Russian government officials, officers of Russian state-owned enterprises, and related companies. The measures are intended to punish Russia for engaging in “a range of malign activity around the globe,” including activities in Ukraine, Syria, and cyberspace. The U.S. Government also issued two new general licenses to help minimize the impact of the new sanctions on U.S. persons and U.S. allies.

The new measures and related general licenses should be closely assessed by anyone conducting business in Russia. In particular, the general licenses only authorize activities to be conducted until May or June 2018 (depending on the specific activities at issue), and persons seeking to act under these authorities must quickly assess whether their contemplated activities would be covered and, if so, to execute the actions within the authorized time period.

New Sanctions Designations

The new measures primarily focus on adding a number of Russian individuals and entities to the U.S. List of Specially Designated Nationals (SDN List). U.S. persons generally are prohibited from engaging in transactions involving such individuals, entities, or entities in which these SDNs hold an aggregate ownership of 50 percent or more. As noted in the following section, however, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) issued two general licenses authorizing certain transactions with some of the newly-designated entities. The individuals and entities added to the SDN List are:

Seven so-called Russian oligarchs:

  • Vladimir Bogdanov, Oleg Deripaska, Suleiman Kerimov, Igor Rotenberg, Kirill Shamalov, Andrei Skoch, and Viktor Vekselberg
  • We note that all 7 of these individuals appear on the list of Russian oligarchs issued in January 2018 pursuant to Section 241 of the Countering America’s Adversaries Through Sanctions Act (see our prior OnPoint).

Twelve companies owned or controlled by the newly-designated oligarchs:

  • Agroholding Kuban, B-Finance Ltd., Basic Element Limited, EN+ Group, EuroSibEnergo, GAZ Group, Gazprom Burenie OOO, Ladoga Menedzhment OOO, NPV Engineering Open Joint Stock Company, Renova Group, Russian Machines, and United Company RUSAL PLC
  • As discussed below, OFAC also issued a general license authorizing U.S. persons to engage in transactions to wind down activities involving these twelve companies until June 5, 2018. OFAC also issued a general license authorizing certain divestment activities related to EN+ Group, GAZ Group, and United Company RUSAL PLC.

Seventeen Russian government officials/officers of state-owned enterprises:

  • Andrey Akimov, Alexey Dyumin, Mikhail Fradkov, Sergey Fursenko, Oleg Govorun, Vladimir Kolokoltsev, Konstantin Kosachev, Andrey Kostin, Alexey Miller, Nikolai Patrushev, Vladislav Reznik, Evgeniy Shkolov, Alexander Torshin, Vladimir Ustinov, Timur Valiulin, Alexander Zharov, and Viktor Zolotov
  • Many of these individuals are the heads of major Russian state-owned enterprises (such as Gazprom) while others hold senior positions within the Russian government.

A major state-owned Russian weapons company and its subsidiary:

  • Rosoboroneksport and Russian Financial Corporation Bank
  • Rosoboroneksport has been designated under Directive 3 of the Sectoral Sanctions Identification List (SSI List) and U.S. persons already were restricted from dealing in certain new debt instruments of the entity and its subsidiaries. The new SDN designation greatly broadens the scope of prohibitions applicable to the entity under U.S. sanctions.

General Licenses and Related Guidance

In connection with the new designations, OFAC issued two general licenses authorizing U.S. persons to engage in certain limited activities involving the twelve companies added to the SDN List due to their connections to the newly-designated Russian oligarchs. U.S. persons seeking to conduct activities pursuant to these licenses should note that covered activities are authorized only for a limited amount of time (one or two months) and are subject to certain limitations:

  • General License 12 authorizes U.S. persons to engage until June 5, 2018 in all transactions and activities ordinarily incident and necessary to the maintenance or wind down of operations, contracts, or other agreements (including the importation of goods, services, or technology into the United States) involving the twelve oligarch-related SDN companies and their subsidiaries. Any outstanding payments, however, must be deposited in a blocked account at a U.S. financial institution.
  • General License 13 authorizes U.S. persons to divest or transfer to a non-U.S. person, or to facilitate the transfer by a non-U.S. person to another non-U.S. person, of debt, equity, or other holdings in EN+ Group, GAZ Group, and United Company RUSAL PLC (three of the twelve entities also covered by General License 12). However, any such divestment, transfer, or facilitation cannot result in U.S. persons selling debt, equity, or other holdings to; purchasing or investing in debt, equity, or other holdings in; or facilitating such transactions with, directly or indirectly, any SDNs – including the three entities covered by General License 13.
    • As these three entities are publicly-traded and listed on global stock exchanges, U.S. asset managers should review their accounts to identify whether they hold any securities of these entities in their portfolios and consider divesting or transferring such holdings to non-U.S. persons.
  • Persons conducting activities authorized under these general licenses must submit a report to OFAC within ten days of the expiration of the relevant license that identifies the names and addresses of parties involved, the type and scope of activities conducted, and the dates on which the activities occurred.

OFAC also issued new Frequently Asked Questions (FAQ Nos. 567-574) that provide additional detail on the scope of activities authorized under the two new general licenses and related issues – in particular, this new guidance states that:

  • U.S. citizens or legal permanent residents who are employed by, or sit on the board of, newly-designated companies (or their subsidiaries) might be restricted from continuing their employment or board membership with such entities, though certain activities of such persons might be authorized under General License 12.
  • General License 12 would authorize U.S. persons who previously ordered goods from newly-designated companies (or their subsidiaries) covered by the general license to accept such goods and import them into the United States. The requirements and limitations of the general license must be met for any such activities, including that they should conclude by June 5, 2018 and any outstanding payment for such activities must be deposited in a blocked account at a U.S. financial institution.
  • General License 13 does not authorize U.S. persons holding accounts for, or other property of, a newly-designated entity or individual to unblock such property. That license only authorizes divestment or transfer of holdings in the three covered companies, and does not authorize additional investments in, or providing services to, such companies.
  • If SDNs hold an aggregate ownership interest of less than 50 percent in a U.S. company, the U.S. company is not itself blocked, but it must block all property and interests in property of its SDN parent companies. Any payments, dividends, or disbursement of profits to an SDN parent company would be prohibited and, to the extent such payments are required, must be placed in a blocked account at a U.S. financial institution.
  • U.S. secondary sanctions authorize penalties to be imposed against any non-U.S. person that facilitates significant transactions for or on behalf of any Russian person subject to U.S. sanctions, including the newly-designated individuals and entities. A transaction would not be considered “significant”, however, if it involves the types of activities authorized under General Licenses 12 and 13.

What is Next

U.S. officials have said that the new sanctions are just one of a number of steps that will be taken to put additional pressure on President Vladimir Putin and penalize Russia for interference in U.S. elections, hacking of U.S. infrastructure facilities, and activities in Syria. We expect that additional sanctions will be announced at a more rapid pace than in the past. The European Union also is considering the imposition of additional sanctions against Russia to coordinate with the new U.S. actions and to further penalize Russia in connection with the alleged nerve gas attack on Sergei Skripal in the United Kingdom. In addition, the U.S. Government has made it clear that it continues to oppose the Nord Stream II natural gas pipeline that would run from Russia to Germany as being harmful to European energy independence and will continue to apply pressure to try to stop the project. 

Any company or person engaging in business with Russia should be aware of the sanctions environment and risks to transactions as a result thereof. Russian businesses also should consider how best to proactively address perceived sanctions risks related to doing business in Russia generally, in specific Russian industries, or with specific Russian individuals and entities.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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