On December 19, 2018, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) and the U.S. State Department took multiple sanctions actions related to Russia:
Proposed Delisting of En+ Group, UC Rusal and ESE
OFAC notified Congress of its intent to remove En+ Group plc (“En+ Group”), UC Rusal plc (“UC Rusal”) and JSC EuroSibEnergo (“ESE”) from its Specially Designated Nationals and Blocked Persons List (the “SDN List”) within thirty (30) days from December 19, 2018. OFAC first added these companies to the SDN List in April 2018 when it imposed sanctions on Oleg Deripaska due to his status as a senior Russian government official. OFAC added these three companies to the SDN List because Deripaska was the majority owner of En+ Group (which, in turn, was the majority owner of both UC Rusal and ESE). Under OFAC’s 50% ownership rule, these sanctions also extended to any subsidiaries in which En+ Group, UC Rusal or ESE held an ownership interest of 50% or greater.
After adding these companies to its SDN List, OFAC issued General License No. 14 in order to permit the maintenance and winding-down of certain pre-existing operations with UC Rusal and its 50%-or-greater-owned subsidiaries that were established prior to UC Rusal’s SDN List designation. Although OFAC amended General License No. 14 on several occasions in order to extend its expiration date, OFAC was insistent that it would not delist UC Rusal until Mr. Deripaska relinquished his controlling interest. The announcement indicates that OFAC, En+ Group, UC Rusal and ESE have now reached a tentative Terms of Removal (“TOR”) agreement which includes:
Deripaska reducing his ownership interest in En+ Group from approximately 70 percent down to 44.95 percent in a series of corporate restructuring transactions in which he will not receive any cash compensation;
En+ Group paying any future dividends owed to Deripaska in connection with his remaining shares into a blocked account;
Turning over En+ Group’s board of directors and requiring that 8 of the Company’s 12 directors must be independent from Deripaska and approved by OFAC; and
En+ Group, UC Rusal and ESE all submitting to ongoing auditing, certification and reporting requirements in order to verify their ongoing compliance with the TOR.
The TOR remains subject to approval by a key number of additional stakeholders and Congress also has the right to protest the delistings under 2017’s Countering America’s Adversaries Through Sanctions Act (“CAATSA”). As a result, En+ Group, UC Rusal and ESE remain listed on the SDN List and will remain subject to blocking sanctions until OFAC formally completes the delisting process. Despite this remaining designation General License No. 14D will continue to permit maintenance and wind-down transactions with UC Rusal and its sanctioned subsidiaries until January 21, 2019. However, General License No. 14D requires anyone who uses it (or who used one of its predecessor versions) to provide OFAC with a comprehensive, detailed report of their transactions within ten (10) business days following the license’s expiration. It is currently unclear whether OFAC intends to require the submission of such reports if it does ultimately follow through with de-listing UC Rusal on or before General License No. 14D’s expiration date.
In its announcement OFAC was also very clear that Mr. Deripaska will remain listed on the SDN List with both he and any other business entities in which he retains an ownership interest of 50% or greater being subject to sanctions on an ongoing basis. OFAC has expressly reserved the right to relist En+ Group, UC Rusal or ESE should Mr. Deripaska or anyone acting on his behalf attempt to violate the terms of the TOR.
Imposition of Additional Russian Cyber Sanctions
OFAC also sanctioned a group of twenty-two (22) Russian individuals and entities connected to various Russian intelligence operations. These new SDN List additions consist of:
Victor Alekseyevich Boyarkin, who was a former officer of Russia’s Main Intelligence Directorate (“GRU”) and who also represented SDN Oleg Deripaska (discussed above) in various business dealings;
A group of two (2) Russian individuals and four (4) entities who participated in Russia’s “Project Lakhta” and attempted to interfere in political and electoral systems worldwide;
A group of nine (9) GRU officers who engaged in cyber operations to interfere in the 2016 U.S. election by targeting election systems and political parties as well as releasing stolen election-related documents;
A group of four (4) GRU officers who engaged in cyber operations targeting the World Anti-Doping Agency, the Organization for the Prohibition of Chemical Weapons and other international nonpolitical organizations; and
Two (2) GRU officers who were responsible for carrying out a March 2018 attempt to assassinate former Russian military intelligence officer Sergei Skripal and his daughter in Salisbury, England using the nerve agent Novichok.
The U.S. State Department also added twelve (12) of these individuals and entities to its List of Specified Persons (the “LSP List”). These State Department designations will enable the U.S. government to utilize additional sanctions authority provided under CAATSA in order to sanction anyone who engages in significant transactions with the new LSP List designees.