During the same week that President Barack Obama announced sweeping changes in the diplomatic and trade relationships between the United States and Cuba, the president signed congressional legislation authorizing additional sanctions against Russia (December 19, 2014) and Venezuela (December 18, 2014). The president also approved Executive Order 13685 on December 19, 2014, calling for stern measures against business activities originating in Crimea, the region of Ukraine occupied by Russia. More recently, the president approved Executive Order 13687 on January 2, 2015 to impose financial sanctions on 10 North Korean officials and three North Korean government agencies as a response to the cyberattack launched against Sony Pictures Entertainment in 2014. The statutes will require additional executive action to have an effect on business with those countries, but the executive orders became effective on the dates they were announced.
While the legislative enactments did not have an immediate impact on U.S. companies, the executive orders must now be considered in any transaction involving business in Crimea or with sanctioned entities in North Korea. The executive order pertaining to Crimea also coordinates with similar sanctions imposed on Crimea by the European Union on December 18, 2014.
There are likely to be additional sanctions rapidly instituted by the U.S. administration in the weeks ahead, whether pursuant to the two statutes or under other existing statutory authority. Companies doing business with Russian, Venezuelan or North Korean entities should be prepared to adjust their business strategies for investment and the trade in goods and services in those areas.
Executive Order 13685
President Obama issued Executive Order 13685 (“Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine”) on December 19, 2014, imposing a sweeping expansion of sanctions related to activities with or within Crimea, the region of Ukraine under Russian occupation. The order includes the following restrictions and prohibitions:
Investment Restrictions. The executive order prohibits all new U.S. investment in the Crimea region of the Ukraine.
Import Restrictions. The executive order prohibits all direct and indirect imports into the United States of any goods, services or technology from the Crimea region of Ukraine.
Trade Restrictions. The executive order imposes a total ban on the exportation, reexportation, sale or supply, directly or indirectly from the United States, or by a United States person, wherever located, of any goods, services or technology to the Crimea region of Ukraine.
Financing Restrictions. The executive order prohibits any approval, financing, facilitation or guarantee by a U.S. person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited if performed by a U.S. person or within the United States.
Blocking of Property and Interests. The executive order blocks all property and interests in property in the United States, or that come into the possession or control of U.S. persons, that are tied to persons who operate in the Crimea region or to persons leading entities operating in the Crimea region, or owned or controlled by persons or entities operating in the Crimea region, or by persons who have materially assisted, sponsored or provided support of any kind for persons or entities operating in the Crimea region.
Suspension of Entry into the United States. The executive order prohibits the entry into the United States of all persons with business interests in Crimea described in the investment, import, trade, finance and property restrictions of the executive order.
Prohibition of Donations. The executive order prohibits all donations that would benefit any person with property and interests in property blocked by the executive order.
General License No. 5
The executive order may cause hardship for those persons who were engaged in the covered activities prior to the effective date of the executive order. Acting under authority granted in the executive order, the Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury issued General License No. 5 on December 30, 2014 to permit, through February 1, 2015, those activities “ordinarily incident and necessary” to the winding down of operations prohibited by the executive order. General License No. 5 also requires that all U.S. persons acting under the license submit a report to OFAC, within 10 business days after the conclusion of such wind down activities, that includes the names of the parties involved, the type and scope of the wind down activities conducted and the dates of the activities.
Coordination with EU Sanctions
The sanctions authorized in the executive order coordinate with the efforts of the Council of the European Union to curb Russia’s occupation of Crimea. The council announced its own new round of sanctions on December 18, 2014 under Council Decision 2014/933/CFSP. The council decision prohibits investment in Crimea and the port city of Sevastopol (part of Crimea but under a separate administrative status) and bans the export to Crimea of certain goods and technologies related to transportation, telecommunications and the energy sectors. The council decision also prohibits the provision of technical assistance, brokering, construction and engineering services related to infrastructure in these sectors. On the same day, the council approved Council Regulation (EU) No 1351/2014 to provide exceptions and transitional periods under the council decision, with the goal of minimizing the effect of the council decision on businesses and the civilian population in the Crimea region.
President Obama signed into law the Ukraine Freedom Support Act of 2014 (the Ukraine Act) on December 18, 2014. The Ukraine Act authorizes additional U.S. sanctions to be imposed against Russia, and proposes military aid to help Ukraine in its fight against pro-Russian rebels. President Obama announced in a White House press release on December 18th that his administration had no current plans to impose sanctions under the new law. He added, however, that “the Act gives the Administration additional authorities that could be utilized if circumstances warranted.”
The sanctions authorized by the Ukraine Act would target Russia’s defense, energy and banking sectors in order to intensify pressure on Russian President Vladimir Putin to honor a previously negotiated cease-fire and to halt the supply of weapons and assistance to separatists in Ukraine. The Ukraine Act authorizes but does not require:
Sanctions Against Russian Arms Suppliers. The Ukraine Act requires the president to impose at least three sanctions from a menu of nine sanctions, although the president may waive this requirement if he makes certain findings, including that the imposition of sanctions would adversely affect the national interests of the United States, on Russia’s main state arms exporter, Rosoboronexport, as well as other military companies engaged in the support of Syria, in actions in Ukraine, Georgia and Moldova and in other countries designated by the president. The potential sanctions include the prohibition of Export-Import Bank assistance; the barring of any procurement from the sanctioned entities; the banning of arms exports to these entities; the prohibition of dual-use exports; the limitation of property transactions; the limitation of banking transactions; the prohibition on the investment in the equity or debt of a sanctioned person; the exclusion from the United States of sanctioned persons; and the sanctioning of the principal executive officers of an sanctioned entities.
Investment Restrictions. The president is authorized, but not required, to impose sanctions on international companies that “knowingly make a significant investment in a special Russian crude oil project.” The Ukraine Act also authorizes the president to bar investment or credit to Gazprom, the Russian state energy giant, if Gazprom is found to be withholding significant natural gas supplies from NATO member countries or “countries such as Ukraine, Georgia, or Moldova.”
Additional Licensing Requirements for Certain U.S. Exports. The president is authorized under the Ukraine Act to impose additional licensing requirements or other restrictions on the export of items for Russia’s energy sector, “including equipment used for tertiary oil recovery.”
Provision of Arms to Ukraine Government; Other Aid. The Ukraine Act authorizes the provision of up to $350 million worth of arms to the Ukraine government, including antitank weapons, tactical surveillance drones and counter-artillery radar. President Obama has thus far resisted supplying weaponry to the Ukraine government, however, because of a reluctance to escalate the fighting in eastern Ukraine. The Ukraine Act also authorized other forms of assistance for nonmilitary assistance to Ukraine, expanded broadcasting in countries of the former Soviet Union, and increased support for Russian democracy and civil society organizations.
On December 18, 2014, President Obama signed into law the “Venezuela Defense of Human Rights and Civil Society Act of 2014” (the Venezuela Act), which authorizes sanctions against foreign persons, including Venezuela government officials and persons acting on behalf of the Venezuelan government, who were allegedly involved in the crackdown on anti-government protestors earlier in 2014. The Venezuela Act authorizes the president to assemble a list of sanctioned persons, to block any assets of such persons that are located in the United States or come within the control or possession of a U.S. person, and to exclude such persons from travel to the United States (subject to the other treaty obligations of the United States, such as the obligations assumed under the United Nations Headquarters Agreement). The president may waive the application of these sanctions if, among other things, he finds that a waiver is in the national interest of the United States.
The Venezuela Act follows many other executive actions to sanction activities in Venezuela over the past few years:
Existing Travel Ban Imposed by the State Department. The U.S. Department of State, acting under the Immigration and Nationality Act, has already put in place a travel ban on government officials involved in the 2014 crackdown, although the State Department, citing privacy restrictions, has declined to identify the individuals subject to the visa bans.
Arms Trafficking. On November 7, 2014, the Bureau of Industry and Security of the U.S. Department of Commerce added license requirements on the export, reexport and transfer of certain items destined for “military end use” or a “military end user” in Venezuela. These new restrictions added to the arms embargo already imposed on Venezuela by the State Department’s Directorate of Defense Trade Controls in August 2006.
The U.S. government has also sanctioned Venezuelans for trading in arms in violation of U.S. nonproliferation statutes. In 2013, for example, the United States imposed sanctions on the Venezuela Military Industry Company (CAVIM) under the Iran, North Korea and Syria Nonproliferation Act.
Trade with Iran. The Venezuelan government, under the leadership of the late President Hugo Chavez and his successor President Nicolás Maduro, has established close ties with Iran. The U.S. government has attempted to sanction this activity. In 2011, for example, the U.S. government sanctioned Petróleos de Venezuela SA (PDVSA), the state oil company, for sending two cargoes of gasoline additives to the National Iranian Oil Company in 2010 and 2011.
Drug Trafficking. OFAC has named a number of present and former Venezuela officials as drug kingpins under the Foreign Narcotics Kingpin Designation Act and included them in its list of “Specially Designated Nationals.”
Support of Terrorism. Venezuela is on the State Department’s annual list of countries determined to be not cooperating fully with U.S. anti-terrorism efforts pursuant to Section 40A of the Arms Export Control Act. Although Venezuela is not included in the list of “State Sponsors of Terrorism,” Congress has continued to raise terrorism concerns regarding Venezuela’s cooperation with Iran and Hezbollah.
North Korea Sanctions
President Obama issued Executive Order 13687 (“Imposing Additional Sanctions with Respect to North Korea”) on January 2, 2015, authorizing the U.S. Secretary of the Treasury to impose sanctions on individuals and entities associated with the Government of North Korea. The scope of the authorized sanctions extends to agencies and controlled entities of the Government of North Korea and the Workers’ Party of Korea; officials of the Government of North Korea; officials of the Workers’ Party of Korea; persons providing material assistance to the Government of North Korea or the persons otherwise covered by the blocking of assets under the executive order; and entities owned or controlled, or acting on behalf of, such entities. The executive order also suspends entry into the United States of all persons covered by the executive order.
Acting under the authority of the executive order, the Treasury Department acted on January 2, 2015 to impose sanctions against the North Korea Reconnaissance General Bureau, described by the Treasury Department as “North Korea’s primary intelligence organization,” the Korea Mining Development Trading Corporation, “North Korea’s primary arms dealer,” and the Korean Tangun Trading Corporation, which is“primarily responsible for the procurement of commodities and technologies to support North Korea’s defense research and development programs,” as well as 10 individuals deemed to be officials of the North Korean government. All of these persons and entities have been added to the OFAC Specially Designated Nationals and Blocked Persons List.
The structure of sanctions against Russian, Venezuelan and North Korean interests is very much in flux. U.S. companies will be required to monitor these sanctions on a frequent basis in order to be certain that their business activities do not run afoul of these dynamic sanction regimes.