United States: Department Of Commerce And OFAC Continue Imposing Hefty Sanctions On Russia, While Russia Retaliates With Own Sanctions

On August 6, the U.S. Department of Commerce (the "Commerce Department") issued new regulations, implementing additional sanctions against Russia and introducing new restrictions on exports for its energy sector. These new regulations closely follow recently-imposed sanctions promulgated by the Treasury Department's Office of Foreign Assets Control ("OFAC"), which prohibit the issuance of new medium- and long-term debt and, in some cases, new equity by U.S. Persons to designated Russia-related persons in the energy and financial sectors. Further, OFAC has continued to expand the Ukraine-related sanctions by adding various persons and entities to its Specially Designated Nationals ("SDN") List. As a result of these sanctions, Russia is now taking certain retaliatory trade actions against the United States.

New Energy Sector Export License Requirements/Presumption of Denial

The new Commerce Department regulations: (i) add another Russian company (United Shipbuilding Corporation) to the Entity List; (ii) remove Russia's favorable license review treatment under national security reasons for control; and (iii) institute a new license requirement for exports, reexports or in-country transfers of certain items subject to U.S. export controls for use in certain segments of Russia's energy sector, with a presumption of denial for applications for such licenses. The license application requirements apply to the specified items where the (re)exporter knows or is informed by the Commerce Department that they will be used, directly or indirectly, in exploration or production of oil or gas from deepwater (greater than 500 feet) or Arctic offshore locations, or shale formations in Russia, or where the (re)exporter is unable to determine whether the item will be used in such projects.1

These specified items include a broad variety of oil/gas exploration or production equipment (identified by specific Schedule B Nos.) and the items identified in new ECCNs 0A998 and 8D999, and in previously-existing ECCNs 1C992, 3A229, 3A232, 6A991, and 8A992. Covered items include:

  • Drilling rigs, parts for horizontal drilling, drilling and completion equipment, subsea processing equipment, Arctic-capable marine equipment, wireline and down hole motors and equipment, drill pipe and casing, software for hydraulic fracturing, high pressure pumps, seismic acquisition equipment, remotely operated vehicles, compressors, expanders, valves, and risers;
  • Oil and gas exploration software and data;
  • Software specifically designed for the operation of unmanned submersible vessels used in the Russian oil and gas industry;
  • Commercial charges and devices containing energetic materials and nitrogen trifluoride in a gaseous state;
  • Firing sets and equivalent high-current pulse generators;
  • Certain neutron generator systems, including tubes;
  • Detonators and multipoint initiation systems;
  • Marine or terrestrial acoustic equipment capable of detecting underwater objects or positioning surface/underwater vessels, and specially designed parts and components; and
  • Certain vessels, marine systems or equipment, and specially designed parts and components.

New Entity List Designations by Commerce Department

The addition of United Shipbuilding Corporation (a defense technology company) to the Entity List follows the addition of 11 other Russia-related entities to that List in July. Those entities included Joint-Stock Company Concern Almaz-Antey, state-owned enterprise Bazalt, Kalashnikov Concern, Joint-Stock Company Concern Radio-Electronic Technologies, and Feodosiya Enterprise.

These Entity List designations impose a license requirement for the export, reexport or foreign transfer of items subject to the Export Administration Regulations to the designated entities, with a presumption of denial.

OFAC Prohibitions on Issuance of New Debt and Equity to Identified Persons

On July 16, 2014, OFAC issued Directives 1 and 2 pursuant to Executive Order 13662 ("E.O. 13662"). The Directives apply to the persons identified on the new Sectoral Sanctions Identifications List ("SSI List").

Directive 1 of E.O. 13662 prohibits U.S. persons from transacting in, providing financing for, or otherwise dealing in new debt with a maturity of longer than 90 days or new equity ("new debt" or "new equity") for persons operating in Russia's financial sector identified on the SSI List, their property, or their interests in property. Entities designated under Directive 1 encompass several Russian banks, including Bank for Development and Foreign Economic Affairs (Vnesheconombank), VTB Bank, Bank of Moscow, Gazprombank, and Russian Agricultural Bank.

Directive 2 of E.O. 13662 separately prohibits U.S. Persons from transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity for persons operating in Russia's energy sector identified on the SSI List, their property, or their interests in property. Russian oil giant Rosneft and financial investment company Novatek have been designated under Directive 2. Neither entity appears on OFAC's SDN List. However, Rosneft's CEO, Igor Sechin, has been designated as an SDN. As such, U.S. Persons should be careful not to engage in any discussions or transactions with him (or any other SDN) when engaging in permitted transactions with an SSI entity.

While Directives 1 and 2 prohibit issuing new debt/new equity to the entities on the SSI List, other transactions with such entities by U.S. Persons are allowed, provided they do not involve SDNs.

New SDN OFAC Designations

In addition to publishing the SSI List and implementing Directives 1 and 2, OFAC has recently also added numerous individuals and entities to its SDN List, including Joint-Stock Company Concern Almaz-Antey, state-owned enterprise Bazalt, Kalashnikov Concern, Joint-Stock Company Concern Radio-Electronic Technologies, Feodosiya Enterprise, and United Shipbuilding Corporation, consistent with sanctions imposed by the Commerce Department. U.S. Persons are prohibited from engaging in any transactions with them or with any entity in which they hold a 50 percent, or more, ownership interest.

Putin Imposes Retaliatory Trade Sanctions

On August 6, Russia's President Vladimir Putin issued a Presidential decree, ordering retaliatory sanctions on countries that have imposed restrictions on Russia. The Russian sanctions will implement a one-year ban on certain food, agricultural products, and raw materials. While the decree did not specify precisely which items will be restricted, additional sources indicate that these items may include cheese, fish, beef, pork, chicken, fruit, vegetables and dairy products from the U.S., the E.U., and other countries that have imposed sanctions against Russia. A final list is expected to be released shortly.

Best Practices

In light of the above, at this time, it is vital that, to the extent applicable, all companies impacted by the Russian sanctions:

  • Abstain from engaging in any transactions with entities designated as SDNs by OFAC;
  • Abstain from issuing covered new debt or equity to relevant entities identified on OFAC's SSI List;
  • Abstain from (re)exporting to Russia those goods which are set forth in the newest Commerce Department regulations for problematic end uses, unless they obtain proper licenses (which will almost always be denied);
  • Ensure that all transactions are screened to identify whether an SDN, Entity List, or SSI List company is involved in the transaction; and
  • Institute and maintain adequate procedures to prevent all potential violations.

Footnote

1 The E.U. has recently imposed similar energy sector export restrictions on Russia.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions