Worldwide: Ratcheting Up The Pressure: Reinforced Ukraine-Related Sanctions On Russia

On September 12, 2014, the United States ("U.S.") and European Union ("EU") both announced expanded sanctions related to Russia and Ukraine. These measures seek to increase pressure on the Russian Government to stop threatening the territorial integrity of Ukraine. In general, the specific sanctions (i) target specific entities and individuals, (ii) limit access to financial markets, and (iii) prohibit certain oil related exports and activities.

U.S. SANCTIONS

As a result of Russia's annexation of Crimea and destabilization of Ukraine, in March 2014, President Obama issued a series of Executive Orders ("EOs") authorizing U.S. Government sanctions against individuals and entities ("persons") that have contributed to the conflict in Ukraine. Pursuant to the EOs, the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC") has implemented the Ukraine-related sanctions regime that (i) designates Russian and Ukrainian persons as Specially Designated Nationals and Blocked Persons ("SDNs") and (ii) imposes targeted sanctions against entities in the Russian financial services, energy and defense sectors (the "Sectoral Sanctions"). In addition, on August 6, 2014, the U.S. Commerce Department's Bureau of Industry and Security ("BIS") imposed controls on the export of certain items to Russia for use in the oil and gas sectors.

U.S. persons must be particularly diligent to avoid engaging in transactions that involve SDNs, that are prohibited by the Sectoral Sanctions, or involve the export of controlled items to Russia.

Specially Designated Nationals

Since March 2014, OFAC has added numerous persons to the SDN list under authority of the Ukraine-related EOs. As with all SDN designations, all property and interests in property of Ukraine sanctions-related SDNs within the possession or control of a U.S. person are blocked and may not be transferred, paid, exported, withdrawn, or otherwise dealt in. This prohibition includes the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any SDN and the receipt of any contribution or provision of funds, goods, or services from any SDN. On September 12, 2014, OFAC designated several new SDNs, including five Russian state-owned defense-technology firms, and OFAC will likely designate additional Russian and Ukrainian SDNs as events develop further.

It is important to note that an entity in which one or more SDNs owns a 50% or greater interest is deemed to be an SDN, even if such entity is not specifically identified on the SDN list. OFAC also advises parties to be cautious regarding transactions with entities in which SDNs have a significant, but less than 50%, interest because these entities may be the subject of future sanctions.

Sectoral Sanctions Identifications List

The U.S. Ukraine-related sanctions established a legal framework for a novel OFAC sanctions program: they authorize the imposition of sanctions on persons active in certain sectors of the Russian economy, specifically the financial services, energy, metals and mining, engineering, and defense and related materiel sectors. On July 16, 2014, OFAC issued its initial Sectoral Sanctions Identifications ("SSI") list, and since then, has periodically added entities to this list. On September 12, 2014, OFAC significantly expanded the list, adding several larger financial institutions, including Sberbank of Russia, Russia's largest bank and in the energy industry, Gazprom, a global energy company. At present, the SSI list includes entities in the financial services, energy and defense sectors.

With respect to the financial services SSI list entities, U.S. persons are prohibited from transacting in, providing financing for, or otherwise dealing in new debt of longer than 30 days maturity (originally 90 days maturity under the initial sanctions) or new equity of such SSI entities. The same long-term debt prohibition applies to the energy sector SSI list entities for debt of longer than 90 days maturity, but not the new equity prohibition. With respect to the defense and related materiel sector of Russia, there is also a long-term debt prohibition for debt of longer than 30 days maturity. Any entity 50% or more owned by an entity on the SSI list is also deemed to be subject to the Sectoral Sanctions.

The SSI list is separate from the SDN list. The OFAC press release announcing the SSI list makes clear that "[a]ll other transactions with these persons or involving any property in which one or more of these persons has an interest are permitted, provided such transactions do not otherwise involve [an SDN]." For example, transactions involving old debt, short-term debt and correspondent bank account transactions with SSI list entities are permitted. Moreover, OFAC issued a general license permitting U.S. persons to engage in transactions involving a derivative product where its value is linked to an underlying asset subject to Sectoral Sanctions. However, an entity on the SSI list may also be on the SDN list, and in those cases, U.S. persons cannot engage in any transaction with the SDN or any 50% or more controlled subsidiary.

Certain Licensing Requirements for Export Products

On August 6, 2014, BIS announced a new rule imposing export license requirements on certain specifically identified oil and gas related products (such as oil and gas pipes, drilling equipment, pipe and casting, subsea processing equipment, and related software and technology), if the exporter knows (or should have known) that the items are for use, directly or indirectly, in Russian deep-water, Arctic offshore or shale projects, or if the exporter is unable to determine whether the items will be used in such projects. Given the broad scope of this prohibition, it may be difficult for exporters to obtain appropriate use assurances to meet this test. In any event, the BIS rule also states that license requests for the export of such items to Russia will be subject to a "presumption of denial."

Blanket Prohibition to Export Certain Products to Certain Russian Energy Companies

The September 12, 2014 OFAC sanctions also prohibit the exportation of goods, services (not including financial services), or technology in support of exploration or production for Russian deep water, Arctic offshore, or shale projects that have the potential to produce oil with respect to certain Russian energy companies including, Gazprom, Gazprom Neft, Lukoil, Surgutneftegas, and Rosneft. U.S. persons have until September 26, 2014, to wind down applicable transactions, but must report such activity to OFAC.

Given the ongoing changes to the Ukraine-related sanctions programs, U.S. persons should have appropriate procedures in place to comply with existing sanctions and monitor developments to ensure ongoing compliance.

EU SANCTIONS

The EU sanctions (referred to as "restrictive measures") announced on September 12, 2014, expand the prior restrictive measures related to Russia and Ukraine. As a result, numerous persons and companies are subject to restrictive measures such as the freeze of assets and travel bans. In addition, sector-specific restrictions apply which particularly relate to access to the EU capital markets, to the defense industry, and the energy sectors.

Blocking of Funds and Assets

The EU sanctions provide for the freezing and recovery of assets of listed persons and entities: the blocking of assets concerns all funds and economic resources belonging to, owned, held or controlled by the listed persons, entities, or bodies associated. In addition, it is prohibited for persons subject to the EU sanctions to make available funds or economic resources to such listed persons, entities or associated bodies: This prohibition is rather broad since it includes the prohibition to make resources indirectly available. Precedents show that this may include business with subsidiaries held by a listed person or entity. Moreover, it is prohibited to participate in any activities circumventing the sanctions.

Exports of Dual Use Items

There is a prohibition on the export to Russia of military goods and of dual-use items if those items are or may be intended for military use. As of September 12, 2014, it is also prohibited to sell any dual-use item or to provide financial or technical assistance to certain listed companies, including JSC Sirius, OAO JSC Chemcomposite, and JSC Kalashnikov.

Russian Oil Industry

With regard to oil exploration, it is prohibited to provide certain services necessary for deep water and Arctic oil exploration and production or shale oil projects in Russia. Also, sale, supply, transfer, or export of certain listed technologies (e.g., pipes, drilling technology) requires prior authorization by the competent EU Member States' bodies. Additional restrictions apply with regard to Ukraine (see below).

Capital Markets

For certain Russian state-owned banks and companies of the defense and energy industries, the access to the EU's capital markets has been further reduced. EU nationals and companies are disallowed to provide certain loans and financial instruments to those companies which include, for example, Gazprombank, Gazprom Neft, Rosneft, and Transneft.

Ukraine Specific Prohibitions

With regard to the annexation of Crimea and Sevastopol, the EU has set up an additional regime of restrictive measures which have to be taken into consideration when dealing with persons or companies in eastern Ukraine. For example, the EU sanctions prohibit trade with key equipment and technology related to the creation or development of infrastructure for the exploitation of oil, gas, and mineral reserves in Crimea and Sevastopol. The key equipment listed includes line pipes and drilling technology for the oil and gas industry. The prohibited actions also concern the provision of technical assistance or brokering or financial services in relation to trade with such key equipment.

Scope of EU Sanctions

The EU sanctions do not only concern EU-based companies as they also apply to companies headquartered outside the EU that have an affiliate incorporated under EU Member State laws or employ EU citizens, or that are carrying out their economic activities in whole or in part within the EU. Any violation of these export restrictions and other restrictive measures may trigger severe administrative fines or even criminal sanctions (including prison). Accordingly, companies doing business in or with Ukraine or Russia should carefully assess whether their dealings and the related financial transactions comply with the restrictions set out by the relevant EU regulations.

Licensing Policy

While most of the above-mentioned business activities are strictly prohibited and cannot be cleared, some transactions may still take place upon prior approval, which has to be obtained from the competent EU Member States' authorities. For example, the sale, transfer, or export of certain technologies for the oil industry requires prior authorization. Also, certain financial transactions may be allowed upon approval or require notification only.

CONCLUSION

The reinforced EU and U.S. sanctions will further impede Russia's struggling economy. Counter-reactions such as import bans for EU products (already in effect) and a potential closure of the airspace above Siberia for EU airlines (threatened potential reaction) could further limit EU companies' business opportunities as is already the case due to the boomerang effects of the EU sanctions regime.

Given the ongoing changes to the Ukraine-related sanctions programs, persons and entities covered by the scope of the applicable sanctions regimes should have appropriate procedures in place to comply with existing sanctions and monitor developments to ensure ongoing compliance.

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.

© Morrison & Foerster LLP. All rights reserved

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
Similar Articles
Relevancy Powered by MondaqAI
Morrison & Foerster LLP
Pinsent Masons LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Morrison & Foerster LLP
Pinsent Masons LLP
Related Articles
 
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 (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

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 or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq 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 of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

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