United States: US And EU Embargo Crimea, And US Adopts New Ukraine Sanctions Law

As the events in Ukraine and Russia continue to unfold, the reaction by the US and the EU, including imposing sanctions, will impact individuals, businesses, and entire sectors.

As a polycentric firm, with no headquarters, no dominant culture and no flag, and with partners throughout the world, including Russia, Ukraine and Central and Eastern Europe, Dentons is particularly well positioned to explain the nuances that surround every facet of these complicated developments to our clients.

This client update contains an analysis of the policy issues arising from the current situation in Ukraine.

We try to present the facts as they are known, and the potential ramifications of what might happen, without taking a position that could be perceived as political in any way. We believe this is the best way to serve our clients.

On December 18, 2014, President Obama signed the Ukraine Freedom Support Act ("UFSA"), the first law directly targeting Russia and its economy in response to events in Ukraine.1 On December 19, 2014, President Obama also executed a new Executive Order and General License 4 that, together, impose a trade embargo with Crimea except for certain agricultural and medical goods. These prohibitions align with the EU's new sanctions against Crimean investment which took effect December 20, 2014.

UFSA targets the Russian defense and energy sectors, provides for extraterritorial sanctions on non-US financial institutions, and authorizes funding for a variety of military, non-military, and "soft power" activities. Most of the sanctions under UFSA are discretionary, and, accordingly, UFSA by its terms imposes few new sanctions. Nevertheless, UFSA offers a number of tools which, if utilized, could dramatically expand the reach of US Ukraine-related sanctions.

Below are the key elements of UFSA's sanctions provisions, a short summary of the new US and EU sanctions against Crimean investment, and their implications.

Sanctions under UFSA

Defense sector

UFSA requires the President to impose three or more of a specified list of sanctions on Rosoboronexport within 30 days of signing. The law also requires the President to impose three or more specified sanctions on any entity owned or controlled by the Russian Government or Russian national(s) that the President determines has knowingly manufactured, sold, transferred, or brokered arms, into Syria, Ukraine, Georgia, Moldova or other designated country without that country's consent. Russian entities that supported the manufacture, sale, transfer or brokerage of arms are also subject to such sanctions.

Energy sector

UFSA permits but does not require the President to impose three of a specified roster of sanctions on any person, US or non-US, who makes a significant investment in a Russian offshore, Arctic, or shale oil project. Moreover, the law requires the President to prohibit the provision of any debt of greater than 30 days maturity or any equity (of whatever maturity) by US Persons2 to Gazprom, the large natural gas company majority owned by the Russian state. If the President determines that Gazprom has withheld "significant" natural gas supplies from NATO member countries, or any of Ukraine, Georgia or Moldova.3

Menu of sanctions; exceptions

UFSA provides a menu of nine sanctions from which the President may choose when imposing penalties in the defense and energy sectors, as discussed above. These nine include: the prohibition of US Export-Import Bank assistance, US government procurement bans, export restrictions for arms and dual-use items, blocking property and interests in property within US jurisdiction, blocking payments or credit subject to US jurisdiction, prohibition of dealing in debt and equity of the sanctioned person, visa bans, and sanctions on the principal executive officers of sanctioned entities. UFSA also sets out certain carve-outs and discretionary exemptions, such as granting the President authority to waive sanctions for national security reasons for specific transactions.

Financial institutions

UFSA also permits but does not require the President to impose extraterritorial sanctions non-US financial institutions. Specifically, the law authorizes the President to prohibit the opening, or impose strict conditions on the maintaining in the US, of a correspondent account or payable-through account by a non-US institution where that non-US institution has knowingly facilitated a significant transaction (1) involving any UFSA-sanctionable activities (e.g., selling arms into Ukraine) or (2) on behalf of any Russian designed as a "Specially Designated National" under Ukraine-related sanctions.

Termination

UFSA provides that sanctions imposed under its authority will terminate on the date when the President submits a certification to certain committees of the US Congress that the Russian Government has ceased undermining the "peace, security, stability, sovereignty, or territorial integrity" of Ukraine, including by political agreement.

In addition to the sanctions provisions, UFSA authorizes funds for arms and other defense services and training to Ukraine, and non-military assistance including in the energy sector and civil society arena. UFSA also authorizes funds for expanding broadcasting in the former Soviet Union, and for democracy and civil society organizations in Russia.

US Sanctions against Crimea

In addition to UFSA, President Obama issued a new Executive Order which imposes an embargo on trade with Crimea with limited exceptions.4 The new Executive Order prohibits US Persons from investing in Crimea, or importing or exporting any goods, services, or technology to/from Crimea. It also prohibits financing or otherwise facilitating any transaction of a non-US Person if the transaction would be one prohibited for the US Person.

This most recent Executive Order also raises sanctions risks for both US and non-US persons doing business with Russian entities by targeting those individuals and entities doing business in Crimea. The new Executive Order authorizes the blocking of any property or interests in property in US jurisdiction of any person (US or non-US) who the US Treasury Secretary, in consultation with the US Secretary of State, determines: (1) is operating in Crimea (2) leads an entity operating in Crimea, (3) is owned or controlled by, or acts on behalf of (directly or indirectly) a person blocked under this new Executive Order, or (4) has materially assisted or provided support in support of a person blocked under this new Executive Order.

The US Treasury Department's Office of Foreign Assets Control (OFAC) also announced a General License 4, which exempts from the new Executive Order the export or reexport of certain agricultural commodities, medicine, medical supplies, or replacement parts for medical supplies (provided that such replacement parts are designated "EAR99" for US export control purposes). General License 4 does not extend to military or law enforcement purchasers or importers.

EU Sanctions against Crimea

The EU also adopted broad new sanctions targeting investments in Crimea. The new sanctions prohibit the purchase of Crimean real estate or equity in Crimean companies, the provision of loans or investment services to Crimean companies, and tourism to Crimea. The new sanctions furthermore ban exports of goods and technology, or the provision of technical assistance, brokering, construction or engineering services, in any of the (i) transport, (ii) telecommunications, and (iii) energy sectors, as well as (iv) in the prospecting for, and exploration and production of, oil, gas and mineral resources, to any Crimean entity, or for use in Crimea.5 These new EU sanctions apply to all EU Persons, defined as companies organized in any EU member state, any EU citizen or national, or persons in the territory of the EU. Contracts signed prior to September 20, 2014 are exempted.

Implications

The President of the United States already possessed wide-ranging authority to impose new Ukraine-related sanctions (or scale back existing sanctions), as the existing Executive Orders and Sectoral Sanctions Identification (SSI list) clearly demonstrated. UFSA, however, lays the foundation for Ukraine-related sanctions to become extraterritorial in the financial sector in their future iterations. It also represents the first time that Congress has passed a law imposing sanctions on Russia, even while it largely leaves it to the discretion of the President to calibrate those sanctions.

Interestingly, UFSA provides for a sanctions mechanism which has previously been deployed only in US Iranian-related sanctions: the prohibition on, or imposing of strict conditions on maintaining in the US, of a correspondent account or payable-through account by a non-US institution. A critical difference is that under UFSA, it remains in the President's discretion to impose this sanction, whereas under Iranian-related sanctions legislation it is mandatory. Nevertheless, the mere fact that UFSA provides this as a potential sanction may spur non-US financial institutions to increase the risk profile of facilitating a transaction which could trigger it (e.g, facilitating a transaction with a Russian SDN).

In signing UFSA, President Obama stated that he did not intend to impose sanctions under the new law. Nevertheless, the potential for an expansion in extraterritorial sanctions, in particular against financial institutions outside of the US, is a significant development. It is clear that the US and EU continue to see sanctions as a important tool to put pressure on the Russian Government.

For more information on the sanctions, see " US and EU Expand Ukraine-Related Sanctions: New Energy Sector Restrictions," " New sanctions increase uncertainty of shipments to Russia," and " New sectoral sanctions and new SDNs: US expands Ukraine-related sanctions."

Footnotes

1. Executive Orders 13660, 13661, and 13662 were adopted pursuant to the President's authorities under the Constitution and IEEPA, the International Emergency Economic Powers Act (50 U.S.C. §§ 1701 et seq).

2. US Person is any US citizen or permanent resident, entity organized under the laws of a US jurisdiction (and its foreign branch), and any individual actually present in the territory of the US.

3. The energy sector sanctions provisions also grant the President the authority to impose additional licensing requirements or restrictions on the export or re-export of items for use in the energy sector of Russia, although the President already has this pursuant to his existing authority.

4. Executive Order "Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine". This most recent Executive Order was not numbered at the time of the publishing of this Client Alert.

5. The new EU sanctions list 165 new goods subject to an export prohibition.

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
Events from this Firm
22 Jan 2019, Seminar, San Francisco, United States

Dentons is pleased to offer a full day of classes, just in time for the California MCLE compliance period deadline of January 31, 2019.*

23 Jan 2019, Seminar, Los Angeles, United States

Dentons is pleased to offer a full day of classes, just in time for the California MCLE compliance period deadline of January 31, 2019.*

24 Jan 2019, Other, New York, United States

Join Dentons’ Health Care Partner Lori Mihalich-Levin and White Collar & Government Investigations Counsel Christine Genaitis as they lead conference sessions at AHLA Academic Medical Centers and Teaching Hospitals Institute.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
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