On 19 December 2018, the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) notified Congress that it intended to remove En+ Group plc (En+), UC Rusal plc (Rusal), and JSC EuroSibEnergo (ESE) from the Specially Designated Nationals (SDN) List.
As discussed in our previous client alert, En+ was initially designated in April 2018 for being owned/controlled by Oleg Deripaska, an influential Russian oligarch who was also sanctioned, pursuant to Executive Orders 13661 and 13662. At the same time, OFAC designated Rusal because it was owned/controlled by En+ and ESE for being owned/controlled by En+ and Mr Deripaska, pursuant to the same Executive Orders. Since then, OFAC has issued a number of general licenses authorizing certain transactions necessary to maintenance or wind-down of operations or existing contracts with these companies.
OFAC's decision to delist these entities comes after En+, Rusal, and ESE submitted to OFAC a proposal whereby they would sever the ownership and control of Mr Deripaska. After extensive negotiations with OFAC, En+, Rusal, and ESE "agreed to undertake significant restructuring and corporate changes to address the circumstances that led to their designation, including significantly reducing Deripaska's direct and indirect shareholding stake; overhauling the composition of their board of directors; taking other restrictive steps related to their corporate governance; and agreeing to undertake extensive, ongoing auditing, certification and reporting requirements." Specifically, Mr Deripaska has agreed to reduce his ownership in EN+ from 70 percent to 44.95 percent.
The conditions for the delisting of En+, Rusal, and ESE are referred to as the 'Terms of Removal'. Under the Terms of Removal, Mr Deripaska will remain on the SDN List and his property and interests in property, including entities in which he owns a 50 percent (or greater) interest, will remain blocked. Consequently, both U.S. and non-U.S. persons will continue to be subject to secondary sanctions should they facilitate a significant transaction for or on behalf of Mr Deripaska or entities in which he owns a 50 percent (or greater) interest, pursuant to Section 228 of the Countering America's Adversaries Through Sanctions Act (CAATSA).
Pursuant to Section 216 of CAATSA, Congress may, but is not required to, pass a joint resolution approving or disapproving the Terms of Removal. Upon termination of the review period, if Congress has not passed a resolution of disapproval, En+, Rusal, and ESE can be removed from the SDN List. If however, Congress disapproves of the terms, these entities cannot be delisted without Congress' approval. Notably, top-ranking Democrats are already asking questions as to whether the structural and governance changes made by En+, Rusal, and ESE are sufficient to ensure that Mr Deripaska is no longer in control.
How Reed Smith can help
Reed Smith's Sanctions Group has experience representing companies before OFAC. A global firm, Reed Smith is particularly well positioned to provide guidance on U.S. sanctions and to represent your company before OFAC and other federal agencies implementing U.S. sanctions, such as the U.S. Department of Commerce and the U.S. Department of State, with highly experienced sanctions lawyers from both the United States and the EU available to you, 24/7. Contact one of the authors listed above, or your usual Reed Smith lawyer, and we will be more than happy to help you navigate the implications of these significant events for your business.
This article is presented for informational purposes only and is not intended to constitute legal advice.