US expansion of Russia/Ukraine sanctions
On 31st October 2017, in accordance with section 223(d) of Title II of the Countering America’s Adversaries Through Sanctions Act (CAATSA), OFAC issued amended Ukraine/Russia-Related Directive 4. Certain CAATSA-related prohibitions in amended Directive 4 have a delayed effective date of January 29, 2018. OFAC has also published new and updated FAQs relating to the amended Directive and CAATSA.
Pursuant to sections 1(a)(i), 1(b), and 8 of Executive Order 13662 of March 20 2014 (the Order) and 31 C.F.R. § 589.802, taking account of the Countering Russian Influence in Europe and Eurasia Act of 2017 (Title II of CAATSA), and following the Secretary of the Treasury’s determination under section 1(a)(i) of the Order with respect to the energy sector of the Russian Federation economy, OFAC has determined, in consultation with the Department of State, that the following activities by a US person or within the US are prohibited, except to the extent provided by law or unless licensed or otherwise authorized by OFAC:
The provision, exportation, or re-exportation, directly or indirectly, of goods, services (except for financial services), or technology in support of exploration or production for deep-water, Arctic offshore, or shale projects:
(1) that have the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation and extending from its territory, and that involve any person determined to be subject to this Directive or any earlier version thereof, their property, or their interests in property; or
(2) that are initiated on or after January 29, 2018, that have the potential to produce oil in any location, and in which any person determined to be subject to this Directive or any earlier version thereof, their property, or their interests in property has (a) a 33 percent or greater ownership interest, or (b) ownership of a majority of the voting interests.
Except to the extent otherwise provided by law or unless licensed or otherwise authorized by OFAC, the following are also prohibited: (1) any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions contained in this Directive; and (2) any conspiracy formed to violate any of the prohibitions in this Directive.
These prohibitions apply to the persons named by the Directives, their property, and their interests in property, which includes entities owned 50 percent or more by one or more persons identified as subject to the Directives.
OFAC’s amended and reissued Directive 4 does not change the applicability of OFAC’s 50 percent rule in the Directive 4 context. The references to “33 percent or greater ownership” and “ownership of a majority of the voting interests” in subsection 2 of Directive 4 refer to a Directive 4 SSI entity’s ownership interest in a deep-water, Arctic offshore, or shale project.
The prohibitions on the exportation of services include, for example, drilling services, geophysical services, geological services, logistical services, management services, modelling capabilities, and mapping technologies. The prohibitions do not apply to the provision of financial services, e.g., clearing transactions or providing insurance related to such activities.
If a deep-water, Arctic offshore, or shale project has the potential to produce oil, and the other requirements for either of the Directive 4 prohibitions are fully satisfied, then the relevant Directive 4 prohibition applies, irrespective of whether the project also has the potential to produce gas. If the project has the potential to produce gas only, then the Directive 4 prohibitions do not apply.