US Sanctions
EXTENSION OF RUSSIAN RETALIATORY SANCTIONS - 24 JUNE 2015
Russia's President Putin has signed a decree extending to 6 August 2016 prohibitions against the import into the Russian Federation of certain food and agricultural products from the USA, Canada, the EU, Norway and Australia. These measures were first introduced on 7 August 2014 in response to trade and financial sanctions against Russia by those countries. The embargo, which President Putin states is with the aim of defending Russia's national interests, will now continue until 6 August 2016.
EXECUTIVE ORDER 13685 – 19 DECEMBER 2014
On 19 December 2014, President Obama issued Executive Order 13685 which with immediate effect prohibits the following activities:
• new investments in Crimea by a US person wherever located;
• the import into the US of goods, services or technology from Crimea
• export of goods, services or technology to the Crimea from the US or by a US person wherever located; and
• provision of any approval, financing, facilitation or a guarantee by a US person in connection with a transaction by a foreign person where the transaction by that foreign person would be prohibited under the Executive Order if performed by a US person or a person within the US.
It also authorizes the blocking of persons determined to “operate” in Crimea or to be “the leader of an entity” operating in Crimea.
A copy of the Executive Order can be downloaded from the link set out below.
UKRAINE FREEDOM SUPPORT ACT 2014 – 18 DECEMBER 2014
On 18 December 2014, President Obama signed into law the Ukraine Freedom Support Act 2014, hardening the US Government’s position towards Russian insurgency in Ukraine.
In essence, the Act authorises, but does not compel, the President to impose sanctions in a variety of circumstances, including:
1. On Rosoboronexport, a Russian state agency involved in military procurement, and other Russian state-controlled firms which sell or transfer military equipment to Syria, or to entities in Ukraine, Georgia or Moldova without the consent of the governments in those nations. Persons (individuals or entities) that knowingly sponsor or provide financial, material, or technological support for, or goods or services to or in support of, such an entity may also be subject to sanctions.
2. To penalise Gazprom if it is found to be withholding significant natural gas supplies from Nato states, or Ukraine, Georgia or Moldova.
3. It further authorises the President to impose sanctions against persons that knowingly make a significant investment in certain types of Russian crude oil projects and to impose additional licensing requirements or other restrictions on the export of items for Russia's energy.
4. On Gazprom if it is determined to be withholding significant natural gas supplies from North Atlantic Treaty Organization (NATO) member countries, or further withholds significant natural gas supplies from countries such as Ukraine, Georgia, or Moldova.
5. On the opening, and a prohibition or the imposition of strict conditions on the maintaining, in the United States of a correspondent account or a payable-through account by a foreign financial institution that knowingly:
o engages in significant transactions involving sanctioned persons; or
o with respect to the Ukrainian crisis, facilitates a significant financial transaction on behalf of any Russian person included on the list of specially designated nationals and blocked persons maintained by the Department of the Treasury's Office of Foreign Assets Control. Such sanctions could have the effect of disabling the foreign financial institution from being able to process US dollar transactions.
The Managers will monitor and report on the implementation of the provisions of the Act.
US WIDENS SANCTIONS CONCERNING RUSSIA - 12 SEPTEMBER 2014
The latest measures expand upon actions taken by OFAC on 16 July 2014, which imposed sanctions against entities in Russia's financial, energy, and defence sectors, implemented certain directives pursuant to Executive Order 13662 of 20 March 2014, and provided for the creation of a “Sectoral Sanctions Identification List” (“SSI List”). At that time, 2 Directives were issued pursuant to Executive Order 13662:
• Directive 1 prohibiting U.S. persons from transacting in, financing, or dealing in new debt with greater than 90 days maturity, and new equity in relation to 2 Russian banks - Gazprombank OAO and VEB.
• Directive 2 prohibiting U.S. persons from transacting in, financing, or dealing in new debt with greater than 90 days maturity, (but not prohibiting transactions or financing for new equity), in relation to specificed energy firms - Rosneft, the world’s largest oil and gas company, and OAO Novatek, Russia’s largest independent natural gas producer.
On 12 September 2014 OFAC amended Directive 1 to decrease the maturity length of prohibited new debt from 90 days to 30 days, and also added Sberbank to the list of Russian banks subject to the Directive. OFAC also issued two new directives under Executive Order 13662.
Directive 3 prohibits US persons from engaging in transactions involving debt of longer than 30 days' maturity of entities added to the SSI List as subject to Directive 3. Rostec, a company operating within Russia’s defence and related material sector, has been added to the SSI List as subject to Directive 3.
Directive 4 prohibits US persons from providing, exporting, or re-exporting goods, services (except for financial services), or technology in support of exploration or production for deep-water, Arctic offshore, or shale projects that:
• have the potential to produce oil in or offshore of Russia; and
• involve any of 5 major Russian energy companies: Gazprom, Gazprom Neft, Lukoil, Rosneft, or Surgutneftegas.
A copy of an OFAC Announcement published on 12 September 2014 which sets out in details these new mesures can be downloaded from the links set out below.
Separately, OFAC also added 5 Russian defence-technology companies, to the SDN List of persons designated for asset freeze.
RUSSIAN PRESIDENTIAL DECREE NO. 560 DATED 6 AUGUST AND RESOLUTION OF THE GOVERNMENT OF THE RUSSIAN FEDERATION NO. 778 DATED 7 AUGUST 2014
In response to the imposition of trade and financial sanctions against Russia by the USA, member states of the European Union, Canada, Norway and Australia, Russia has introduced, with effect from 7 August 2014, a one-year ban on the import into Russia of certain agricultural and food products originating from those countries. There are no grace periods enabling performance of pre-existing contractual obligations.
The affected products are defined according to classification codes used in Russia for customs clearance purposes, and based on the internationally accepted “Harmonized Commodity Description and Coding System”, “HS”. The relevant products include a broad range of food and agricultural products, including meat, milk and dairy products, fish, fruit and vegetables.
Neither the Decree nor the Resolution spell out the potential penalties that may be applied by the Russian authorities for breach of these prohibitions.
These measures may lead to disputes over liability for non-performance and termination of contracts. Members involved in the carriage of the affected commodities should pay close attention to their contractual arrangements.
OFAC UKRAINE-RELATED FAQ 28 JULY 2014
OFAC has published updated FAQ regarding US persons and their ability to transact in respect of the debt and equity restrictions applicable to various Russian banks/financial institutions and energy companies – Gazprombank OAO, VEB, OAO Novatek, Rosneft. A copy of the FAQ can be downloaded from the link set out below.
NEW U.S. SANCTIONS AGAINST CERTAIN RUSSIAN ENTITIES - 16 JULY 2014
On 16 July 2014, the U.S. announced a further round of sanctions measures against Russia including measures targeting entities in Russia's finance, energy and defence technology sectors.
Some of the measures include designation for asset freeze, while others prohibit specific transactions.
• From 16 July 2014 U.S. persons are prohibited from providing new financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity for two Russian financial institutions - Gazprombank OAO and VEB - and two Russian energy firms - OAO Novatek and Rosneft. Novatek is reported to be Russia's largest independent natural gas producer, and Rosneft Russia's largest petroleum company and third largest gas producer. The names and aliases of these companies are published in a “Sectoral Sanctions Identification List”. This restriction also applies to entities in which the named entities own more than 50% of the shares. The US Treasury Secretary has stated in a Press Release that other persons operating within Russia’s energy sector may also be subjected to targeted sanctions;
• 8 Russian arms firms are designated pursuant to Executive Order 13661 for involvement in the production of a range of material including small arms, mortar shells, and tanks;
• Luhansk People’s Republic, Donetsk People’s Republic, and Aleksandr Borodai (self-declared prime minister of the Donetsk People’s Republic) are designated pursuant to Executive Order 13660 for threatening the peace, security, stability, sovereignty, or territorial integrity of Ukraine;
• Feodosiya Enterprises, an oil terminal in the Crimean peninsula, is designated for asset freeze pursuant to Executive Order 13660. This facility had been controlled by the Ukrainian state-controlled gas company Naftogaz but was taken over and nationalised by the separatist Crimean parliament which the U.S. does not recognise;
• 4 Russian government officials are designated pursuant to Executive Order 13661 - Sergey Beseda - a Russian Federal Security Service official, Oleg Savelyev - Russia’s Minister for Crimean Affairs, Sergei Neverov - Deputy Chairman of the State Duma of the Russian Federation, and Igor Shchegolev - an aide to President Vladimir Putin.
Any assets of those entities and individuals designated pursuant to Executive Orders 13660 and 13661 that are or come within U.S. jurisdiction must be frozen, and transactions by U.S. persons or within the United States involving these entities are generally prohibited. These Executive Orders also provide that any person, including a non-U.S. person, that has provided financial, material, or technological support for, or goods or services to or in support of a person designated pursuant to these Orders, may also be subject to U.S. sanctions. It is not clear whether payment for or use of the shipping facilities operated by Feodosiya Enterprises would amount to material assistance, but in the absence of clear official guidance Members should exercise extreme caution if considering using these facilities.
Copies of a related US Treasury Press Release and FAQ document, and the "Sectoral Sanctions Identification List" can be downloaded from the links set out below.
U.S. UKRAINE-RELATED SANCTIONS REGULATIONS - 8 MAY 2014
The on-going crisis in Ukraine has resulted in a rapid expansion of sanctions measures implemented by the US, having implications for US and non-US companies in respect of existing and prospective business involving Ukraine and/or Russia.
To date, the US has issued three Executive Orders: EO 13660 dated 10 March 2014, EO 13661 dated 17 March 2014, and EO 13662 dated 20 March 2014. In essence, these EOs authorise the imposition of asset freezes and visa bans against a broad range of individuals and entities including:
• officials of the Russian government;
• those operating in sectors of the Russian economy designated by the U.S. government, such as financial services, energy, metal and mining, engineering, and defence/arms or related materials;
• those involved in the destabilization of Ukraine, misappropriation of state assets of Ukraine, or asserting authority over regions of Ukraine without authority of the Ukrainian government;
• those contributing to corruption in the Russian Federation.
To date, the US has identified 45 individuals and 19 companies as sanctions targets (“Specially Designated Nationals” (“SDNs”)), including a number of banks and companies engaged in gas and oil transportation, and construction companies involved in oil, gas and petrochemical projects.
On 8 May 2014, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) published a set of regulations (“Ukraine-Related Sanctions Regulations”) to implement the 3 executive orders. These Regulations set out various definitions of terms included in the executive orders, and provide interpretive guidance. OFAC indicates that a more comprehensive set of regulations, which may include additional interpretive and definitional guidance and additional general licences and statements of licencing policy, will be published in due course to supplement these Regulations.
Although U.S. sanctions generally only bind persons subject to US jurisdiction, non-US persons that materially assist a sanctioned entity by providing financial, material, or technological support or goods or services may also potentially be subject to sanction by the U.S.. Given the ever-increasing risk attached to trade involving Ukraine and Russia, it is important that Members continue to exercise due diligence to ensure that they do not enter into commercial relationships with designated companies, or companies that are owned or controlled by a designated entity or individual.
We are grateful to Mr Jonathan Epstein of the Washington office of law firm Holland & Knight, for permitting us to publish on the Steamship Mutual website a copy of their Alert entitled “Coping with Rapidly Expanding U.S. Sanctions on Russia”, which provides a clear summary of US sanctions measures enacted to date in respect of Ukraine and Russia, and how they impact on US and non-US persons.
Copies of the Alert, and the Ukraine-Related Sanctions Regulations can be downloaded from the links set out below.
29 APRIL 2014 - FURTHER EU AND US SANCTIONS
The EU and US have extended their respective sanctions measures against Russia and Ukraine in response to continuing unrest in certain areas of Ukraine, citing a failure by Russia and Ukrainian separatists to abide by the terms of the Geneva Joint Statement (issued by Russia, Ukraine, the EU and US) following talks held in Geneva on 17 April 2014, aimed at de-escalating the situation in Ukraine.
US MEASURES
On 28 April 2014 the US announced the designation of 7 Russian government officials, including members of President Putin's inner circle, and 17 entities pursuant to Executive Order 13661. E.O. 13661 authorises sanctions on, amongst others, officials of the Russian Government and any individual or entity that is owned or controlled by, that has acted for or on behalf of, or that has provided material or other support to, a senior Russian government official.
Newly designated individuals include Dmitry Kozak, Deputy Prime Minister of the Russian Federation, and Igor Sechin, President and Chairman of the Management Board of Rosneft.
The entities newly designated by the US include companies engaged in gas and oil transportation, construction companies involved in oil, gas and petrochemical projects, and banks associated with Bank Rossiya which itself was designated on March 20, 2014 pursuant to E.O. 13661 for acting for or on behalf of or materially assisting, sponsoring, or providing financial, material, or technological support for, or goods and services to or in support of, a senior official of the Government of the Russian Federation.
The US Departments of Commerce and State have concurrently announced a tightened policy to deny licence applications for the export of high-technology items that could contribute to Russia’s military capabilities.
20 MARCH 2014 - EXECUTIVE ORDER 13662 20 MARCH 2014
Further to Executive Orders 13660 and 13661 passed by President Obama on 10 and 17 March respectively, a further Executive Order has been issued in response to actions and policies of the Government of the Russian Federation, including its purported annexation of Crimea and its use of force in Ukraine, and other actions and policies which continue to undermine democratic processes and institutions in Ukraine, threaten its peace, security, stability, sovereignty, and territorial integrity, and contribute to the misappropriation of its assets.
Executive Order 13662 is specifically targeted at Russia. It is loosely worded, and would appear to open the door to broader measures against many sectors of the Russian economy, but specifically energy and raw materials exports. It enables the imposition of an asset freeze and a visa ban against any person determined by the Secretary of the Treasury, in consultation with the Secretary of State:
(i) to operate in such sectors of the Russian Federation economy as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, such as financial services, energy, metals and mining, engineering, and defence and related material;
(ii) to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to the EO; or
(iii) to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to the EO.
20 MARCH 2014 - FURTHER DESIGNATIONS PURSUANT TO EXECUTIVE ORDER 13661
The US has designated 20 individuals (mainly Russian) and 1 entity - BANK ROSSIYA (f.k.a. AKTSIONERNY BANK RUSSIAN FEDERATION) pursuant to EO 13661 which was issued on 17 March 2014 as a response to the deployment of Russian Federation military forces in the Crimea region of Ukraine, and other action and policies which are said to undermine democratic processes and institutions in Ukraine, threaten its peace, security, stability, sovereignty, and territorial integrity, and contribute to the misappropriation of its assets.
Bank Rossiya is reported to be the 5th largest bank in Russia. As an SDN, any US dollar transactions to or through this bank would now be blocked.
UKRAINE SANCTIONS UPDATE 17 MARCH 2014
In response to the growing crisis in Ukraine, the EU and US have taken steps to impose sanctions on various persons regarded as being responsible for human rights violations in Ukraine, undermining the democratic processes and institutions in Ukraine, threatening Ukraine’s peace, security, stability, sovereignty, and territorial integrity, and contributing to the misappropriation of Ukraine’s assets. The scope and impact of the measures are described in detail further below. At the present time, the measures are limited to the imposition of asset freezes and visa bans against various Ukrainian and Russian individuals.
The practical effect of designation under the two EU regulations and the two US executive orders is similar - persons subject to EU / US law are required to freeze the property of designated persons, and are prohibited from making funds or economic resources available, directly or indirectly, to or for the benefit of such designated persons.
Members subject to EU and/or US jurisdiction and involved in trade with Ukraine or Russia are advised to check the names of their business counter parties against EU and US designation lists. Many of the individuals that are currently subject to EU and US asset freeze are likely to have business interests. If there is a risk that a business counter party could be connected to a designated person or under their direction or control, beneficial ownership may need to be investigated by asking for further details including:
• identity of all directors and shareholders, including percentage shareholding;
• ultimate beneficial owners;
• articles of incorporation;
• share register of the entity.
Members are advised to seek legal advice if they have concerns about any of the individuals, companies or other entities connected with their trades involving Ukraine or Russia.
Members not subject to either EU or US jurisdiction may nevertheless encounter problems related to receipt/payment of funds from/to designated parties. Members are reminded that P&I cover is unlikely to be available for liabilities arising out of trade / contracts involving designated parties, or where the employment of vessels contravenes sanctions regulations.
US DEVELOPMENTS – EXECUTIVE ORDER 13660 10 MARCH 2014, & EXECUTIVE ORDER 13661 17 MARCH 2014
On 10 March 2014 the US President issued Executive Order 13660 as a response to the actions and policies of persons described as asserting governmental authority in the Crimean region without the authorization of the Government of Ukraine, and other actions and policies that undermine democratic processes and institutions in Ukraine, threaten its peace, security, stability, sovereignty, and territorial integrity, and contribute to the misappropriation of its assets.
EO 13660 empowers the blocking of property and imposition of visa bans on persons determined by the Secretary of the Treasury, in consultation with the Secretary of State:
(i) to be responsible for or complicit in, or to have engaged in, directly or indirectly, any of the following:
(A) actions or policies that undermine democratic processes or institutions in Ukraine;
(B) actions or policies that threaten the peace, security, stability, sovereignty, or territorial integrity of Ukraine; or
(C) misappropriation of state assets of Ukraine or of an economically significant entity in Ukraine;
(ii) to have asserted governmental authority over any part or region of Ukraine without the authorization of the Government of Ukraine;
(iii) to be a leader of an entity that has, or whose members have, engaged in any activity described in (i) or (ii) above or of an entity whose property and interests in property are blocked pursuant to the EO;
(iv) to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any activity described in (i) or (ii) above or any person whose property and interests in property are blocked pursuant to the EO; or
(v) to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked pursuant to the EO.
On 17 March, the following designations were made pursuant to the powers vested under Executive Order 13660:
Sergey Aksyonov – described as a Crimea-based separatist leader, now claiming to be the Prime Minister of Crimea;
Vladimir Konstantinov – described as a Crimea-based separatist leader;
Viktor Medvedchuk - leader of Ukrainian Choice, described as a group which has been stirring conflict in Kherson, a province to the north of Crimea. Medvedchuk is described as a friend and adviser to Russian President Vladimir Putin;
Viktor Yanukovych - Former President of Ukraine.
On 17 March 2014 the US President issued Executive Order 13661 as a response to the deployment of Russian Federation military forces in the Crimea region of Ukraine, and other action and policies which are said to undermine democratic processes and institutions in Ukraine, threaten its peace, security, stability, sovereignty, and territorial integrity, and contribute to the misappropriation of its assets.
With immediate effect, EO 13661 imposes an asset freeze on the following persons:
(i) the persons listed in the Annex to the EO; and
(ii) persons determined by the Secretary of the Treasury, in consultation with the Secretary of State:
(A) to be an official of the Government of the Russian Federation;
(B) to operate in the arms or related material sector in the Russian Federation;
(C) to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly:
(1) a senior official of the Government of the Russian Federation; or
(2) a person whose property and interests in property are blocked pursuant to the EO; or
(D) to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of:
(1) a senior official of the Government of the Russian Federation; or
(2) a person whose property and interests in property are blocked pursuant to the EO.
Persons listed in the Annex are additionally subject to a visa ban prohibiting their entry into the United States.
In EO 13661, “person” is defined as “an individual or entity”, the term “entity” defined as “a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization”, and "Government of the Russian Federation" defined as “the Government of the Russian Federation, any political subdivision, agency, or instrumentality thereof, including the Central Bank of the Government of the Russian Federation, and any person owned or controlled by, or acting for or on behalf of, the Government of the Russian Federation”. The following seven individuals have been designated pursuant to EO 13661:
• Vladislav Surkov: Presidential aide to Russian President Vladimir Putin;
• Sergey Glazyev: Presidential adviser to Russian President Vladimir Putin;
• Leonid Slutsky: State Duma deputy, where he is Chairman of the Duma Committee on CIS Affairs, Eurasian Integration, and Relations with Compatriots;
• Andrei Klishas: Member of the Council of Federation of the Federal Assembly of the Russian Federation and Chairman of the Federation Council Committee of Constitutional Law, Judicial, and Legal Affairs, and the Development of Civil Society;
• Valentina Matviyenko: Head of the Federation Council;
• Dmitry Rogozin: Deputy Prime Minister of the Russian Federation;
• Yelena Mizulina: State Duma Deputy.
The situation in Ukraine remains unstable. There is a real possibility of further sanctions being imposed, although it is not clear at this time whether those would extend to trade prohibitions.
Copies of the relevant EU regulations and US executive orders, and various fact sheets and press releases issued by the EU, HMT and US can be downloaded from the links set out below.
