On July 30, 2015, OFAC added 11 individuals and 15 entities in Russia and Ukraine to its Specially Designated Nationals and Blocked Persons List (SDN List). OFAC also added 35 entities in Russia and Ukraine, all subsidiaries of Vnesheconombank (VEB) and Rosneft, to its Sectoral Sanctions Identifications List (SSI List). Furthermore, OFAC issued a Crimea sanctions advisory identifying certain practices used to circumvent or evade US sanctions involving Crimea, and advised companies to implement certain enhanced compliance measures that correspond with their US sanctions risk profile. OFAC also issued a press release detailing its actions and a web posting listing the newly designated entities.
OFAC added 11 individuals and 15 entities to the SDN List pursuant to Executive Orders (EOs) 13660, 13661 and 13685. These EOs respectively target persons involved in destabilizing Ukraine (EO 13660); Russian government officials and persons operating in the Russian arms sector (EO 13661); and persons operating in Crimea (EO 13685). See our previous advisories on these EOs here and here.
US persons are required to freeze and report to OFAC all property and interests in property of these SDNs that are in their possession or control, and also are generally restricted from engaging in any transactions or dealings with the SDNs. OFAC regulations define US persons to include US citizens, permanent resident aliens, entities organized under the laws of the United States, and persons located in the United States, but do not include foreign-incorporated subsidiaries of US companies. Entities that are 50 percent or more owned by one or a combination of specially designated nations are also subject to these sanctions. See our previous advisories here and here for more details.
Designations Pursuant to EO 13660
OFAC added the following individuals to the SDN List pursuant to EO 13660:
- Andriya Petrovych Klyuyev
- Sergey Vitalievich Kurchenko
- Eduard Anatoliyovych Stavytsky
- Olekasandr Viktorovych Yanukovych
OFAC also added Private Joint-Stock Company Mako Holding to the SDN List pursuant to EO 13660 for being owned or controlled by, or acting or purporting to acting for or on behalf of Oleksandr Yakukovych.
Designations Pursuant to EO 13661
OFAC added the following individuals and entities to the SDN List pursuant to EO 13661 for providing material support to Gennady Timechenko, Boris Rotenberg, or Kalashnikov Concern, who previously were designated under EO 13661:
- Airfix Aviation Oy
- IPP Oil Products (Cyprus) Limited
- Kai Paanane
- Oleg Usachev
- Petr Kolbin
- Set Petrochemicals Oy
- Southport Management Services Limited
- Southeast Trading Oy
- Oy Langvik Capital Ltd.
- Roman Rotenberg
- Aleksander Omelchenko
- Andrey Bulyutin
- Olena Yurevna Semenova
OFAC also added the following entities linked to Kalishnikov Concern to the SDN List pursuant to EO 13661 for operating in the arms or related material sector in the Russian Federation:
- Izhevsky Mekhanichesky Zavod JSC (aka Baikal)
- Open Joint Stock Company Konsern Izhmash
Designations Pursuant to EO 13685
OFAC added the following five port operators and one sea ferry operator to the SDN List pursuant to EO 13685 for operating in the Crimea region of Ukraine:
- State Enterprise Kerch Sea Commercial Port
- State Enterprise Sevastopol Sea Trading Port
- State Enterprise Feodosia Sea Trading Port
- State Enterprise Evpatoria Sea Commercial Port
- State Enterprise Yalta Sea Trading Port
- State Shipping Company Kerch Sea Ferry
EO 13685 prohibits US persons from engaging in the following activities: (i) new investments in Crimea, (ii) import of goods, services, or technology from Crimea, (iii) export or re-export of goods, services, or technology to Crimea, and (iv) “facilitation” of non-US persons’ engaging in the foregoing activities. See our previous advisory. These prohibitions apply with respect to all Crimean port operators and sea ferry operators. The newly designated port or sea ferry operators are now also subject to an asset freeze, and US persons are prohibited from dealing with them, including participating in any way with offshore transactions involving the port and identified ferry operators.
OFAC added 18 majority-owned subsidiaries of VEB and 17 majority-owned subsidiaries of Rosneft to the SSI List pursuant to EO 13662. OFAC added VEB and Rosneft to the SSI List in July 2014. See our previous advisory. The newly designated entities, along with all other entities owned 50 percent or more by VEB or Rosneft, already were subject to “sectoral” sanctions (described below) pursuant to OFAC’s 50 percent rule. OFAC specifically has included these 35 entities to the SSI List in order to assist the public to more effectively comply with the sanctions on VEB and Rosneft.
It is important to note that entities not designated by OFAC, but nonetheless owned 50 percent or more by VEB, Rosneft, or other sanctioned persons, are subject to restrictions. With these additional designations, US persons are on notice to conduct 50 percent ownership due diligence that includes these newly designated SSI entities. While entities owned 50 percent or more by these newly designated entities already were subject to sanctions under the 50 percent rule because of VEB’s or Rosneft’s ownership interest – see OFAC FAQ #401 – the new designations add clarity.
Persons on the SSI List, unlike those on the SDN List, do not face an asset freeze and US persons are not prohibited strictly from dealing with them. Rather, persons on the SSI List are subject to a more calibrated set of sanctions, set out under four OFAC directives, that are intended to cut off access to certain types of financing and, in the case of designated energy companies, to also restrict access to US exports.
Designations Under Directive 1
Under Directive 1, as amended, US persons are prohibited from transacting or dealing in new debt with a maturity of 30 days or new equity issued by an entity on the SSI List.
OFAC has added the following entities that are owned 50 percent or more by VEB to the SSI List subject to Directive 1:
- Bank Belveb OJSC
- Development Corporation of North Caucus OJSC
- Russian Export-Import Bank (EXIM Bank of Russia)
- Far East and Baikal Region Development Fund OJSC
- Federal Center for Project Finance
- Kraslesinvest CJSC
- Resad LLC
- Rose Group Limited
- Russian Direct Investment Fund Management Company
- SME Bank
- VEB Asia Limited
- VEB Capital
- VEB Engineering LLC
- VEB Leasing OJSC
Designations Under Directives 2 and 4
Directive 2, as amended, prohibits US persons from transacting or dealing in new debt with a maturity of more than 90 days issued by a person on the SSI List. Note that unlike Directive 1, there are no restrictions in dealing in the sanctioned person’s equity, and that the maturity threshold for restricted debt (90 days) is greater than that under Directive 1 (30 days).
Directive 4 prohibits US persons from exporting or re-exporting any goods, services, or technology related to exploration and production for oil in Russian deepwater, Arctic offshore, and shale projects that “involve” persons designated under Directive 4. The restrictions do not apply to gas projects.
The following entities that are 50 percent or more owned by Rosneft are added to the SSI List subject to Directives 2 and 4:
- CJSC Vankorneft
- Neft-Aktiv LLC
- OJSC Achinsk Refinery
- OJSC Angarsk Petrochemical Company
- OJSC Kuybyshev Refinery
- OJSC Novokuybyshev Refinery
- OJSC Orenburgeneft
- OJSC RH Holding
- OJSC Russian Regional Development Bank
- OJSC Samotlorneftegaz
- OJSC Syzran Refinery
- PJSC Verkhnechonskneftegaz
- Rn-Komsomolsky Refinery LLC
- Rn-Yuganskneftegaz LLC
- Rosneft Finance S.A.
- Rosneft Trade Limited
- Rosneft Trading S.A.
OFAC Advisory Regarding Crimea Sanctions Evasion
OFAC also issued an advisory regarding certain practices used to circumvent or evade US sanctions involving Crimea. As discussed above, EO 13685 prohibits US persons from engaging in virtually all direct or indirect transactions with persons or entities in Crimea, unless permitted by OFAC or a statute. The evasive practices of third parties identified by OFAC may cause US companies and foreign companies doing business in US, notwithstanding their existing compliance controls, to engage in activities that are in violation of US sanctions, which are strict liability regimes that do not take intent into account for civil violations.
OFAC identified certain practices from the financial and international trade sectors that are intended to omit or obfuscate references to Crimea and locations within Crimea. For example, the following information can be obscured in order to evade or circumvent US sanctions involving Crimea: (i) originator or beneficiary address information from the Society for Worldwide Interbank Financial Telecommunications (SWIFT) messages involving persons or entities in Crimea; or (ii) references to Crimea in trade related documentations by, for example, listing Crimean counterparties as being located in Russia rather than in Ukraine. As a result, US companies as well as foreign companies conducting business in or through the United States may not realize that they are directly or indirectly engaging in a transaction involving an individual or entity in Crimea.
OFAC provided the following examples of compliance measures that may mitigate these risks of violating US sanctions involving Crimea:
- Including a broad list of search terms covering major geographic locations (including cities and ports) in Crimea and not simply references to “Crimea” in transaction monitoring systems;
- Requesting additional information from parties with a history of violating or attempting to violate US sanctions on Crimea; and
- Clearly communicating US sanctions obligations (including ban on exports and reexports from the United States to Crimea) and related compliance expectations with foreign financial and trade partners.
Companies should tailor compliance measures to correspond with their specific US sanctions risk profile.
The new designations and sanctions advisory demonstrate a continuing commitment by US authorities to enforce sanctions related to the situation in Ukraine. For the time being, it appears that the US approach is to make designations under the existing EOs and Directives, although this can change. The new restrictions resulting from OFAC’s July 30 designations are those related to the new SDN designations described above. The designations targeting VEB and Rosneft subsidiaries do not impose new restrictions, but rather are intended to assist US persons in identifying sanctioned persons; as noted above, all entities owned 50 percent or greater by VEB or Rosneft, and now of course by these newly-identified entities, are subject respectively to Directive 1 (for VEB subsidiaries) and Directives 2 and 4 (for Rosneft subsidiaries). Finally, the Crimea sanctions advisory is intended to assist the public in conducting reasonable due diligence and detecting sanctions evasion, and could portend future OFAC guidance regarding sanctions evasion generally.