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This E-Alert provides an update on the U.S. and E.U. sanctions discussed in the Allen & Overy E-Alert dated March 13, 2014, titled “United States and European Union authorize sanctions relating to situation in Ukraine,” available here: http://www.allenovery.com/news/en-gb/articles/Pages/United-States-and-European-Union-Authorize-Sanctions-Relating-to-Situation-in-Ukraine.aspx (the March 13 E-Alert).

On March 17, 2014, U.S. President Barack Obama signed an Executive Order authorizing additional sanctions (namely visa restrictions and the freezing of U.S. property and financial assets) against persons1 the United States has deemed to be contributing to the ongoing situation in the Ukraine (the March 17 EO2). Citing the actions and policies of the Government of the Russian Federation with respect to Ukraine— including “the recent deployment of Russian Federation military forces in the Crimea region of Ukraine”—the March 17 EO expands the scope of the national emergency declared in Executive Order 13660, issued on March 6, 2014 (the March 6 EO3, and together with the March 17 EO, the EOs). Specific individuals have now been designated for sanctions under the EOs and added to the U.S. Department of the Treasury’s Office of Foreign Assets Control’s (OFAC’s) Specially Designated Nationals List (SDN List).

Additionally, further to the financial sanctions imposed on certain individuals by the EU last week, on March 17, 2014, the European Council adopted further restrictive measures against persons it has deemed responsible for “actions which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine”. Specifically, the European Council has adopted Council Decision 2014/145/CFSP (the Decision4) and Council Regulation (EU) No 269/2014 (the Regulation5), which provide for the imposition of travel restrictions on, and the freezing of funds and economic resources of, certain individuals.

The introduction of U.S. and EU sanctions regimes relating to the situation in Ukraine may pose challenges to both companies and financial institutions, particularly those with business dealings involving Ukraine, Russia and/or individuals or entities targeted by these measures. Such challenges may be heightened if the U.S. and EU expand the number of persons designated for sanctions particularly if, as is the stated intention of the Russian government, Russian legislators respond with similar legislation.

The March 17 Executive Order

SANCTIONS IMPOSED BY THE MARCH 17 EO

Pursuant to the March 17 EO, all property and interests in property that are in the U.S. (or are within the possession or control of any United States person6) of the following persons are blocked and may not be transferred, paid, exported, withdrawn or otherwise dealt in:

  1. persons identified in the Annex to the March 17 EO (now included on OFAC’s SDN List, see below); and
  2. persons determined by the Secretary of the Treasury, in consultation with the Secretary of State:
    1. to be an official of the Government of the Russian Federation7;
    2. to operate in the arms or related materiel sector of the Russian Federation;
    3. to be owned or controlled by, or to have acted on behalf of:
      1. a senior official of the government of the Russian Federation; or
      2. a person whose property and interests are blocked pursuant to this order; or
    4. to have materially assisted or provided support for or goods or services to:
      1. a senior official of the Government of the Russian Federation; or
      2. a person whose property and interests are blocked pursuant to the March 17 EO (collectively, Designated Persons).

As all property of Designated Persons within the possession or control of any U.S. Person must be blocked and U.S. Persons are prohibited from, among other activities:

  1. the making of any contribution or provision of funds, goods or services by, to, or for the benefit of any Designated Person; and
  2. the receipt of any contribution or provision of funds, goods or services from any Designated Person.

As a practical matter, Designated Persons may find it difficult to conduct U.S. dollar-denominated transactions, as such transactions are normally routed through correspondent banks in the United States, which, as U.S. Persons, are required to freeze the funds.

Pursuant to the March 17 EO, the unrestricted immigrant or nonimmigrant entry into the United States of all Designated Persons is also suspended.

INDIVIDUAL DESIGNATED FOR SANCTIONS UNDER THE MARCH 6 AND MARCH 17 EOs

Pursuant to the EOs, the following individuals have been designated for sanctions and added to OFAC’s SDN List:

  1. AKSYONOV, Sergey Valeryevich; acting Prime Minister of Crimea (designated under the March 6 EO);
  2. GLAZYEV, Sergey; Presidential Advisor (designated under the March 17 EO);
  3. KLISHAS, Andrei; Chairman of the Russian Federation Council Committee on Constitutional Law, Judicial and Legal Affairs and the Development of Civil Society (designated under the March 17 EO);
  4. KONSTANTINOV, Vladimir Andreyevich; parliamentary speaker of Crimea (designated under the March 6 EO);
  5. MATVIYENKO, Valentina Ivanovna; Federation Council Speaker; Chairman of the Russian Federation Council (designated under the March 17 EO);
  6. MEDVEDCHUK, Viktor; leader of Ukrainian Choice (designated under the March 6 EO);
  7. MIZULINA, Yelena; State Duma Deputy; Chairman of the State Duma Committee on Family, Women and Children (designated under the March 17 EO);
  8. ROGOZIN, Dmitry Olegovich; Deputy Prime Minister of the Russian Federation (designated under the March 17 EO);
  9. SLUTSKY, Leonid; State Duma Deputy; Chairman of the Committee on Affairs of the Commonwealth of Independent States (CIS); First Deputy Chairman of the Committee on International Affairs; Chairman of the Russian World Fund Administration (designated under the March 17 EO);
  10. SURKOV, Vladislav Yurievich; Presidential Aide (designated under the March 17 EO); and
  11. YANUKOVYCH, Viktor Fedorovych; Former President of Ukraine (designated under the March 6 EO).

The EU Decision and Regulation

INDIVIDUALS SANCTIONED UNDER THE DECISION AND THE REGULATION

The Decision provides for the imposition of a travel ban on, and the freezing of funds and economic resources of, twenty-one individuals. These individuals include the acting Prime Minister of Crimea elected on February 27, 2014 (Sergey Valeryevich Aksyonov); the recently acclaimed Mayor of Sevastopol (Aleksei Mikhailovich Chaliy); several officials who “played a relevant role in the decisions taken by the Verkhovna Rada concerning the ‘referendum’ against territorial integrity of Ukraine”; as well as others the EU considers to have contributed to the unrest and recent developments in Crimea (the Listed Persons).

The number of individuals targeted by the EU sanctions is higher than under the EO. The Listed Persons are:

  1. AKSYONOV, Sergey Valeryevich; acting Prime Minister of Crimea, elected in the Crimean Verkhovna Rada on February 27, 2014;
  2. KONSTANTINOV, Vladimir Andreevich; speaker of the Supreme Council of the Autonomous Republic of Crimea;
  3. TEMIRGALIEV, Rustam Ilmirovich; Deputy Chairman of the Council of Ministers of Crimea;
  4. BEREZOVSKIY, Deniz Valentinovich; appointed commander of the Ukrainian Navy on March 1, 2014, and swore an oath to the Crimean armed force;
  5. CHALIY, Aleksei Mikhailovich; recently acclaimed Mayor of Sevastopol (on February 23, 2014);
  6. ZIMA, Pyotr Anatoliyovych; appointed as the new head of the Crimean Security Service on March 3, 2014, by acting Prime Minister Aksyonov;
  7. ZHEREBTSOV, Yuriy; Counsellor of the Speaker of the Verkhovna Rada of Crimea;
  8. TSEKOV, Sergey Pavlovych; Vice Speaker of the Verkhovna Rada;
  9. OZEROV, Viktor Alekseevich; Chairman of the Security and Defense Committee of the Federation Council of the Russian Federation;
  10. DZHABAROV, Vladimir Michailovich; First Deputy Chairman of the International Affairs Committee of the Federation Council of the Russian Federation;
  11. KLISHAS, Andrei Aleksandrovich; Chairman of the Committee on Constitutional Law of the Federation Council of the Russian Federation;
  12. RYZHKOV, Nikolai Ivanovich; Member of the Committee for federal issues, regional politics and the North of the Federation Council of the Russian Federation;
  13. BUSHMIN, Evgeni Viktorovich; Deputy Speaker of the Federation Council of the Russian Federation;
  14. TOTOONOV, Aleksandr Borisovich; Member of the Committee on culture, science, and information of the Federation Council of the Russian Federation;
  15. PANTELEEV, Oleg Evgenevich; First Deputy Chairman of the Committee on Parliamentary Issues;
  16. MIRONOV, Sergei Mikhailovich; Member of the Council of the State Duma; Leader of Fair Russia faction in the Duma of the Russian Federation;
  17. ZHELEZNYAK, Sergei Vladimirovich; Deputy Speaker of the State Duma of the Russian Federation;
  18. SLUTSKI, Leonid Eduardovich; Chairman of the Commonwealth of Independent States Committee of the State Duma of the Russian Federation;
  19. VITKO, Aleksandr Viktorovich; Commander of the Black Sea Fleet; Vice-Admiral;
  20. SIDOROV, Anatoliy Alekseevich; Commander of Russia’s Western Military District; and
  21. GALKIN, Aleksandr; Commander of Russia’s Southern Military District.

The Decision and the Regulation allow the European Council to amend the Annexes by adding individuals or legal persons, entities or bodies. In order to do so, the Council must provide such designated persons with the grounds for their inclusion in the Annexes, so that such persons may have an opportunity to submit observations (although this is not a formal appeal mechanism). Where observations are submitted, or where there is substantial new evidence to be considered, the Council must review its decision. Absent political agreement between the EU and Russia, it is possible that the number of Listed Persons will be increased by the European Council as developments unfold.

SANCTIONS IMPOSED BY THE DECISION AND THE REGULATION ON LISTED PERSONS

The Regulation imposes financial sanctions consisting of an asset freeze on all funds and economic resources belonging to, owned, held or controlled by any of the Listed Persons. Furthermore, the Regulation prohibits any person from making funds or economic resources available, directly or indirectly, to or for the benefit of the Listed Persons.

The Regulation provides for certain derogations identical to those provided pursuant to the financial sanctions imposed by the EU last week. These derogations are discussed in more detail in our March 13 E-Alert.

The Decision (but not the Regulation) also imposes a travel ban on Listed Persons, requiring Member States to take all necessary measures to prevent the entry into, or transit through, their territories of the Listed Persons. However, Member States may allow Listed Persons to enter or transit through their territories where they are a host country to the Organization for Security and Cooperation in Europe (OSCE) and where they are bound by an obligation of international law, namely:

  1. as a host country to an international intergovernmental organization;
  2. as a host country to an international conference convened by, or under the auspices of, the United Nations;
  3. under a multilateral agreement conferring privileges and immunities; or
  4. under the 1929 Treaty of Conciliation (Lateran pact) concluded by the Holy See (State of the Vatican City) and Italy.

The Decision provides for certain derogations from the above, such that Member States may grant exemptions from the travel ban:

  1. where travel is justified on the grounds of urgent humanitarian need; or
  2. on grounds of attending intergovernmental meetings, and certain other meetings where a political dialogue is conducted that directly promotes the policy objectives of the sanctions (including support for the territorial integrity, sovereignty and independence of Ukraine).