Following close on the heels of two Executive Orders imposing sanctions on Ukrainian and Russian persons in the last two weeks, US President Obama issued a new Executive Order on March 20th, 2014, further expanding the scope of US sanctions set forth in Executive Orders 13660 of March 6th, 2014 and 13661 of March 16th, 2014. Also on March 20th, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) named 16 Russian government officials, five specified members of the Russian regime’s inner circle, and one Russian bank purportedly providing financial services to such persons as Specially Designated Nationals and Blocked Persons (SDNs). Following close behind, on March 21st the European Union expanded its sanctions in response to the crisis, extending the visa ban and asset freeze imposed on selected Russian and Ukrainian individuals.
These US and EU sanctions respond to Russia’s annexation of the Crimea region of Ukraine. In a retaliatory measure, the Russian Federation issued a visa ban on nine US government officials.
US Executive Order
As part of the expanding US sanctions program responding to the crisis in Ukraine and Russia’s actions in annexing Crimea, President Obama yesterday issued an Executive Order blocking the property and interest in property of SDNs to be designated by OFAC, in conjunction with the US State Department, related to key sectors of the Russian economy, as well as persons providing financial or other support to such blocked persons, or who are owned or controlled by such persons. This Executive Order could expand the reach of the US sanctions program by authorizing the imposition of sanctions against various sectors of the Russian economy. Although not restricting the program to any particular sectors, the Executive Order specifically mentions the following sectors of the Russian economy as possible targets for future designations: financial services, energy, metals and mining, engineering, and defense. While other sectors could be targeted by the sanctions program, this list provides an indication of possible future designations under the rapidly expanding sanctions program where caution is warranted.
US persons are prohibited from conducting transactions, dealings, or business with SDNs, and also must block the property or interest in property of SDNs that they hold or that is located in the United States. When such SDN property is blocked, it must be reported to OFAC within 10 days, and cannot be dealt in by US persons without prior authorization from OFAC. In addition, a general OFAC policy published in 2008 sets forth that restrictive measures apply automatically to any entity owned 50 percent or more by a blocked person, even if not specifically named as a SDN. These measures could also apply to entities controlled by a blocked person if so designated by OFAC. With the seemingly ever expanding list of sanctioned persons, and now likely entities, compliance with these restrictions will require enhanced screening and due diligence on ownership structures.
Additional US Designations
On March 20th, OFAC added to the growing list of persons targeted by the sanctions program responding to the crisis in Ukraine. OFAC designated the following sixteen officials of the Russian government based on assertions of their support for the deployment of Russian government forces in Ukraine:
- Evgeni Bushmin, Deputy Speaker of the Federation Council of the Russian Federation
- Vladimir Dzhabarov, First Deputy Chairman of the International Affairs Committee of the Federation Council of the Russian Federation
- Andrei Fursenko, aide to the President of the Russian Federation
- Alexei Gromov, First Deputy Chief of Staff of the Presidential Executive Office
- Sergei Ivanov, Chief of Staff of the Presidential Executive Office
- Victor Ivanov, director of the Federal Drug Control Service of the Russian Federation
- Vladimir Kozhin, Head of Administration under the President of the Russian Federation
- Sergei Mironov, Member of the Council of the State Duma of the Russian Federation
- Sergey Naryshkin, Chairman of the Government Duma of the Federal Gathering of the Russian Federation
- Viktor Ozerov, Chairman of the Security and Defense Committee of the Federation Council of the Russian Federation
- Oleg Panteleev, First Deputy Chairman of the Committee on Parliamentary Issues of the Russian Federation
- Nikolai Ryzhkov, Senator in the Russian Upper House of Parliament (Federation Council)
- Igor Sergun, head of Russia’s military intelligence service (GRU)
- Aleksandr Totoonv, Member of the Committee on Culture, Science, and Information, Federation Council of the Russian Federation
- Vladimir Yakunin, chairman of the board of the Russian state-owned company Russian Railways
- Sergei Zheleznyak, Deputy Speaker of the State Duma of the Russian Federation
OFAC also designated the following individuals because they are allegedly controlled by, acted for or on behalf of, or provided material or other support to, a senior Russian government official:
- Yuri Kovalchuk, largest shareholder of Bank Rossiya, and personal banker for senior Russian government officials
- Arkady Rotenberg, along with Boris Botenberg, has held valuable contracts related to the Sochi Winter Olympics and state-controlled energy company, Gazprom
- Boris Rotenberg
- Gennady Timchenko, founder of Guvnor, a large commodity trading company
OFAC also designated Bank Rossiya, the first entity specifically designated under the sanctions, as the personal bank of senior officials of the Russian Federation. Absent further guidance from OFAC, US persons should not deal with this bank regardless of the nature of and parties involved in the financial transaction.
EU Extension of Sanctions
At the spring European Summit today, EU Heads of State and Government agreed, “in the absence of any steps towards de-escalation” to extend the visa ban and asset freeze imposed on selected Russian and Ukrainian individuals involved in internal repression in Ukraine and the annexation of Crimea by Russia, (i.e. the sanctions regime based on Council Regulation 208/2014 and Council Decision 2014/119/CFSP, which are both dated March 5th, 2014). EU Leaders requested the Commission and the Member States to prepare “possible targeted measures” in case of any further steps by the Russian Federation to “destabilise the situation in Ukraine”.
Council Implementing Regulation 284/2014 and Council Implementing Decision 2014/145/CFSP enter into force on March 21st 2014 (the date of publication). They add 12 individuals to the lists of natural and legal persons subject to restrictive measures. The individuals are Russian politicians, senior administrators, and political advisors; senior military personnel involved in the annexation of Crimea; and the Head of the Russian federal state news agency.
As mentioned in our previous alert, it has not been easy for the Member States to agree on the appropriate stance towards Russia. It has been somewhat easier, on the other hand, to demonstrate a measure of support to Ukraine by signing the political provisions of an Association Agreement, which is to develop into a Deep and Comprehensive Free Trade Agreement in the coming months. In the short-term, the Council and the European Parliament are also expected to expedite proposals to temporarily remove customs duties to facilitate Ukrainian exports to the European Union.
For the time being, relations between the EU, the Member States and Russia will be strained. The European Council conclusions state “European Council strongly condemns the illegal annexation of Crimea and Sevastopol to the Russian Federation and will not recognise it.” EU Leaders requested the Commission to evaluate the legal consequences of the Crimea annexation and “to propose economic, trade and financial restrictions regarding Crimea for rapid implementation.”
Leaders cancelled the next EU-Russia summit and agreed that individual Member States will not hold bilateral summits. In addition, Russia is not invited to the upcoming “G7/8” countries’ meeting in The Hague. The EU also supports suspension of negotiations over Russia’s joining the OECD and IEA.
Also on March 20th, Russia announced retaliatory sanctions banning travel to Russia for nine US government officials, including Senate Majority Leader Harry Reid, House Speaker John Boehner, and Senator John McCain, who have spoken out in support of additional sanctions on Russia in response to that country’s actions in Crimea.
More US and multilateral economic sanctions are likely to appear in coming days. The US Congress may also pass legislation imposing additional sanctions on Russia in response to action in Crimea when it returns from recess next week. US and EU persons operating in or conducting business in the region are advised to revisit their due diligence for joint ventures, vendors, and customers as additional designations are released to ensure compliance with sanctions obligations.