US extends sanctions to three Russian banks, a shipbuilding company and exports of energy sector items to Russia; EU announces similar measures.

Additional OFAC Designations

On July 29, 2014, the U.S. Department of the Treasury added three Russian banks — Bank of Moscow, Russian Agricultural Bank and VTB Bank OAO — to the Sectoral Sanctions Identifications List (SSI) that the Office of Foreign Assets Control (OFAC) first announced on July 16. Implemented under Executive Order 13662, these “sectoral” sanctions prohibit US persons from transacting in, providing financing for, or dealing in new debt of longer than 90 days maturity or new equity for these financial institutions. As we reported in our July 18 client alert, these restrictions also apply to entities that are owned 50 percent or more by entities on the SSI List. OFAC’s Frequently Asked Questions provide additional guidance regarding the sectoral sanctions.

Also on July 29, OFAC added another Russian defense company, United Shipbuilding Corporation, to its list of Specially Designated Nationals. This entity joins eight other Russian defense firms that OFAC added to the SDN list on July 16, 2014, pursuant to Executive Order 13361.

New Export Restrictions

The U.S. Department of Commerce’s Bureau of Industry of Security (BIS) also added United Shipbuilding Corporation to its Entity List. This action effectively bars exports and reexports to United Shipbuilding Corporation of items subject to the Export Administration Regulations.

BIS also announced a policy of licensing denial for exports, reexports, and foreign transfers of “items for use in Russia's energy sector that may be used for exploration or production from deepwater, Arctic offshore, or shale projects that have the potential to produce oil.” The agency added that these sanctions do not target “the current supply of energy from Russia or prevent Russian companies from selling oil and gas to any country,” but “they make it difficult for Russia to develop long-term, technically challenging future projects.” BIS has indicated that it will publish the list of affected items next week on the agency’s website and in the Federal Register.

European Union Announces New Sanctions

The EU announced this week that it will significantly expand its sanctions in response to the crisis in Ukraine. These further measures will come into force when the corresponding Council Regulations are published in the Official Journal of the EU in the coming days.

On July 30, 2014, the European Council designated eight persons and three entities under the EU asset freeze and imposed a prohibition on new investment in certain industrial sectors in Crimea and Sevastopol.

These actions follow the European Council’s July 29, 2014 statement indicating the EU will soon adopt further “sectoral” or “Stage 3” sanctions. Although the European Council has not yet released the details, these sanctions are expected to include:

  • A prohibition on the purchase of debt, equity, or other financial instruments with a maturity exceeding 90 days in Russian state-owned banks
  • A prohibition on exports of military items to Russia, applying to future contracts only
  • Restrictions on exports of “dual-use” items to Russian companies in the defense industry
  • Controls on exports of certain products and technologies relating to the oil sector