Following US Executive Orders issued on March 6, March 16, and March 20, 2014 in response to the ongoing crisis in Ukraine, the US Department of Commerce (DOC) and the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) have further expanded US sanctions designations. The new designations by both agencies include restrictions on dealings with an oil and gas company in Crimea, a former Ukraine region which was recently annexed by Russia. The European Union has also expanded its Ukraine-related sanctions in recent days, adding individuals to its targeted sanctions program.
Additional US Designations
On April 11, 2014, DOC’s Bureau of Industry and Security announced that it was amending the Export Administration Regulations (EAR) to add a Crimean regional oil and gas company under two entries to its Entity List: (1) Crimea (Occupied); and (2) Ukraine. The designated company is Chernomorneftegaz, aka Chornmornaftogaz and NJSC Chornomornaftogaz, which is a subsidiary of Naftogaz. Pursuant to Section 744.11 of the EAR, the US government designation of Chernomorneftegaz is based on a determination that the company is involved in activities contrary to the national security or foreign policy of the United States, specifically, the misappropriation of state assets of Ukraine or an economically significant Ukrainian company. The designation imposes a BIS licensing requirement for any export, reexport, or in-country transfer to Chernomorneftegaz of any item subject to the EAR, including any transaction where this company acts as purchaser, intermediate consignee, ultimate consignee, or end-user. BIS also has adopted a presumption of denial for any license application under this new requirement. In addition, no license exceptions are available for exports, reexports or in-country transfers to Chernomorneftegaz.
Crimea (Occupied) is a new type of designation designed to address the Russian Federation’s recent annexation of Crimea. The designation of Chernomorneftegaz was published in the Federal Register. The Federal Register notice states that it “grandfathers” certain exports and reexports that (a) were en route as of the date of publication and (b) did not require a license to at the time of shipment.
Also on April 11, OFAC expanded the list of persons targeted by the sanctions program under Executive Order 13660, originally issued on March 6, 2014. In parallel with BIS's new licensing requirements, OFAC identified Chernomorneftegaz as a Specially Designated National (SDN). OFAC also designated the following seven individuals based on their activities related to the crisis in Ukraine:
- Aleksei Mikhailovich Chaliy, Mayor of Sevastopol
- Mikhail Grigorevich Malyshev, Chair of the Crimea Electoral Commission
- Valery Kirillovich Medvedev, Chair of the Sevastopol Electoral Commission
- Rustam Ilmirovich Temirgaliev, Crimean Deputy Prime Minister
- Sergey Pavlovich Tsekov
- Yuriy Gennadievych Zherebtsov, Counselor to the Speaker of the Crimean Rada
- Pyotr Anatoliyovych Zima, Head of the Crimean SBU (Security Service of Ukraine)
US persons are prohibited from conducting transactions, dealings, or business with Chernomorneftegaz and the above-listed persons. US persons must also block the property or interest in property of such persons that they hold or that is located in the United States. In addition, blocked property must be reported to OFAC within 10 days of the blocking, and cannot be dealt in by US persons without prior OFAC authorization. Any entity that is owned 50 percent or more by a SDN is also subject to “blocking” and off limits to US persons. Additional identifying information for each of these persons is available on OFAC’s website.
Additional EU Designations
On April 14, the EU imposed asset freezes on the following four persons identified as having misappropriated or embezzled Ukrainian government funds:
- Serhiy Arbuzov, former Prime Minister of Ukraine
- Yuriy Ivanyushchenko, Party of Regions MP
- Oleksandr Klymenko, former Minister of Revenues and Charges
- Edward Stavytskyi, former Minister of Fuel and Energy of Ukraine
Those individuals have been added to the current list of persons by means of Council Implementing Decision 2014/216/CFSP of April 14, 2014 and Council Implementing Regulation (EU) No 381/2014 of April 14, 2014.
Additional designations appear likely as the crisis in Ukraine escalates. News reports indicate that further US sanctions could be imposed as early as the end of this week. As with the prior imposition of sanctions by the US and EU, companies are advised to revisit their due diligence and export controls compliance for activities in the region.