On July 29, the Obama Administration and the European Union announced additional sanctions against Russia, including new prohibitions on exports of specified oil and gas technology and military equipment to Russia as well as on exports of other technology to designated Russian defense companies. Following previous US sanctions, the EU prohibited EU persons and companies from dealing in new debt or equity with certain named Russian banks, and the United States added three additional Russian banks to its list of entities subject to “Sectoral Sanctions.”
The Obama Administration announced an additional round of sanctions timed to coincide with the EU announcement. First, the Office of Foreign Assets Control (OFAC) added three additional banks – VTB Bank, Bank of Moscow, and the Russian Agricultural Bank (Rosselkhozbank) – to its Sectoral Sanctions Identification (SSI) List.1 US persons and persons subject to US jurisdiction are prohibited from transacting in “new debt with a maturity of longer than 90 days” or “new equity” with entities in the Russian financial sector on the SSI List. OFAC also placed an additional Russian defense company – OJSC United Shipbuilding Corporation – on the Specially Designated Nationals (SDN) List, which blocks its assets and prohibits US persons from dealing with it.2
Second, the Department of Commerce’s Bureau of Industry and Security (BIS) placed twelve persons on its Entity List, which effectively bars persons subject to BIS jurisdiction from exporting or reexporting certain items to entities on the list.3 The persons named on the Entity List include the Russian defense companies OFAC has already placed on the SDN List.
Finally, and perhaps most significantly, BIS announced that it is instituting a policy “denying export, reexport, or foreign transfer of certain 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.”4 BIS states that the sanctions do not target “the current supply of energy from Russia” but that “they make it difficult for Russia to develop long-term, technically challenging future projects.” This new “Russian Industry Sector Sanctions” rule, 15 C.F.R. § 746.5, imposes controls on the export, reexport, or transfer of items subject to the Export Administration Regulations when the exporter or transferor “knows or is informed that the item will be used directly or indirectly in Russia’s energy sector for exploration or production from deepwater (greater than 500 feet), Arctic offshore, or shale projects in Russia that have the potential to produce oil or gas[.]”5 The controls also apply if the exporter “is unable to determine whether the item will be used in such projects in Russia.” BIS states that the license review policy for these items is a “presumption of denial.”
The European Council Regulations
The EU measures were announced on July 29 and adopted by the European Council on July 31 as Regulation No. 833/2014.6
The EU measures are directed in particular towards the following Russian banking institutions: Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB), and Rosselkhozbank.
The EU regulations aim to restrict Russia’s access to European capital markets. EU nationals and companies are now prohibited from buying, selling, or brokering transferable securities or money-market instruments with a maturity exceeding 90 days issued by major state-owned Russian banks, development banks, their subsidiaries outside the EU, and those acting on their behalf.
In addition, an embargo has been imposed on the import and export of arms and related material from/to Russia covering all items on the EU common military list.7
Exporting of dual-use goods and technology for military use in Russia or to Russian military end users is also prohibited. This prohibition applies to all items in the EU list of dual-use goods.8
Exports of certain energy-related equipment and technology to Russia will now need to be subject to prior authorization by the competent authorities of European Member States. Export licenses will be denied if products are destined for particular oil exploration and production projects in Russia.
Failure to adhere to these prohibitions will leave corporations and individuals exposed to the risk of prosecution.
The measures will apply to all new contracts as from August 1, 2014.
To avoid exposure to the risk of prosecution for breach of the prohibitions, any individuals or corporations that have dealings with designated persons or entities (or if they suspect that they may) should check their client’s details against the consolidated list available online. In the UK the competent authority for enforcing the EU sanctions is HM Treasury. The Treasury maintains a composite list of those subject to sanctions, which is available online.9
Careful regard should be had to situations where designated persons own majority shareholdings or rights in companies, the effect of which could be that the resources held by that company could be attributed to the designated person