This ebulletin summarises recent developments in various international sanctions regimes. The UK's Export Control Organisation (ECO) has published FAQs on the EU's trade sanctions on Russia which restates some of the information already contained in EU Regulation 833/2014. The EU Foreign Affairs Council has given its conclusions on Ukraine following a meeting in Brussels on 15 August 2014. In the US, OFAC has issued revised guidance and FAQs in relating to the "50% rule" regarding entities owned by designated persons.
Guidance on EU trade sanctions
On 14 August 2014, the UK's Export Control Organisation (the "ECO") published Frequently Asked Questions regarding the EU's newly-imposed trade sanctions on Russia.
As we have previously reported, these measures were imposed by EU Regulation 833/2014 and came into force on 1 August 2014. The trade restrictions to which the ECO's guidance refers comprise: (a) restrictions on the sale, supply, transfer and export to Russia of certain goods and technologies used in the energy industry, (b) restrictions on the provision of technical assistance, brokering services, financing and financial assistance relating to such goods, (c) restrictions on the provision of "dual-use" goods for military use in Russia, (d) associated restrictions on technical assistance, brokering and financing/financial assistance, and (e) restrictions on the provision of technical assistance, financing or financial assistance in relation to goods and technology on the EU Common Military List. Please see our previous briefing for further detail on these restrictions.
The FAQs restate some information already contained in EU Regulation 833/2014 but provide some further clarification on how the trade restrictions and licensing regime will operate in the UK, in particular in relation to the energy sector restrictions. We summarise below some of the key points contained in the FAQs:
- As mentioned in our previous briefing, the EU trade sanctions impose a requirement to seek authorisation to carry out certain transactions involving energy-related goods and technologies. Member State authorities may not grant licences for transactions related to deep water oil exploration and production, Arctic oil exploration and production, or shale oil projects in Russia. The FAQs give some further guidance on how some of these categories will be interpreted:
- "Arctic" will be interpreted as the area north of the Arctic Circle; and
- "Deep water" is not currently defined, although the EU Member States are working together to reach a common understanding. The ECO note that the US has defined "deep water" as greater than 500 feet in its own sanctions. Although they do not say that this is the standard they will adopt when considering licence requests, it seems reasonable to treat this as a useful benchmark in the absence of any further guidance from the EU.
- The FAQs confirm that "financial assistance" in respect of the restricted energy-related goods does not include the provision or brokering of insurance or reinsurance for the transport of such goods. The ECO will interpret "financial assistance" as "involvement in any financial transaction which promotes, enables or facilitates the prohibited or restricted trade transactions to which it relates".
- It has previously been unclear whether a single licence can authorise the sale or supply of restricted goods and associated financial assistance, or whether separate licences are required for each activity. The FAQs confirm that licences are generally granted to a single named entity or individual and so, in most cases, separate licences will be required. However, a single licence in respect of financial assistance may authorise multiple payments in connection with the same transaction.
- The FAQs confirm that the ECO is the competent authority to grant licences for financial assistance. Licence requests must be made through the ECO's online export licensing system.
- The ECO are currently unable to give a timeframe within which licence applications regarding the energy-related items listed in Annex II of the EU Regulation will be processed. Any businesses requiring licences for transactions falling within these restrictions should therefore allow as much time as possible for the licence application process.
The ECO also announced on 14 August that Russia had been added to its list of non-permitted destinations for certain licences relating to military exports.
EU Conclusions on Ukraine
The EU Foreign Affairs Council published new Conclusions on Ukraine on 15 August 2014, following a Council meeting in Brussels. The Conclusions confirm that the Council remains engaged in the monitoring and assessment of the existing sanctions against Russia and remains ready to consider further steps, in light of the evolution of the situation on the ground.
OFAC guidance on 50% rule
In relation to US sanctions, OFAC issued revised guidance and frequently asked questions relating to the so-called "50% rule" on 13 August 2014. This rule stated that entities owned by persons whose property and interests in property are blocked (referred to as "Specially Designated Nationals" or "SDNs") are also blocked if such entities are at least 50% owned by an SDN. The revised guidance now provides that if an entity is in the aggregate owned, directly or indirectly, as to 50% or more by one or more SDNs, that entity is blocked.
This also applies to the sectoral sanctions in force against certain Russian entities (discussed in more detail in our previous briefingand referred to as "SSI" sanctions). If an entity is in the aggregate owned, directly or indirectly, as to 50% or more by at least one entity on the SSI sectoral sanctions list, the SSI prohibitions will apply to that entity.
OFAC's FAQs indicate that this rule relates to ownership, not control. If one or more SDNs exercise control over, but do not own, 50% or more of, an entity, that entity is not blocked pursuant to the 50% rule. However, OFAC cautions that such an entity may become the subject of future designations or enforcement actions by OFAC.