On September 12, 2014, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the Department of Commerce’s Bureau of Industry and Security (BIS) again expanded their Ukraine-related sanctions and export restrictions against entities in Russia’s energy, financial services and defense sectors. In this latest round, OFAC added entities to its Sectoral Sanctions Identification (SSI) List, tightened restrictions applicable to such entities, and added persons and entities to its Specially Designated Nationals (SDN) List. BIS amended its regulations to more broadly restrict the export of items to Russia for military end uses and added Russian entities to its Entities List.

These actions further tighten U.S. sanctions against Russian entities issued last spring and augmented in late July (see Thompson HineInternational Trade & Customs Update of August 1, 2014). The latest actions coincide with similar sanctions and restrictions announced by the European Union involving Russia’s financial, energy and defense industries.

Further OFAC Sanctions on Banks, Energy & Defense Companies

Pursuant to Executive Order 13662, OFAC significantly strengthened its sanctions against Russia by:

  • Adding entities to its SSI List
  • Tightening restrictions on transactions involving debt held by entities on the SSI List
  • Imposing additional licensing restrictions for entities in Russia’s energy sector
  • Adding new Russian defense-related entities to the SDN List

New Entities Added to SSI List

OFAC added the following Russian banks and energy companies to the SSI List:

  • Sberbank of Russia
  • AK Transneft OAO
  • Gazprom OAO
  • Gazprom Neft OAO
  • Lukoil
  • Surgutneftegaz
  • Rostec

These entities are known by multiple names, which are identified on the full SSI List.OFAC clarified that its “50 percent” rule applies to entities on the SSI List: The restrictions applicable to listed SSI entities also apply to any non-listed entity that is at least 50 percent owned or controlled by a listed SSI entity.

Restrictions Tightened on Transactions Involving Debt Held by SSI Entities

As noted in our August 1 update, not all transactions by U.S. persons with entities on the SSI List are prohibited – only those involving new debt of these entities. Initially, OFAC restricted only debt with maturity exceeding 90 days. Now, via the OFAC Directives designated below, U.S. persons are prohibited from all transactions with listed SSI entities in the following sectors that involve new debt with maturity as indicated:

  • Financial services – maturity exceeding 30 days (Directive 1, as amended)
  • Energy – maturity exceeding 90 days (Directive 2, not substantively changed)
  • Defense and related materiel – maturity exceeding 30 days (Directive 3)

OFAC has authorized a limited exception to the above restrictions for transactions by U.S. persons within the United States involving derivative products linked to the prohibited debt specified above (General License 1A).

Additional Restrictions Involving Energy Sector

With respect to the Russian energy sector, OFAC now prohibits U.S. persons from providing, exporting or reexporting goods, services (non-financial) or technology, directly or indirectly, to entities on the SSI List “in support of exploration or production for deepwater, Arctic offshore, or shale projects that have the potential to produce oil in [Russia or its maritime areas]” (Directive 4). This prohibition parallels BIS designating certain items, adding certain Russian energy companies to its Entities list, and applying a general presumption of denial of licenses for such items, or to such entities, intended for these same uses (see our August 1 update and discussion below). OFAC gave a two-week wind-down window for such transactions, which has now expired (General License 2).

State-Owned Defense Entities Added to SDN List

In addition to imposing additional sectoral sanctions and adding new SSI entities, OFAC has designated as SDNs five Russian state-owned defense sector firms:

  • Almaz-Antey Air Defense Concern Main System Design Bureau, JSC
  • Tikhomirov Scientific Research Institute of Instrument Design
  • Mytishchinski Mashinostroitelny Zavod, OAO
  • Kalinin Machine Plant, JSC
  • Dolgoprudny Research Production Enterprise

As SDNs, the assets of these entities are blocked; any assets within U.S. jurisdiction must be frozen. In addition, transactions by U.S. persons involving these entities or their assets generally are prohibited. Like many persons and entities listed as SDNs, the above entities operate under numerous “also known as” (a.k.a.) names which, to the extent known, are shown on the SDN List. As such, any near match of these company names should be carefully screened against the list.

Further BIS Export Restrictions on Defense & Energy Sectors

In conjunction with this latest round of OFAC sanctions, BIS imposed additional trade restrictions with Russia under the Export Administration Regulations (EAR), adding more Russian companies to its Entity List and including Russia in the EAR’s restrictions on exports for certain military end uses.

Companies Added to BIS Entity List

BIS added five defense sector companies and five energy sector companies to its Entity List. In the defense sector, BIS added the same five companies to its Entity List that OFAC added to the SDN List (see above).

BIS will review any license application for export, reexport or in-country transfer of any item subject to the EAR to any of these entities with a presumption of denial.

In the energy sector, BIS added the following companies to the Entity List:

  • Gazprom
  • Gazpromneft
  • Lukoil
  • Rosneft
  • Surgutneftegas

As noted above, OFAC also added these companies to its SSI List. For these five energy companies, a license for export, reexport or in-country transfer of any item is required when the exporter, reexporter or transferor knows, or is unable to determine, that the item will be used directly or indirectly in exploration for or production from deepwater, Arctic offshore or shale projects in Russia that have the potential to produce oil or gas.

BIS will apply a presumption of denial to its review of license applications for these specified end uses with any of these five energy sector entities. Note that this is different from BIS policy concerning the other (non-energy-sector) Russian entities currently on the Entities List; for those entities, BIS will apply the presumption of license denial for any item subject to the EAR, irrespective of its end use.

New Military End Use Restrictions

On September 17, 2014, BIS imposed new restrictions on exports, reexports or in-country transfers of certain listed items to Russia for military end uses or to military end users by amending section 744.21 of the EAR (15 C.F.R. §744.21), which previously had applied only with respect to certain military end uses in China (which remain in effect with only minor changes).

As now amended, the export, reexport or in-country transfer of any item listed in EAR Part 744, Supplement No. 2 to Russia without a license is prohibited if, at the time of export, the exporter, reexporter or transferor has knowledge that the item is intended, entirely or in part, for a “military end use” or a “military end user.” BIS will review license applications on a case-by-case basis to determine whether the export would “make a material contribution to the military capabilities of [Russia], and would result in advancing the country’s military activities contrary to the national security interests of the United States.” If it is so determined, BIS will not approve the license.