On 16 July 2014 the Office of Foreign Assets Control (OFAC) of the United States Department of the Treasury extended its Specially Designated Nationals List (the “SDN List”) with respect to the Ukrainian crisis. Additions have been made both to the general and to the sectoral parts.(http://www.treasury.gov/resource-center/sanctions/OFAC-Enforcement/Pages/20140716.aspx).

At the same time as additions were made to the SDN List, a list of sectoral sanctions was published targeting certain Russian entities (http://www.treasury.gov/ofac/downloads/ssi.pdf).

To the sectoral part of the list, which contains milder sanctions, major Russian enterprises from the energy sector (OAO Novatek and OAO Rosneft) and financial sector (OJSC Gazprombank and State Corporation Vnesheconombank) were added.

According to the Sectoral Sanctions Identifications List (the “SSI List”), it is prohibited for U.S. persons or persons within the United States to transact in, provide financing for, or otherwise deal in new debt of longer than 90 days maturity or new equity for entities listed in the sectoral part of the SDN List. The prohibition extends to the property and interests in property of these organisations.

According to the SSI List, debt obligations include: debentures, loans, granting credits, guarantees under a credit, letters of credit, issuing promissory notes, etc. Practically this means that access to the US capital markets for such companies is restricted.

Any other transactions with such companies are permitted, provided that such transactions are consistent with the earlier instructions of the Office of Foreign Assets Control.

The document does not envisage a freeze on the property or property rights of the entities which have been added to the sectoral part of the SDN List, but this does not cancel any freezing introduced by previous instructions.

Credit institutions are not prohibited to continue keeping correspondent accounts of such organisations or executing their settlement transactions in US dollars.

The sectoral sanctions also apply to companies if 50% or more of their capital is owned by the entities which have been added to the SSI List.

To the general part of the SDN List, which involves assets being totally frozen and transactions being fully prohibited with individuals and companies, the following individuals were added: Sergei Beseda (Commander of the Service for Operational Information and International Communications of the FSB), Aleksandr Borodai (Prime Minister of the Donetsk People's Republic), Sergei Neverov (Deputy Chairman of the Russian State Duma), Oleg Savelyev (Minister for Crimean Affairs), and Igor Shchegolev (Aide to the Russian President) as well as the following legal entities: FSUE SRPE Bazalt, Feodosia Oil Products Supply Co., Concern Radio-Electronic Technologies, JSC Concern Sozvezdie, JSC MIC NPO Mashinostroyenia, Almaz-Antey Corp., Kalashnikov Concern, JSC KBP Instrument Design Bureau, and OAO NPK Uralvagonzavod. The Donetsk and Lugansk People's Republics have also been added to the general part of the SDN List.

Moreover, sanctions are expected against individuals and companies from the European Union. The European Council has already requested the European Investment Bank to suspend signing off new financing operations in Russia and suggested that European Union Member States coordinate their positions within the EBRD Board of Directors with a view to also suspending financing of new operations

(http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/143992.pdf).

In connection with the tragedy of 17 July, for which Western countries have blamed Russia, the leaders of the UK, Germany and France have raised the question of whether the EU countries should adopt new sanctions against Russia. These include in particular discussing the termination of Russian-French relationships for arms supplies and extending the list of individuals and companies falling under economic restrictions. According to the current preliminary arrangements, the new sanctions will be discussed on Tuesday 22 July. It is not very likely though that the EU will introduce new sectoral sanctions.

The effect of the sanctions may directly or indirectly prevent economic operators from performing contractual obligations in Russia. Please note that a reference to the sanctions as a generally known fact may not be treated as a legally valid event which releases a party from performing its obligations under the Russian law. A party that relies on the sanctions as a force-majeure will have to prove that the force-majeure event applies to the specific obligation, and will have to go through the procedure of serving notice of the force-majeure event as is often required by the contract. In certain cases the sanctions may be treated as a material change of the circumstances on which the parties relied when they entered into a contract. An interested party may use such a change of circumstances to provide grounds for a contract to be amended or even terminated.