On February 18, 2020, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) added Rosneft Trading S.A. (“Rosneft Trading”) and its president to the agency’s List of Specially Designated Nationals and Blocked Persons (“SDN”). This means that U.S. persons are now prohibited from doing business with the Swiss-incorporated, Russian-controlled oil brokerage firm (after a wind-down period that expires in three months) and non-U.S. persons will face sanctions risk for dealing with the company.
OFAC designated Rosneft Trading– a subsidiary of the Russian state-controlled global energy giant Rosneft Oil Company – pursuant to Executive Order (“E.O.”) 13850 for operating in the Venezuelan oil sector. In announcing the designation, OFAC alleged that Rosneft Trading engaged in transactions involving millions of barrels of oil with Venezuelan state-owned oil and gas company Petróleos de Venezuela, S.A. (“PDVSA”). (OFAC designated PDVSA under E.O. 13850 on January 28, 2019.) OFAC also released two new FAQs clarifying the designation’s impact and General License (“GL”) 36, under which U.S. persons now have until 12:01 a.m. on May 20, 2020, to wind down transactions involving Rosneft Trading and any entities in which it has a 50% or greater interest.
Before this action, Rosneft Trading was already subject to narrow sectoral sanctions – specifically Directive 2 and Directive 4 – in the Ukraine-/Russia-related sanctions program. Those sanctions are still in effect, and, consequently, parties winding down business with Rosneft Trading pursuant to GL 36 should take care to comply with them. U.S. persons should not, for example, engage in transactions involving prohibited “new debt,” which has tripped up companies that accepted past-due invoices from entities sanctioned under Directive 2. Rosneft Trading’s parent company, Rosneft Oil Company, is also subject to Directives 2 and 4, but it does not become subject to the same SDN List restrictions as its subsidiary by virtue of this week’s action.
Adding Rosneft Trading to the SDN List marks yet another escalation in the U.S. government’s ongoing pressure campaign to oust Nicolas Maduro from power in Venezuela. While OFAC previously designated Evrofinance Mosnarbank (“Evrofinance”), a Moscow-based financial institution with Venezuelan and Russian stakeholders for providing material support to PDVSA, that entity was (1) relatively obscure, compared to a Rosneft subsidiary bearing its parent’s name, and (2) according to OFAC, founded specifically to “fund joint Russia-Venezuela oil and infrastructure projects.” One can therefore reasonably interpret this week’s designation as a warning that the U.S. government is willing to sanction parties of increasing prominence in the Russian corporate ecosystem if that is what it takes to persuade the Kremlin that propping up the Maduro regime will cost more than it is worth. How far the Administration will go in making good on that implicit threat is, of course, anyone’s guess, though we at Morrison & Foerster’s National Security Practice Group will continue to help you make sense of the latest developments.