Last week, the United States and the European Union (EU) imposed additional, targeted sanctions on certain Russian government officials and companies linked to President Vladimir Putin’s inner circle, expanding upon previously announced US and EU Ukraine-related sanctions. In addition, President Obama’s administration (the “Administration”) imposed additional restrictive measures on exports that
“could contribute” to Russia’s military capabilities. For more information regarding previous US and EU
sanctions imposed in connection with the Ukraine crisis, please read our memorandum dated March 10,
The new US and EU sanctions were imposed in response to Russia’s perceived failure to take concrete
steps to meet its obligations under the April 17 Geneva Agreement, and Russia’s continuing violation of
the sovereignty and territorial integrity of Ukraine.
While the sanctions imposed to date have been
limited in scope, they have expanded considerably and, in recent days, US and EU officials have stated
that they are prepared to impose more comprehensive sanctions targeting key sectors of Russia’s
economy – likely to include the financial and energy sectors – in the event that Russia takes additional
actions to escalate the situation in Ukraine.
Policy Context—The View From Washington and Brussels
Over the past several months, in response to Russia’s actions in Ukraine, the Administration has
incrementally imposed sanctions on persons threatening the peace, sovereignty, and territorial integrity of
Ukraine, including Russian government officials, former Ukrainian government officials, and business
leaders in President Putin’s inner circle. The Administration has described its modular approach to
Ukraine-related sanctions, and its decision thus far to refrain from imposing comprehensive sectoral
sanctions, as “scalable” and “flexible.”
The April 17 Geneva Agreement – which was negotiated by Russia, the Ukraine, the US, and the EU – included
a number of steps for deescalating the situation in eastern Ukraine, including requiring Russia and Ukraine to
refrain from further violence or acts of provocation, commitments that US and EU officials believe Russia has
failed to satisfy.
Press Release, Office of the Press Sec’y, The White House, Background Conference Call on Ukraine Sanctions
(Apr. 28, 2014), available at http://www.whitehouse.gov/the-press-office/2014/04/28/background-conference-callukraine-sanctions.Fried Frank Client Memorandum
The Administration does not expect there to be an immediate change in President Putin’s calculus with
respect to Ukraine in response to the sanctions imposed thus far. However, the Administration has
articulated a belief that its incremental approach, coupled with the threat of comprehensive sectoral
sanctions (which, as discussed below, have been authorized, pursuant to Executive Order (EO) 13662),
will demonstrate to Russia that the US, and its European and other allies, are ready to inflict “much more
severe economic pain,” and that Russia has “far more to lose continuing these actions over time than
Ultimately, the Administration has stated that it believes its calibrated and
incremental approach will “affect Russia’s calculus over time and give [Russia] the incentive to deescalate
The Administration has in word and deed expressed a strong preference for implementing sanctions in
coordination with its partners in Europe, believing that a coordinated approach would impose greater
economic and political costs on Russia. However, the EU and its member states thus far have exhibited
a reluctance to implement a more “sweeping sanctions regime.”
The articulated EU position has thus far
remained limited to the implementation of targeted sanctions on individuals directly contributing to the
crisis in Ukraine. While some individual EU member states, notably Poland and the Baltic states, have
consistently pushed for wider-reaching measures, there has also been strong domestic opposition to
more comprehensive sanctions in certain EU member states, notably Germany and France, in part due to
the EU’s “dependence on Russian energy supplies and on Russia as a market for European
US Sanctions—Regulatory Response to the Crisis
On April 28, 2014, the U.S. Department of the Treasury designated additional persons under the Ukrainerelated sanctions, including seven Russian government officials and 17 entities, pursuant to EO 13661,
which “authorizes sanctions on, among others, officials of the Russian Government and any individual or
entity that is owned or controlled by, that has acted for or on behalf of, or that has provided material or
other support to, a senior Russian government official.”
The newly-designated persons are subject to an
Broder, Jonathan & Tim Starks, U.S. Toughens Sanctions on Russia over Ukraine Interference, Cong. Q. News
(Apr. 28, 2014).
Id. The Administration has stated that the sanctions administered thus far have had a significant impact on
Russia’s economy, citing sharp drops in Russia’s economic growth forecasts, the $70 billion in capital that has
“fled the Russian financial system” during the first quarter of 2014 (exceeding capital outflows for all of 2013),
substantial “declines in the value of Russian equities,” the significant downgrade of Russia’s credit rating, and
sharp declines in the value of the ruble, “which has depreciated almost 9 percent against the dollar since January
.” Background Conference Call on Ukraine Sanctions, supra, note 2; Press Release, Sec’y of State John
Kerry, U.S. Dep’t of State, Remarks on Ukraine (Apr. 28, 2014), available at
http://www.state.gov/secretary/remarks/2014/04/225166.htm. See also Press Release, U.S. Dep’t of the
Treasury, Statement of Treasury Sec’y Jacob J. Lew (Apr. 28, 2014), available at http://www.treasury.gov/presscenter/press-releases/Pages/jl2368.aspx. However, many remain skeptical of the impact of US sanctions on
Russia’s leadership and view the limited, targeted sanctions as more of a “slap on the wrist” unlikely to have any
significant deterrent effect on Russia’s leadership or to effect a change in President Putin’s calculus regarding
Press Release, Office of Public Affairs, U.S. Dep’t of the Treasury, Announcement of Additional Treasury
Sanctions on Russian Government Officials and Entities (Apr. 28, 2014), available at Fried Frank Client Memorandum
asset freeze and, in the case of natural persons, a U.S. visa ban. The sanctions included the designation
of senior members of the Russian leadership, including Igor Sechin, the President and Chairman of the
Management Board of Rosneft, Russia’s leading petroleum company, and a key adviser to President
Putin, and Sergey Chemezov, the Director General of Rostec, a large, Russian industrial conglomerate.
In addition to the Department of the Treasury designations, the U.S. Department of Commerce added an
additional 13 entities on the Commerce Department’s Entity List
due to their involvement or potential
involvement in activities in Ukraine that are inconsistent with US national security and foreign policy
interests. Effective April 28, licenses are required for all exports, reexports, and foreign transfers of items
subject to the Export Administration Regulations (EAR) to any entity included on the Entity List, even
where a license would not otherwise be required, and there is now a presumption of denial.
Finally, the U.S Departments of State and Commerce announced the expansion of export restrictions on
items subject to the EAR and technologies and services regulated under the United States Munitions List
(USML). The Administration will now “deny export applications for any high-technology items that could
contribute to Russia’s military capabilities” and take the necessary steps to “revoke any existing export
licenses that meet these conditions.”
While it is unclear what classes of items, technology, and services
will be restricted under the more restrictive export control policy, a senior Administration official indicated
that microelectronics is one category of items that is being closely scrutinized.
The sanctions and designations that occurred last week follow a long list of previous actions and
designations that have occurred since early March.
Appendix A to this memorandum is a list of all the
individuals and entities which have been designated in connection with the crisis in Ukraine to date.
http://www.treasury.gov/press-center/press-releases/Pages/jl2369.aspx; Exec. Order 13661, 79 Fed. Reg. 15535
(Mar. 19, 2014).
Background Conference Call on Ukraine Sanctions, supra, note 2. While Sechin was individually sanctioned,
Rosneft has not been directly targeted by US sanctions.
The Department of Commerce’s Bureau of Industry and Security administers the Entity List, which is a list of
certain businesses, research institutions, government organizations, individuals, and other legal persons that are
subject to heightened license requirements for the export, reexport, and/or transfer of certain items.
Press Release, U.S. Dep’t of Commerce, Bureau of Industry and Security, Commerce Department Announces
Expansion of Export Restrictions on Russia (Apr. 28, 2014), available at http://www.bis.doc.gov/index.php/aboutbis/newsroom/press-releases/107-about-bis/newsroom/press-releases/press-release-2014/665-commerce-deptannounces-expansion-of-export-restrictions-on-russia.
Press Release, Office of the Press Sec’y, The White House, Statement by the Press Secretary on Ukraine (Apr.
28, 2014), available at http://www.whitehouse.gov/the-press-office/2014/04/28/statement-press-secretaryukraine.
Background Conference Call on Ukraine Sanctions, supra, note 2.
The executive branch framework for the Ukraine sanctions was established on March 6, 2014, when President
Barack Obama signed EO 13660 in response to “[the] unusual and extraordinary threat to the national security
and foreign policy of the United States” posed by the situation in Ukraine. Exec. Order 13660, 79 Fed. Reg.
13493 (Mar. 10, 2014). On March 17, 2014, President Obama issued a second executive order which expanded
the sanctions authorized to include the sanctioning of the Russian arms sector. Exec. Order 13661, supra, note
7. Subsequently, on March 20, 2014, President Obama issued EO 13662, which expanded upon EOs 13660
and 13661 by authorizing the Secretary of the Treasury to sanction and subject to an asset freeze persons who
operate in certain Russian markets, including energy, engineering, mining, and financial services. Exec. Order
13662, 79 Fed. Reg. 16169 (Mar. 24, 2014). While EO 13662 authorizes the Administration to impose sanctions Fried Frank Client Memorandum
While the executive branch has spearheaded the Ukraine-related sanctions initiative, Congress has
become more engaged on this issue, including by passing non-binding resolutions supporting the swift
imposition of sanctions by the executive branch, and by passing economic aid legislation to provide loan
guarantees to Ukraine of up to $1 billion.
Notably, a number of Republican members of Congress have
expressed dissatisfaction with the Administration’s response and have called for the imposition of tougher
sanctions targeting key sectors of Russia’s economy.
EU Sanctions—Additional Measures Implemented
On April 29, 2014, the EU Council implemented legislative measures adding 15 persons to its list of
individuals subject to restrictive measures because of actions undermining or threatening the territorial
integrity, sovereignty, and independence of Ukraine.
The measures follow legislative steps taken by the
EU on March 17 and March 21, 2014, which added 21 and 12 individuals, respectively, to the list of
individuals subject to the restrictive measures.
The restrictive measures imposed against the 48
individuals listed to date include asset freezes and travel bans. The additional individuals were listed in
connection with Russia’s failure to abide by the steps described in the Geneva Agreement. There have
been indications that the EU may decide at a later point to broaden the legal basis for sanctions to include
companies as well as individuals.
Appendix B to this memorandum is a list of all the individuals who
have been designated by the EU in connection with the crisis in Ukraine thus far.
on key sectors of Russia’s economy, the Administration has resisted implementing such sectoral sanctions thus
The Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, H.R.
Cong. (2014) (enacted).
Broder, supra, note 5. On April 30, 2014, U.S. Senator Bob Corker, ranking member of the Senate Foreign
Relations Committee, introduced Ukraine-related legislation with 20 Senate Republicans addressing what many
conservative members of Congress have deemed a “weak” and “insufficient” response by the Administration.
The bill, among other things, provides for immediate new sanctions on (i) any Russian officials involved in the
illegal occupation of Crimea, as well as on corrupt Russian officials and their supporters, and (ii) persons tied to
the destabilization of eastern Ukraine, including four key Russian banks (Sberbank, VTB Bank, VEB Bank, and
Gazprombank), as well as the Gazprom, Novatek, and Rosneft energy monopolies, and Rosoboronexport, the
major Russian arms dealer. In addition, under Sen. Corker’s bill, in the event of further Russian aggression
toward Ukraine or other nations, tougher sanctions would be implemented, including, among other things,
comprehensive sectoral sanctions relating to the arms, defense, energy, financial services, metals, and mining
sectors of Russia, and sanctions cutting off from the U.S. financial system all Russian financial institutions. It is
likely that the bill will be referred to the Senate Foreign Relations and Banking Committees, neither of which have
indicated at this time that a markup of this bill would occur. Thus, it does not appear likely that the bill will be
added to the Congressional calendar in the near future and it does not appear to have sufficient support within
the Senate at this time, and consequently, it is more likely that any additional sanctions measures in the near
term will originate with the Administration.
Council Implementing Regulation (EU) No 433/2014 (L 126/48) (Apr. 29, 2014); Council Implementing Decision
2014/238/CFSP (L 126/55) (Apr. 29, 2014).
Council Regulation (EU) No 269/2014 (L 78/6) (Mar. 17, 2014); Council Decision 2014/145/CFSP (L 78/16) (Mar.
17, 2014); Council Implementing Regulation (EU) No 284/2014 (L 86/27) (Mar. 21, 2014); Council Implementing
Decision 2014/151/CFSP (L 86/30) (Mar. 21, 2014).
UK Foreign Secretary William Hague updated the UK House of Commons on the situation in Ukraine on April 28,
suggesting that the EU was preparing for additional, stricter measures against Russia: “We are in further
discussions in the EU about future steps, including preparations for a third tier of sanctions involving far-reaching
economic and trade measures. These preparations are now well advanced and the European Commission has Fried Frank Client Memorandum
US and EU—Future Sanctions Outlook
Recently, there has been a great deal of discussion regarding the possibility of the US and EU
implementing coordinated and comprehensive sectoral sanctions that would target critical sectors of
Russia’s economy. The Administration has repeatedly emphasized that the Administration “remains
prepared to impose still greater costs on Russia if the Russian leadership continues [its] provocations
instead of deescalating the situation,” and as evidence of its commitment to do so, cites the
implementation of EO 13662, which authorizes the imposition of sectoral sanctions on “individuals and
entities operating in key sectors of the Russian economy, such as financial services, energy, metals and
mining, engineering, and defense.” The Administration has further emphasized that, if the US and EU
decide to impose sectoral sanctions, such sanctions would have a very significant impact on Russia’s
economy. Also, a senior Administration official stated that sectoral sanctions are already being prepared
in coordination with the EU.
While there is little doubt that the imposition of sectoral sanctions would have an impact on the national
economies of a number of European countries, senior Administration officials have expressed confidence
that “the Europeans are with us in their commitment” to impose sectoral sanctions.
The EU has been
less vocal about this commitment, likely due to strong domestic opposition to sectoral sanctions within
certain member states of the EU.
US and EU officials have been clear that sectoral sanctions will almost certainly be imposed in the event
that Russia moves its troops into Ukraine.
Senior Administration officials have indicated that activities
short of Russian troops crossing into Ukraine, but that further escalate the situation in Ukraine, may also
trigger the imposition of tougher sanctions measures.
However, it is unclear what events other than a
military incursion might trigger the imposition of sectoral sanctions.
While the US and EU sanctions are targeted in nature, the situation in Ukraine has continued to escalate
and comprehensive sectoral sanctions remain a distinct possibility.
sent proposals to each member state.” William Hague, U.K. Foreign Sec’y, Speech Before the House of
Commons (Apr. 28, 2014), available at https://www.gov.uk/government/speeches/foreign-secretary-updatesparliament-on-the-crisis-in-ukraine. However, some observers doubt that the EU could stomach “sweeping
moves, as the result would be a trade war that would damage a weak European economy.” See, e.g., Mark
Tran, Ukraine: EU Imposes New Sanctions on Russia, The Guardian (Apr. 29, 2014), available at
Background Conference Call on Ukraine Sanctions, supra, note 2.
Broder, supra, note 5.
See, e.g., id.; Statement by the Press Secretary on Ukraine, supra, note 11; Background Conference Call on
Ukraine Sanctions, supra, note 2.
Statement by the Press Secretary on Ukraine, supra, note 11.Fried Frank Client Memorandum
In order to mitigate the risk of violating applicable sanctions and export control requirements, we
recommend that our clients consider the following, at a minimum:
Conduct screenings of current and potential counterparties (including, where possible, affiliates,
directors, officers, and shareholders thereof) against applicable restricted parties lists maintained
by the US and the EU;
Determine whether current or potential counterparties are owned or controlled by designated
parties, and are thus also subject to sanctions, regardless of whether the actual counterparties
appear on a restricted parties list;
If you identify current counterparties that are subject to sanctions, take the necessary steps to
block the property of such persons and file any necessary reports with the Department of the
Treasury’s Office of Foreign Assets Control within the applicable period;
Insert or amend contract language to provide suitable comfort that counterparties are not subject
to US or EU sanctions, including the Ukraine-related sanctions;
Assess the impact of the Administration’s more restrictive export control policy on your business,
including whether any current export licenses may be revoked under the new policy, and whether
additional export licenses may now be required;
Exercise caution when investing in or dealing with counterparties that operate in the sectors of
the Russian economy that have been identified as likely targets of future sanctions, including
financial services, energy, metals and mining, engineering, and defense; and
For US citizens or permanent residents employed by US companies outside the US or by non-US
companies within or outside the US, exercise caution to ensure that you do not violate US legal
requirements, which apply to individual US persons wherever located.
Fried Frank will continue to closely monitor these and related developments as the situation in Ukraine
unfolds. Should you have any questions regarding these developments and how they may impact your
business, do not hesitate to contact us.
* * *
Any entity which is majority owned (50 percent or greater) by an individual or entity that is designated on a
restricted parties list is also deemed subject to sanctions. Entities that have significant ownership by an
individual or entity that is designated, but that does not reach the 50 percent or greater threshold, are not
deemed to be subject to sanctions per se absent other indicia of control.Fried Frank Client Memorandum
New York Washington, DC London Paris Frankfurt Hong Kong Shanghai friedfrank.com
Fried Frank’s International Trade and Investment Group regularly represents leading US and international
investment funds, operating companies and boards of directors in transactional, compliance, enforcement
and dispute resolution matters worldwide.
For decades, our international trade and investment practitioners have been consistently recognized for
their legal and policy-based contributions. Today, our practice is unique among its kind: it draws upon the
Firm’s long tradition of senior US government and diplomatic service, combines policy insight with deep
technical expertise and business judgment, is fully integrated with Fried Frank’s preeminent Corporate
and Litigation Practices, and is international in its outlook, experience, network reach and reputation.