Background

As we noted in our March 8 update, available here, on March 6 the EU and Canada imposed limited economic sanctions, freezing the assets of Viktor Yanukovych and 17 other Ukrainian individuals.  On the same day, US President Barack Obama signed an Executive Order allowing economic sanctions on individuals said by the US government to be involved in certain activities relating to Ukraine.

As noted in our March 17 update, available here, on that day the EU expanded its list of sanctioned individuals while the US imposed its first economic sanctions related to the Ukraine crisis, on 11 individuals, under both the March 6 and a newly-issued March 17 Executive Order. The March 17 Order is quite broad, allowing for the imposition of sanctions on any Russian government official.

New US sanctions

The list of 20 individuals and one bank sanctioned by the US on March 20 is available here.  Eight of the 20 Russian individuals were on the EU's March 17 list of sanctioned persons and one was on the EU’s March 21 list (see below).  The other 11 individuals appear not to have been previously targeted by sanctions imposed by any country.

Several of these 11 individuals have shareholdings or are senior executives or directors of large Russian state-owned and private companies in a range of business sectors.  The US government described each sanctioned person, and the reasons for their being listed, in a release available here.

The US also made its first Ukraine-related sanctions designation of an entity, Bank Rossiya, stating that this was a result of it providing material support, or other support to, senior Russian government officials.

Potential implications

The US sanctions against the newly identified individuals and Bank Rossiya are effective as of March 20.  All of these persons have been added to the primary US list of sanctioned persons, the list of Specially Designated Nationals and Blocked Persons ("SDN List").  As is standard for US sanctions listings, US persons must block (freeze) any funds or other assets within their possession or control, in which any listed person has any interest.

US sanctions also generally prohibit any transaction or dealing by US persons with listed persons, and entities that are majority owned by listed persons.  Under some circumstances US sanctions prohibit dealings with entities that are not majority owned but are controlled by listed persons.  A key question is what level of due diligence on business partners in Russia is appropriate.   

As a result many international banks and companies with business in Russia are now actively assessing the companies they work with in Russia to consider whether the sanctions could have any impact.  This is particularly true for banks and companies that either are based in the United States, or that have decided as a matter of policy to seek to comply with US sanctions.

It is not necessarily the case that a US person is prohibited from dealing with a company that has a key shareholder, executive or director that is a sanctioned individual.  This is a fact-specific matter, and warrants careful analysis.  Key questions include whether, under the particular circumstances of the proposed business with the company, it will be necessary to deal directly with the sanctioned individual, or that individual will benefit personally from the business with the company.

New Executive Order may signal future sanctions

Also on March 20, President Obama signed a third Executive Order relating to events in Ukraine.  Following the approach started with the March 6 Order, the new Order provides a framework for the US to sanction a broader range of persons in Russia, but did not immediately use that authority to sanction any person.  The Order is available here.

Under the new Order, the US Treasury Department can designate any sector of the Russian economy for potential sanctions, and then can sanction any person the Treasury determines is operating in that sector.  The Order mentions the following sectors to be among those that might in future be designated for sanctions:  "financial services, energy, metals and mining, engineering, and defense and related material".

New EU sanctions

By Council Regulation (EU) No 284/2014, adopted on March 21, the EU has added another 12 names to the list of 21 individuals which the Council agreed earlier this week to target with an asset freeze and travel ban.  Contrary to the US list, the EU list only targets individuals.  It includes high-ranking Russian and Ukrainian politicians and military officials, in particular Dmitry Rogozin, the Deputy Prime Minister of the Russian Federation and Sergey Glazyev, the Adviser to the President of the Russian Federation.  Also, the next EU-Russia Summit is to be cancelled and member states will likewise cancel regular bilateral summits.

Further, remarks by the President of the European Council in a formal press statementon March 20 indicate that “failure to settle the crisis peacefully, and any steps by Russia to destabilise Ukraine, will have far-reaching consequences”, which would include targeted economic sanctions.

Limited Russian retaliatory sanctions

Russia responded on March 20 by announcing a travel ban on 9 US government officials.

We are monitoring the situation to assess the likelihood of any broader retaliatory sanctions by Russia.

Conclusion

We will continue to monitor the situation and will provide a further update on any further significant developments.  Please do not hesitate to contact your usual relationship partner or any member of our Ukraine/ Russia Sanctions Response Group, if you have any questions or would like to discuss any of these matters.