In reaction to the annexation of Crimea to the Russian Federation and the on-going political crisis concerning Ukraine, the EU and US have expanded the list of parties against which asset freezes and travel bans have been imposed. The respective lists continue to cover predominantly Russian politicians and government officials, but for the first time in respect of the Ukrainian crisis, the US has designated an entity, namely a bank. Further, several of the targeted individuals have significant business interests, increasing the impact of the sanctions on those doing business in Russia. Russia has responded by barring nine senior US officials from Russia. A brief overview of these measures follows.
The Crisis So Far
The EU and the US have to date imposed two rounds of measures against:
- the former Ukrainian political elite as a result of the political events in Kiev (as described in our client alert of 7 March 2014); and
- Crimean and Russian politicians and military chiefs, responsible for actions that threatened the territorial integrity, sovereignty and independence of Ukraine (as explained in more detail in our client alert of 18 March 2014).
After the adoption of these measures, Russian President Vladimir Putin officially recognised Crimea's independence and validated the accession of Crimea to the Russian Federation. The new measures adopted by the EU and US are a direct response to the annexation of Crimea.
New EU Designations
The EU has added 12 individuals to the existing list of 21 Crimean and Russian officials designated this month, pursuant to Council Implementing Regulation (EU) No 284/2014. This follows an earlierannouncement following the end of the first day of the EU Summit. The individuals designated in this third phase of EU designations will be subject to asset freezes and travel bans. Designation generally limits direct and indirect dealings with, or which might benefit, listed persons. This includes dealings with companies owned or controlled by designated persons. Any actions seeking to circumvent these measures are also prohibited.
A consolidated list of all EU and UK designated persons is published by HM Treasury and this will capture the new designations in due course.
Further EU Sanctions
A "third phase" of EU sanctions is being prepared. Statements from the EU indicate that these will comprise two sets of restrictive measures:
- a proposal for "economic, trade and financial restrictions" is being prepared "for rapid implementation" regarding Crimea and is likely to proceed; and
- a proposal for "possible targeted measures", which will have "additional and far reaching consequences for relations in a broad range of economic areas", is being prepared if Russia takes further steps to destabilise Ukraine.
The speed at which the aforementioned measures are introduced is likely to depend on whether Russia moves into other parts of Ukraine, the success of an OSCE mission to be deployed to Ukraine and any further retaliatory sanctions adopted by Russia. A further factor in the equation is that the political elements of the EU-Ukraine Association Agreement have been signed (the remainder of the Association Agreement and the trade elements (the Deep and Comprehensive Free Trade Agreement) still require signature). In addition, the EU is said to support the suspension of negotiations concerning Russian's joining the OECD and IEA.
New US Sanctions
Designations Under Executive Order 13661
On 20 March 2014, the US Treasury Department designated 20 individuals as Specially Designated Nationals ("SDNs"). Of these 20 individuals, sixteen were Russian Federation officials and four were described as "members of the Russian leadership’s inner circle." The Treasury Department also designated Bank Rossiya because the bank serves as the personal bank for senior Russian government officials, the bank’s shareholders include members of the Russian President’s inner circle, and the bank is controlled by a newly designated individual. These designations were made pursuant to Executive Order 13661 (17 March 2014), which was previously discussed in our 18 March 2014 client alert.
Issuance of New Executive Order
On the same day, the US President signed a new Executive Order("20 March Order") expanding on the authorities provided in previous executive orders by empowering the US Secretary of the Treasury to designate individuals or entities determined to operate in certain sectors ("Targeted Sectors") of the Russian economy. In addition, the 20 March Order allows for the designation of individuals or entities that are owned or controlled by, or provide support to, the parties designated pursuant to the order.
Targeted Sectors will be chosen by the Secretary of the Treasury in consultation with the Secretary of State. No Targeted Sectors have been identified at the time of this publication, but the 20 March Order contemplates that the following sectors may be targeted:
- financial services,
- metals and mining,
- engineering, and
- defense and related materiel.
Like Executive Orders 13660 and 13661 at the time of their issuance, parties have not yet been designated pursuant to the 20 March Order. Because the US government eventually designated individuals or entities under these two prior orders shortly after their issuance, designations under the 20 March Order should be expected in the near future.
Impact on US Persons
US persons are generally prohibited from dealing with the 21 newly designated SDNs and with any SDNs that may be designated in the future under the 20 March Order. An entity that is 50% or more owned by an SDN is also considered to be an SDN. US persons include (i) entities organised under US law and their non-US branches, (ii) individuals and entities in the United States, and (iii) US citizens and permanent resident aliens ("Green Card" holders) wherever located or employed, but not separately incorporated foreign subsidiaries. Additionally, US banks must suspend any correspondent relationships with Bank Rossiya. Any assets of these individuals and entity that are within US jurisdiction must be frozen. Individual SDNs are also subject to a US travel ban. The complete Specially Designated Nationals and Blocked Persons List is available here.
Russian Retaliatory Measures
In retaliation to the US designation of Russian officials, Russia announced yesterday that it was barring nine senior US officials from entry into Russia. The most high profile amongst these are US Senator John McCain and US House Speaker John Boehner.
In light of the further EU and US designations yesterday and today, it is foreseeable that Russia may take further retaliatory action shortly.
Recommended Action: Assess Your Potential Exposure
Companies should assess the nature and extent of their business in Russia and/or Ukraine to understand their potential exposure under these sanctions measures and any that may follow.