On September 29, 2017, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) revised its prohibitions on dealings in new debt under the Russian sectoral sanctions. The amended Directive 1, covering the financial sector, reduces the tenor for new debt to 14 days (from 30 days). The amended Directive 2, covering the energy sector, reduces the tenor to 60 days (from 90 days). These revisions were made pursuant to the Countering Russian Influence in Europe and Eurasia Act of 2017 (CRIEEA), part of the recent omnibus sanctions legislation, the Countering America’s Adversaries Through Sanctions Act (CAATSA). The changes take effect for new debt issued on or after November 28, 2017.

Both Directive 1 and Directive 2 will now apply different maturity periods for prohibited dealings in new debt based on the period when the debt was issued. Directive 1 prohibits U.S. persons from dealing in new equity and new debt of certain tenors of designated companies in Russia’s financial sector, including Gazprombank, Sberbank, Vnesheconombank (VEB), and VTB Bank. The relevant tenors for Directive 1 are listed below: 

Directive 2 prohibits U.S. persons from dealing in new debt of certain tenors of designated companies operating in Russia’s energy sector, including Gazprom Neft, Rosneft, and Transneft. The relevant tenors for Directive 2 are listed below: 

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The substance and targets of Directives 1 and 2 remain the same. These Directives only prohibit dealings in new debt and/or equity as described above, and do not prohibit all transactions with, or freeze the assets of, companies listed on the Sectoral Sanctions List. No new persons were added to the Directive 1 or Directive 2 lists in conjunction with this action. The 60-day implementation period allows U.S. businesses additional time to adjust to the stricter limitations and how they may affect their operations. 

OFAC’s action was its first taken pursuant to the CRIEEA legislation. OFAC is also required to modify Directive 4 by October 31, 2017. Unlike the modifications to Directives 1 and 2, the modification to Directive 4 will expand the scope of the sanctions in a substantive way. Currently, U.S. persons are prohibited from providing goods, services, or technology in support of deepwater, Arctic offshore, or shale projects that have the potential to produce oil in Russia or in Russian waters. The modified Directive 4, when it is issued, will expand to cover any such oil projects worldwide in which a listed person holds a controlling interest or a 33% or greater ownership. OFAC is required by CRIEEA to grant a similar implementation period of at least 90 days after issuing the revised Directive 4.

The changes to Directives 1 and 2 will require U.S. companies to increase scrutiny of their transactions with Russia, Ukraine, and persons based in those countries to avoid running afoul of the tightened sectoral sanctions. Such companies should carefully review their business with Russia and Ukraine and update any related compliance policies and procedures. This is particularly important for international companies with operations in the United States, as these more restrictive OFAC sanctions diverge from current EU sanctions on Russia, requiring international companies to comply with two different sets of sanctions. The more restrictive sanctions will further increase the difficulty of doing business in Russia, as OFAC’s definition of “new debt” is quite broad. It includes not only traditional instruments of debt such as bonds and loans, but also the rollover of old debt and extended payment terms. This is particularly important in the revised Directive 1, as U.S. companies that sell any goods or services to listed companies will be required to offer payment terms of no longer than 14 days.