In recent days the European Union and United States have acted in concert to increase pressure on Russia in relation to the situation in Ukraine, announcing expanded sanctions against the Russian finance, energy and arms sectors. This expansion will have broad implications for companies doing business in and with Russia and may have far-reaching economic consequences in Russia and beyond. EU Targets Russian Financial, Energy and Arms Sectors and Adds to Asset Freeze List On July 31, the EU implemented broad sectoral sanctions that are expected to cause disruption to the Russian financial, energy and arms sectors. The EU also added eight individuals and three entities to its list of persons subject to an asset freeze and travel ban. The sectoral sanctions fall into four categories, described in detail below. Note at the outset that the obligations and prohibitions of these sanctions apply: within the EU to natural persons who are nationals of any EU member state, wherever such persons are located to legal persons, entities or bodies, wherever located, that are incorporated or constituted in any EU member state to any legal persons, entities or bodies in respect of their business done in whole or in part in the EU Note also that these sanctions, unlike those of the United States, which apply a strict liability standard, a party must either have known or had reasonable cause to suspect that their actions were prohibited by the sanctions. Limiting Access to EU Capital Markets for Russian State-Owned Financial Institutions The most dramatic action by the EU is the targeting of Russian state-owned or controlled banks in order to deny them access to EU capital markets. These appear calibrated to match those of the new U.S. Sectoral Sanctions Identifications List (“SSIL”), but target one more bank than the U.S. has targeted (at least so far). Rather than completely blocking the targeted banks, the new EU sanctions are limited in scope. They provide that: “[i]t shall be prohibited to directly or indirectly purchase, sell, provide brokering or assistance in the issuance of, or otherwise deal with transferable securities and money-market instruments with a maturity exceeding 90 days, issued after 1 August 2014 by:” 1) certain listed Russian banks with over 50% public ownership, 2) entities outside the EU that are 50% or more owned by one of these banks, or 3) legal persons, entities, or bodies acting on behalf of these banks.The Regulation points out the limitation of these sanctions by noting that “[o]ther financial services such as deposit business, payment services and loans to or from the institutions…are not covered by this Regulation.” The listed banks are: 1. SBERBANK 2. VTB BANK (previously listed on the U.S. SSIL) 3. GAZPROMBANK (previously listed on the U.S. SSIL) 4. VNESHECONOMBANK (“VEB”; previously listed on the U.S. SSIL)) 5. ROSSELHKOZBANK (previously listed on the U.S. SSIL) The Regulation defines “transferable securities” as “those classes of securities which are negotiable on the capital market, with the exception of instruments of payment,” including: 1) corporate shares (including depository receipts in respect of shares), 2) “bonds or other forms of securitized debt” (including depository receipts in respect of such securities), and 3) “any other securities giving the right to acquire or sell any such transferable securities or giving rise to a cash.” “Money-market instruments” are defined as “classes of instruments which are normally dealt in on the money market, such as treasury bills, certificates of deposit and commercial papers and excluding instruments of payment.” On their face, the restriction of the sanctions to “transferable securities and money-market instruments” appears to be somewhat more limited than the U.S. SSIL’s restriction on dealing in any “new debt of longer than 90 days maturity or new equity,” although the scope of the U.S. definitions remains a matter of question. Nonetheless, the provision of more precise definitions in the EU Regulation may prove useful. Establishing an Export Ban on Dual-Use Items for Military Uses or Military End-Users The second piece of the new EU sanctions is a complete prohibition on sales of any and all items on the Dual Use List if intended for Russian military use or a Russian military end-user. The latest Dual Use List can be found in the annex to regulation 428/2009). Specifically: “[i]t shall be prohibited to sell, supply, transfer or export, directly or indirectly, dual-use goods and technology, whether or not originating in the Union, to any natural or legal person, entity or body in Russia or for use in Russia, if those items are or may be intended, in their entirety or in part, for military use or for a military end-user.” Also: “[w]here the end-user is the Russian military, any dual-use goods and technology procured by it shall be deemed to be for military use.” Technical assistance and brokering services related to these items are also prohibited, as are financing and financing services related to these items or technical assistance for these items. The Regulation does provide an exception that would allow export authorities to grant an authorization where “the export concerns the execution of an obligation arising from a contract or an agreement concluded before 1 August 2014.” While this does not amount to a complete grandfather clause for existing contracts, it does create a mechanism by which companies can apply for authorization to complete those contracts. Curtailing Russian Access to Sensitive Technologies Particularly in the Field of the Oil Sector The third set of sanctions applies to the oil sector. Exports of certain energy-related equipment and technology to any state will now require prior authorization by competent authorities of Member States if they are to be used in Russia. This authorization will be denied if the equipment andtechnology appear as though they will be used in Russia for projects related to “deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia.” The specific equipment and technology are listed in a new Annex and consists of a wide list of technologies and equipment suited for those purposes. Technical assistance and brokering services related to these items are also prohibited, as are financing and financing services related to these items or technical assistance for these items. Like the dual-use item restrictions above, the Regulation does provide an exception that would allow export authorities to grant an authorization where “the export concerns the execution of an obligation arising from a contract or an agreement concluded before 1 August 2014.” While the list of items covered is large, the application of the sanctions to deep water oil exploration and production, arctic oil exploration or production and shale oil projects is relatively narrow. The U.S. government suggests that Russia currently does not engage significantly in these activities, so the impact on current operations is unknown, even if future activities are blocked. Establishing an Arms Embargo The final set of sectoral sanctions includes an embargo on all arms sales to and from Russia. Specifically: 1) “The direct or indirect sale, supply, transfer or export of arms and related materiel of all types, including weapons and ammunition, military vehicles and equipment, paramilitary equipment, and spare parts therefor, to Russia by nationals of Member States or from the territories of Member States or using their flag vessels or aircraft, shall be prohibited whether originating or not in their territories;” and 2) “The import, purchase or transport of arms and related materiel of all types, including weapons and ammunition, military vehicles and equipment, paramilitary equipment, and spare parts therefor, from Russia by nationals of Member States or using their flag vessels or aircraft, shall be prohibited.” Also, certain services related to arms supply are banned – namely the supply of technical assistance, financing and financial services for or in Russia. Specifically, it is prohibited: 1) “to provide, directly or indirectly, technical assistance related to the goods and technology listed in the Common Military List, or related to the provision, manufacture, maintenance and use of goods included in that list, to any natural or legal person, entity or body in Russia or for use in Russia”; or 2) “to provide, directly or indirectly, financing or financial assistance related to the goods and technology listed in the Common Military List, including in particular grants, loans and export credit insurance or guarantee, for any sale, supply, transfer or export of such items, or for any provision of related technical assistance to any natural or legal person, entity or body in Russia or for use in Russia.” These restrictions apply going forward only and do not apply to contracts already made. This, for example, will allow the reported sale by France of two aircraft carriers to the Russian Navy as the contract had already been concluded.Targeting Individuals and Entities with Asset Freezes and Travel Bans Finally, in addition to the above sectoral sanctions, the EU added eight individuals and three entities to sanctions lists as targets of asset freezes and travel bans, including several persons referred to as socalled “cronies” of Russian President Vladimir Putin. The new individuals are: 1. Alexey Alexeyevich GROMOV 2. Oksana TCHIGRINA 3. Boris LITVINOV 4. Sergey ABISOV 5. Arkady Romanovich ROTENBERG 6. Konstantin Valerevich MALOFEEV 7. Yuriy Valentinovich KOVALCHUK 8. Nikolay Terentievich SHAMALOV The new entities are: 1. JOINT-STOCK COMPANY CONCERN ALMAZ-ANTEY 2. DOBROLET 3. RUSSIAN NATIONAL COMMERCIAL BANK This brings the total number of EU-sanctioned individuals to 95 and EU-sanctioned entities to 23. United States Expands Economic Sanctions In concert with the actions of the EU, President Obama announced on July 29 that the United States is imposing new sanctions on sectors of the Russian economy, including energy, arms, and finance. As part of this expansion, the Department of Commerce Bureau of Industry and Security (“BIS”) announced the blocking of exports of specific goods and technologies to the Russian energy sector. Also, the Treasury Department’s Office of Foreign Assets Control (“OFAC”) added three more banks to its Sectoral Sanctions Identifications List (“SSIL”), which limits access to U.S. capital markets, as well as designating a Russian shipyard on the Specially Designated Nationals (“SDN”) List, which subjects it to a complete bar on transactions by U.S. persons. Additional Export Restrictions in the Energy Sector The expansion of sanctions into the energy sector appears to be limited to a BIS policy that will limit future exports of technical oil drilling equipment – perhaps similar to that which the EU imposed. The official statement from BIS reads: BIS will institute a policy denying export, reexport or foreign transfer of certain items for use in Russia's energy sector that may be used for exploration or production from deepwater, Arctic offshore, or shale projects that have the potential to produce oil. While these sanctions do not target or interfere with the current supply of energy from Russia or prevent Russian companies from selling oil and gas to any country, they make it difficult for Russia to develop long-term, technically challenging future projects. Exact details of this policy have yet to be released, so U.S. exporters would do well to pay attention to future announcements by BIS.U.S. Adds Three Russian Banks to the SSIL and One Military Shipbuilder to the SDN List The U.S. sanctions on the financial and arms sectors are a continuation of previous sanctions efforts, including the recent creation of the SSIL, which prohibits U.S. persons and persons within the United States from transacting in, providing financing for, or otherwise dealing in new debt of longer than 90-days maturity or new equity for entities on that list. OFAC described the newly listed banks as follows: Bank of Moscow is a Russian state-owned financial institution—through its parent bank, VTB Bank OAO—with 148 sub-offices located in all administrative districts of Moscow. Russian Agricultural Bank (A.K.A. Rosselkhozbank) is a state-owned bank, which acts as a Russian government agent offering a full range of financial services to clients. With a network of 78 regional branches and more than 1,500 additional offices covering Russia, it has the second-largest regional branch network in the Russia. VTB Bank OAO is a state-owned bank, and, together with its subsidiaries (“the VTB Group”), is Russia’s second-largest banking group. The VTB Group has more than 1,600 offices in Russia, and operates more than 30 banks in 23 countries across Europe, Asia, and Africa. The VTB Group offers financial services including retail, corporate and investment banking; brokering and other stock-market services; insurance; asset management for pension and unit funds; and leasing. VTB Bank’s shares are traded on the Moscow Exchange and on the London Stock Exchange. OFAC also designated on the SDN and blocked the assets of United Shipbuilding Corporation, pursuant to E.O. 13661, for operating in the arms or related materiel sector in Russia. OFAC’s description of United Shipbuilding Corporation is: United Shipbuilding Corporation, which was established pursuant to a March 21, 2007 presidential order, is a Russian state-owned company that manufactures, among other things, ordnance and accessories, and is engaged in shipbuilding, repair, and maintenance. United Shipbuilding Corporation designs and constructs ships for the Russian Navy and is the largest shipbuilding company in Russia. * * * * * The landscape of sanctions against Russia has shifted dramatically in just the last few days and may yet continue to shift as events in Ukraine and elsewhere unfold. The step up of sanctions by the United States and EU to the sectoral level represents a potentially significant escalation in the situation related to Ukraine, and people and companies in all sectors and on both sides of the Atlantic would do well to stay attuned to the latest developments. ___________________________________________ Prepared by: Anita Esslinger (Washington DC and London) Lloyd Grove (Washington DC) 202 508-6333 +44 20 3207 1224 202-508-6227 firstname.lastname@example.org Lloyd.Grove@bryancave.com Bryan Cave’s International Regulatory Bulletins are available online at www.bryancave.com Please visit our Global Anti-Corruption website at www.bryancave.com/gactBryan Cave LLP International Trade Client Service Group Los Angeles Evan Y. Chuck, Partner, CSG Leader David Stepp, Partner Nicole Simonian, Partner Andrew Klungness, Partner Kevin Lombardo, Partner Michael Zara, Associate Jackson Pai, Associate Washington Stanley Marcuss, Partner Daniel Schwartz, Partner Susan Kovarovics, Partner Anita Esslinger, Partner Clif Burns, Counsel Megan Gajewski, Associate Christina Zanette, Associate George Murphy, Associate Lloyd Grove, Associate Chicago Nicola Fiordalisi, Partner Patricia Hanson, Counsel St. Louis Fred Bartelsmeyer, Partner New York Judith Rinearson, Partner Hassan Albakri, Partner Atlanta Joel Williams, Partner Denver Jim Cress, Partner Shanghai Evan Y. Chuck, Partner Ming Zu, Partner Zhongdong Zhang, Principal Yi Huang, Associate Frank Luo, Associate Min Lan, Director of Economic Analysis* Ye Zhou, Director PRC Tax Consultant Jeff Chen, PRC Consultant Feng Zhao, PRC Consultant Singapore Iain Sharp, Partner Henry Ng, Associate Paris Joseph Smallhoover, Partner Aurelie de Raphelis Soissan, Associate Frankfurt Tobias Fenck, Partner Hamburg Alexandra Rose Dr. Michael Leue, Partner Dr. Staffan Wegdell, Counsel Martin Bosse, Associate Jana Fuchs, Associate Carolyn Krampitz, Associate London Anita Esslinger, Partner *Non-legal professionals Note: This Bulletin is intended solely for general informational purposes and should not be construed as, or used as a substitute for, legal advice with respect to specific transactions. Such advice requires a detailed analysis of applicable requirements and an evaluation of precise factual information. We do not undertake to keep recipients advised as to all relevant legal developments. 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