The United States and European Union continue to apply pressure to address the escalating situation in Ukraine, including issuing additional sanctions against targeted persons and companies. Although the situation involving sanctions continues to remain fluid, this update outlines recent steps taken. Our prior updates on the Ukraine-related sanctions measures by the U.S. and EU are available here.
On Friday, 11 April 2014, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) designated an additional seven individuals in Ukraine as being subject to U.S. sanctions. The following persons were designated: Aleksei Mikhailovich Chaliy, Mikhail Grigorevich Malyshev, Valery Kirillovich Medvedev, Rustam Ilmirovich Temirgaliev, Sergey Pavlovich Tsekov, Yuriy Gennadievych Zherebtsov, and Pyotr Anatoliyovych Zima. These individuals were already targeted by EU sanctions, illustrating an increasing overlap between EU and U.S. lists of designated persons. As with the prior OFAC designations related to Ukraine, U.S. persons cannot engage in transactions or dealings with these designated persons, directly or indirectly, or with entities 50% or more owned by these individuals (this includes contracts, payments, joint ventures, sales, exports, services, and other transactions). Property, which is defined broadly by OFAC, of these persons that comes within the possession or control of the United States or U.S. persons (including U.S. banks and companies) must be blocked (or “frozen”), and such blocking must be reported to OFAC. The OFAC designation announcement is available here.
Also on Friday, OFAC designated the company Chernomorneftegaz in Crimea (the company is also known as Chornomornaftogaz and NJSC Chornomornaftogaz). Chernomorneftegaz is a regional oil and gas company and a subsidiary of the Ukrainian company Naftogaz, but the U.S. government believes that its assets are now being overseen by Russian government interests. OFAC’s designation of this entity carries the same restrictions noted above regarding transactions or dealings and property within the United States or the possession or control of U.S. persons. The OFAC announcement did state, however, that “this designation refers to the entity in Crimea at the listed address only, and does not include its parent company.” In conjunction with this OFAC action, the U.S. Commerce Department’s Bureau of Industry and Security (BIS) also announced that it added Chernomorneftegaz to its Entity List because of concerns regarding Russia’s expropriation of the company. The BIS announcement is available here. This Entity List designation results in a licensing requirement for the export, re-export, or in-country transfer of items subject to the Export Administration Regulations (EAR) to the company, with a presumption of denial of such requests. It appears that the link on BIS’s website to the text of the Entity List has not yet been updated to add Chernomorneftegaz, but companies should treat this entity as being listed on the Entity List, in addition to being targeted by OFAC sanctions. In particular, we note that because of the Entity List designation, any person or entity (including non-U.S. entities) that is providing goods, software, or technology subject to the EAR to this company would require licenses to export or re-export such items to Chernomorneftegaz (even when the items subject to the EAR are already located outside the United States and are being transferred to this entity in Crimea). Interactions with any subsidiaries (either joint ventures or direct equity ownership stakes) of Chernomorneftegaz would also raise red flags and require further due diligence to confirm that U.S. items are not being diverted to Chernomorneftegaz and that the subsidiary is a bona fide legally distinct entity from its parent. If the subsidiary entity is controlled by Chernomorneftegaz as a result of its level of ownership and/or its involvement in the company’s business activities, the Entity List’s licensing requirements and policies specific to Chernomorneftegaz apply to the subsidiary company as well (BIS has confirmed this position for Entity List entities on its Entity List FAQ website availablehere).
Companies should perform their own due diligence and exercise caution before entering into transactions with entities in which a designated person owns less than 50% equity stake but has the ability to exercise control over the entity. Moreover, when dealing with third-country, non-listed companies that may be acting on behalf of a targeted person or entities, companies should exercise caution and seek to confirm that their services are not indirectly provided for the benefit of a designated person or entity.
On 15 March 2014, the Council of the EU adopted Council Implementing Regulation 381/2014, naming an additional four persons as EU designated parties. Like for U.S. SDNs, there are restrictions on transactions and dealings with EU designated parties, including visa bans and asset freezes. The four new names are: Serhiy Arbuzov, Yuriy Ivanyushchenko, Oleksandr Klymenko, and Edward Stavytskyi. The Council noted that the European Commission is conducting preparatory work on possible additional sanctions, which may be adopted if the Russian Federation takes further steps to destabilize the situation in Ukraine. The adoption of new EU sanctions will also be conditioned on the outcome of the Russia-Ukraine talks to be held in Geneva on Thursday, 17 April 2014.