In response to the escalating crisis in Ukraine, the U.S. government has expanded sanctions against Russian
banks, while the European Union (“EU”) has expanded its sanctions against Russia’s oil, defense equipment and
sensitive technologies sectors.
The U.S. Sanctions
On July 29, 2014, the U.S. Office of Foreign Assets Control (“OFAC”) added additional Russian banks to its
recently created Sectoral Sanctions Identification List (“SSI List”). The newly-listed banks include Bank of
Moscow and Russian Agricultural Bank, among others. They join OFAC’s previous Directive 1 designees on the
SSI List, Gazprombank (GPB) and Vnesheconombank (VEB), which OFAC identified on July 16.
As previously reported, the SSI List prohibits U.S. persons from dealing in new debt (with a maturity of more
than 90 days) or new equity of these banks, or such new debt or equity of companies in which they hold a 50
percent or greater interest. Entities identified on the SSI List are not Specially Designated Nationals and their
property is not blocked. U.S. persons are required to reject any transactions that would violate the SSI List’s
directives, and are barred from providing any services in support of such new debt or equity.
In addition to expanding the SSI List, OFAC also added a Russian civilian and military shipbuilding company,
United Shipbuilding Corporation, to its Specially Designated Nationals List (“SDN List”). The U.S. Department
of Commerce also added United Shipbuilding Corporation to its Entity List. As a result, exports, reexports or
other foreign transfers of items subject to the EAR to the United Shipbuilding Corporation now require a license.
Commerce will review applications for such licenses with a presumption of denial.
The new U.S. sanctions come one day after European Union officials agreed to increase sanctions against Russia
in response to separatists’ alleged interference with the investigation of the Malaysia Airlines Flight 17 crash site.
The European Sanctions
In its most decisive action since the beginning of the Ukraine crisis, the EU has imposed sanctions targeting
specific sectors of the Russian economy (so called “phase three sanctions”). This is in addition to an update to
existing measures, including the listing of additional individuals and entities whose assets must be frozen.
The new sanctions go much further than the EU’s earlier sanctions – visa bans and asset freezes – on designated
parties, or other sanctions having a limited scope. The latter took the form of an import ban on products
“originating in” Crimea and Sevastopol and the European Investment Bank’s suspension of new financing of
public sector projects in Russia. SANCTIONS UPDATE
The new measures not only ban all trade in military products between the EU and Russia, as well as exports of
dual-use goods intended for military use, but they also restrict Russia’s access to EU capital markets and target
parts of the Russian energy sector.
The new regime is prospective in that it applies only to new contracts. However, the immediate effects of the
measures should not be discounted.
The defence sector, as well as suppliers of dual-use equipment for military use, will be hit first.
Any new contracts involving weapons and related equipment (including ancillary services) are prohibited. Any
transfer of any dual-use item to the Russian Military or that involves a military end-use or end-user is also
prohibited, although the preamble to the relevant legal instrument suggests that space and aeronautics
industries should not be affected.
Big players in energy markets will also have to adapt to the new legislative environment. If the end-use of
specific products is expected to be in Russia, economic operators subject to the new rules, including sellers and
exporters, will have to comply with a comprehensive prior authorization regime. Authorizations will be denied if
the transaction pertains to deep water oil exploration and production, arctic oil exploration or production and
shale oil projects in Russia.
Banks and other financial institutions working with major state-owned Russian banks and development banks,
including certain subsidiaries and other related entities, may find it very difficult to carry out certain
transactions, if at all.
Sberbank, Gazprombank, Vnesheconombank (VEB) and Rosselkhozbank, among others, are blacklisted to the
extent transactions involve transferable securities and money-market instruments with a maturity exceeding 90
days, issued after August 1, 2014.
The new measures, as combined with an update to the existing asset freezing measures, are expected to have a
general chilling effect on trade and financial flows between Russia and the EU, which will be compounded by the
way asset freezes may be enforced by EU Member States.
In addition to making it virtually impossible to do business with listed individuals or entities, even dealings with
non-listed entities that are owned or controlled by listed individuals may create legal risks. This is particularly
burdensome in this case as the EU targets particularly wealthy individuals and major corporations including,
most recently, the Russian National Commercial Bank.SANCTIONS UPDATE
If you have any questions regarding this update, please contact the Sidley lawyer with whom you usually work or
Lisa A. Crosby
Andrew W. Shoyer
Sven De Knop
Sidley Economic Sanctions Practice
Lawyers in our U.S. and EU Sanctions Practice advise companies on the applicability of sanctions programs to corporate and
banking transactions, insurance contracts and the sale of goods and services. We handle license applications for agricultural
commodities, medical devices and medicines under the Trade Sanctions Reform and Export Enhancement Act of 2000. We also
represent companies in enforcement actions involving sanctions, assist with internal investigations, counsel clients on voluntary
disclosures and assist with the development of compliance programs.
For more information about our U.S. Sanctions Practice please contact Lisa Crosby (email@example.com, +1.202.736.8754) or
Robert Torresen (firstname.lastname@example.org, +1.202.736.8570) and for more information about our EU Sanctions Practice please
contact Sven de Knop (email@example.com, +32.2.504.64.09) or Yohan Benizri (firstname.lastname@example.org, +32.2.504.64.06).
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