In response to events in Crimea, the United States, the European Union and Canada have announced new sanctions against Russia. These follow a series of escalating rounds of sanctions against high-ranking Russian officials and advisors to Russian president Putin. For a detailed history of developments regarding these sanctions, please see our previous bulletins here and here.

The new U.S. sanctions target one Russian bank and twenty Russian individuals. All have been listed on the Department of Treasury’s Office of Foreign Assets Controls (OFAC) Specially Designated Nationals (SDN) List. All property or interests in property of these individuals and entities are frozen if they are in the United States or in possession or control of a U.S. person. All transactions involving such property or property interests are prohibited.

Targeted Russian Bank and Individuals

The Russian bank, Bank Rossiya (a.k.a. Aktsionerny Bank Russian Federation, ОАО АБ РОССИЯ) is alleged to be the personal bank for senior officials of the Russian Federation and to be controlled by Yuri Kovalchuk, who was also placed on the SDN list. OFAC states that the bank is the 17th largest in Russia with assets of approximately $10 billion and that it maintains numerous correspondent relationships with banks in the United States, Europe and elsewhere. The bank reports providing a wide range of retail and corporate services, many of which relate to the oil, gas and energy sectors.

The Russian individuals are Russian government and military officials or advisors to President Putin. Eight of them had already been targets of an asset freeze by the EU issued on March 6.

Special Concerns Related to Ownership and Control of Entities

Of special concern with respect to all parties designated under the new U.S. sanctions is the OFAC “50% Rule” for entities owned by designated persons. According to the OFAC rule, a party whose property or property interests are blocked is considered to have an interest in all property and property interests of an entity in which the designated person owns a 50% or greater interest. As a consequence, all property or property interests of such entities are blocked if such property or property interests are in the United States or in the possession or control of a U.S. person even if the entity itself is not on the SDN List. In situations where ownership is murky, businesses should proceed with caution.

Entities “controlled by” designated individuals are subject to designation in their own right. Until they are actually designated, transactions with such entities are permissible. Persons and companies doing business with such entities, however, are on notice according to OFAC that the entity could be designated at any time.

In the aftermath of the March 20 designations, Visa and Mastercard announced that they were suspending transactions related to several Russian banks because of possible ownership by designated individuals. According to news reports, they restored services after being assured by the U.S. government that the banks did not qualify if no single designated individual owned 50% or more of them. Both, however, continue to refuse to engage in transactions involving Sobinbank, more than 50% of which they say is owned by the SDN-listed Rossiyabank.

Possible Additional Sanctions Under New Executive Order

In addition to the new designations, President Obama also signed a new Executive Order last Thursday that gives the Secretary of the Treasury the authority to impose additional broad economic sanctions on Russia. The Executive Order allows the Treasury Secretary to freeze the assets of and impose travel bans on Russian individuals or entities that “operate in” economic sectors, such as the financial, energy, metals and mining, engineering and defense sectors. The imposition of sanctions against individuals or entities involved in these Russian sectors could present significant problems for U.S. companies.

The new Executive Order also includes the authority to impose sanctions against individuals and entities found “to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of, any person whose property and interests in property are blocked pursuant to [the Order].” The Executive Order also includes the authority to impose sanctions against individuals and entities found “to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person whose property and interests in property are blocked.”

European Union Adds Russian and Crimean Individuals to List of Those Already Sanctioned

On March 21, 2014, the EU announced asset freezes, transaction restrictions and travel bans against twelve Russian and Crimean military and government officials, in addition to the thirteen Russian and eight Crimean officials against whom sanctions were imposed on March 17th.

The list of sanctioned officials is available here. The list is not entirely co-extensive with the U.S. sanctions list, and so care must be exercised in determining which individuals are subject to which sanctions. For further details on the scope of these sanctions, please see our previous bulletins referred to above.

Canada

Canada has also sanctioned Ukrainian and Russian individuals through the use of asset freezes and transaction restrictions.  The lists of individuals designated by Canada include names of individuals and entities on both the

U.S. and EU lists, but none of the three lists is completely co-extensive. Screening against the U.S. and EU lists will capture all the individuals currently designated by Canada, but sanctions lists change frequently. Because Canada lacks a comprehensive screening list akin to the SDN List, Canadian lists must be screened individually. Ukrainian individuals sanctioned by Canada can be found here and here; Russian individuals are here and here.

Russian Reaction

The Russia response to these actions has been relatively mild, with a travel ban imposed on nine US lawmakers and policy advisors. Whether a more robust response from Russia is in the offing remains an open question, as does the question of whether the U.S., EU or Canada will take further measures.