Both the United States and the European Union have issued further sanctions measures related to the situation in Ukraine. In a more coordinated fashion, the U.S. and EU measures further target the Russian banking and energy sectors, as well as persons and entities contributing to the ongoing conflict. In particular, the EU has taken steps to expand its sanctions against Russia in a significant way, and those new EU measures are similar to the sectoral new debt and new equity restrictions introduced by the U.S. earlier in July. Neither the U.S. nor the EU has issued overarching territorial sanctions against the entirety of Russia or the Russian government, but companies should continue to review their activities in Russia and Ukraine or involving designated parties to ascertain what restrictions may apply. This update follows our 18 July 2014 update and provides additional information regarding sectoral Ukraine-related sanctions and other measures that have been imposed by the U.S. and EU.
Additional U.S. measures
The U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) and the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) have taken further action in response to the situation in Ukraine.
1. Additions to OFAC Sectoral Sanctions Identifications List (SSIL) and new OFAC guidance
In continuance of its new sectoral sanctions program pursuant to two Directives issued under Executive Order 13662 that target transactions in new debt or new equity for designated parties in Russia’s financial and energy sector, which we described in more detail in our 18 July 2014 update, OFAC added three new Russian banks to the SSIL on 29 July 2014:
- Bank of Moscow
- Russian Agricultural Bank
- VTB Bank
See OFAC’s notice regarding these additions. These banks are now targeted under Directive 1 of the SSIL, which prohibits “transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity for these persons […], their property, or their interests in property.” As outlined in our prior update, SSIL entities are not subject to blocking/asset freeze restrictions that apply to persons or entities designated by OFAC as Specially Designated Nationals (SDNs), and are instead subject to the more limited sanctions under SSIL Directives 1 or 2, depending on the basis for designation.
OFAC has also published additional guidance (in the form of FAQs) on its website regarding the sectoral sanctions, which address specific questions relating to OFAC’s interpretations of the new debt and equity restrictions. In particular the FAQs make clear that U.S. persons may continue to advise or confirm letters of credit on behalf of a non-sanctioned entity where an SSIL entity is the beneficiary, as this would not involve extension of new credit to the SSIL entity. However, letters of credit where the SSIL entity is the applicant, and is therefore receiving the credit, are prohibited where the letters of credit are issued after the date the SSIL entity was designated with longer than 90 days maturity. The FAQs also provide clarification regarding drawdowns under revolving credit facilities and address issues related to derivatives transactions, among other questions.
2. Additions to OFAC’s SDN list
On 29 July 2014, OFAC also designated United Shipbuilding Corporation as an SDN under Executive Order 13661, subjecting it to a broad set of restrictions and blocking requirements under U.S. law. According to OFAC’s press release, this Russian state-owned company “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.” OFAC also this week provided additional clarifying information regarding four individuals who were already on the SDN list.
This week OFAC also made an administrative change to the SDN list by converting the titles of the Ukraine-related program tags, which identify the legal authority pursuant to which entries are designated, from [UKRAINE] and [UKRAINE2] to [UKRAINE-EO13660] and [UKRAINE-EO13661], respectively, in order to more clearly delineate the Executive Order that serves as the basis for designation.
3. BIS entity list and export controls
In addition to its 17 July additions, BIS also added United Shipbuilding Corporation to its Entity List thereby establishing a license requirement for the export, reexport, or transfer of items subject to the Export Administration Regulations (EAR) to this entity, with a presumption of denial.
Also this week, BIS announced that it is instituting a policy of denial for exports, reexports, or foreign transfers of certain items subject to the EAR 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. The related press release is available here. Today BIS published the text of the final rulethat will implement these changes to the EAR. The rule identifies specific Export Control Classification Numbers (ECCNs) at issue and creates a new section in 15 C.F.R. 746 titled “Russian Industry Sector Sanctions.” A “Russian Industry Sector Sanctions List” has been added as a supplement to part 746 of the EAR, and lists items such as various types of line pipe, oil well tubing and casing, drilling tools, liquid elevators, gas separation equipment, mobile drilling derricks, floating docks, and other items. The rule also removes Russia’s favorable licensing policy for all national security (NS) controlled items.
BIS has indicated that it is considering imposing a policy of denial for other categories of items.
Additional EU measures
The EU has also implemented further sanctions against entities and individuals in response to the ongoing situation, and has significantly expanded the scope of sanctions to target Russia’s financial and energy sector to a greater degree. The new EU measures are also meant to align to a greater degree with the U.S. sanctions targeting Russia’s financial sector (we note, however, that there is still not a complete overlap between U.S. and EU sanctions with respect to the persons and entities targeted). We also note that the EU adopted two sets of new measures, one targeting activities involving Crimea and Sevastopol, and the other targeting Russia, as explained below.
1. Crimea and Sevastopol
On 30 July 2014, the EU adopted Regulation 825/2014, which establishes the following restrictions with respect to investment and transactions in Crimea and Sevastopol:
- A prohibition on granting any financial loan or credit specifically relating to the creation, acquisition, or development of transport, telecommunications, and energy infrastructure in Crimea or Sevastopol, or relating to the exploitation of oil, gas, or mineral resources (as defined in Annex II of Regulation 825/2014) in Crimea or Sevastopol.
- A prohibition on the acquisition or extension of participation or the creation of a joint-venture in enterprises based in Crimea or Sevastopol engaged in the creation, acquisition, or development of transport, telecommunications, and energy infrastructure in Crimea or Sevastopol.
- A prohibition on the acquisition or extension of participation, or creation of a joint-venture in enterprises engaged in the exploitation of oil, gas, or mineral resources in Crimea or Sevastopol.
- A prohibition on providing, directly or indirectly, technical assistance or brokering services related to investment in the above activities.
Obligations arising from contracts concluded before 30 July 2014 are exempted from these prohibitions, provided they are notified to the competent authority 10 working days in advance.
Regulation 825/2014 also establishes the following restrictions:
- A prohibition on the sale, supply, transfer, or export, directly or indirectly, of key equipment and technology (as defined in Annex III of Regulation 825/2014) for the development of infrastructure in the transport, telecommunications, and energy sectors, as well as for the exploitation of oil, gas, and mineral reserves, for use in Crimea or Sevastopol.
- A prohibition on providing, directly or indirectly, financing, technical assistance or brokering services related to such key equipment.
The EU also added several entries to the list of individuals and entities subject to asset freezes and travel bans under the EU Ukraine-related sanctions.
As of 1 August 2014, through Regulation 833/2014, the EU has imposed further restrictive measures against Russia. This Regulation establishes the following restrictions:
- A prohibition on, directly or indirectly, purchasing, selling, providing brokering, or assistance in the issuance of transferable securities and money-market instruments with a maturity exceeding 90 days, issued after 1 August 2014 by Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB), and Rosselkhozbank, or entities owned by or acting on behalf or at the direction of such banks.
- A prohibition on selling, supplying, transferring, or exporting, directly or indirectly, dual-use goods and technology for military use or for a military end-user in Russia. Authorizations can be granted for exports pursuant to obligations arising from contracts concluded before 1 August 2014.
- A prohibition on providing, directly or indirectly, technical assistance, brokering services, financing or financial assistance related to dual-use goods and technologies. This restriction does not apply to the execution of obligations arising from contracts concluded before 1 August 2014.
- A prohibition on providing, directly or indirectly, technical assistance, financing, or financial assistance related to the goods in the Common Military List, or related to the provision, manufacture, maintenance, and use of goods included in that list, to any person or entity in Russia or for use in Russia. This restriction does not apply to the execution of an obligation arising from a contract or agreement concluded before 1 August 2014.
- The sale, supply, transfer, or export, directly or directly, of certain listed equipment and technologies in Annex II of Regulation 833/2014 are subject to prior authorization. However, in case the certain listed equipment and technologies are for projects pertaining to deep water oil exploration and production, Arctic oil exploration and production, or shale oil projects, no authorizations will be granted, except where the export concerns obligations arising from contracts concluded before 1 August 2014. The Annex II items are similar to items on the new U.S. BIS Russian Industry Sector Sanctions List.
- The provision of technical assistance or brokering services, financing or financial assistance related to certain listed equipment and technologies in Annex II of Regulation 833/2014 is also subject to prior authorization.