On Friday , September 12th, while a tenuous truce between Ukraine and rebel forces showed signs of cracking and government officials continued to trade verbal jabs, the United States amped up pressure on Russia by expanding its sanctions program to include some of the country’s largest companies. The following is an overview of U.S. sanctions on Russia as of September 18. As you know, these prohibitions can be changed or added to at any time. Currently, U.S. sanctions are focused mainly on the financial, energy, and military sectors so U.S. parties should be careful to vet all interactions with Russian parties in these industries. U.S. parties are expected to know who they are doing business with, what related parties might be benefiting from the transaction (such as a parent company or third party), and the end-user and end-use of any exports.
Executive Orders: The Administration has issued the following executive orders giving the Department of Treasury the ability to block Russian parties from transacting with the United States.
- 13660 – Blocking Property of Certain Persons Contributing to the Situation in Ukraine (March 6, 2014)
- 13661 – Blocking Property of Additional Persons Contributing to the Situation in Ukraine (March 17, 2014)
- 13662 – Blocking Property of Additional Persons Contributing to the Situation in Ukraine (March 20, 2014)
Ukraine-Related Sanctions Regulations: The Treasury Department’s Office of Foreign Assets Control (OFAC) issued regulations to implement the three Executive orders listed above. The regulations currently prohibit U.S. parties from transacting with listed entities and block their assets.
Specially Designated Nationals List (SDN): On Friday, OFAC added five parties to its SDN List, which imposes a blanket prohibition on transacting with the listed entities that applies to all U.S. parties.
Sectoral Sanctions Identifications List (SSI): In additional to listing certain prohibited parties on the SDN List, OFAC has created a list of entities with specific restrictions – the SSI List. Implemented under Executive Order 13662, U.S. parties are generally prohibited from transacting in, providing financing for, or dealing in new debt of longer than 90 days maturity or new equity for entities on this list. On Friday, OFAC further reduced the new debt dealing prohibition to 30 days for certain Russian entities, including many of its large oil companies and banks. The restrictions also apply to entities that are owned 50 percent or more by the listed parties. This means that U.S. parties need to ask questions and know who they are doing business with – especially when it comes to Russian banks and parties involved in Russian financing or the energy sector. Specifics regarding both recent additions and changes to the SDN and SSI Lists are available here.
Entity List: On Friday, the Bureau of Industry and Security (BIS) at the Department of Commerce added five Russian entities in Russia’s defense sector as well as five of the Russia’s largest energy companies to its Entity List. This list bars the export and reexport of items under the Department of Commerce’s jurisdiction to listed parties. Specifics regarding the most recent additions can be found here.
Denial of export licenses: BIS has instituted a policy of denying licenses for exports, reexports, and foreign transfers of “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.” The timing and the exact goods affected were left unclear, however the policy appears to only effect items that would currently require a license from either of the two departments to export. The Department of State’s Directorate of Defense Trade Controls has implemented a similar policy, indicating that it “will deny pending applications for export or re-export of any high technology defense articles or services regulated under the U.S. Munitions List to Russia or occupied Crimea that contribute to Russia’s military capabilities.”
BOTTOM LINE: Even with this substantial expansion of sanctions the bottom line remains the same. With continued fighting despite the truce announcement, threats of retaliatory action from President Putin that might even include prohibiting western airliners from using Russian airspace, and the rebel’s continued insistence on total independence from the government in Kiev, it doesn’t seem like U.S. sanctions on Russia will be lifted any time soon. So U.S. companies involved in business with Russian entities must continue implementing internal programs that will ensure they have valid export licenses for each transaction and periodically check their business partners (as well as their business partners’ associates and ultimate end users of their products) against the lists discussed above. In the event that a transaction may be prohibited by any of the sanctions currently in force U.S. companies should make sure to follow up with thorough, documented due diligence and either clear the party beyond doubt or refrain from going forward.