On September 11, 2014, the White House announced that new sanctions against Russia “in light of Russia’s actions to further destabilize Ukraine over the last month, including through the presence of heavily armed Russian forces in eastern Ukraine.” Specifically, the United States has: (1)added new Russian defense firms subject to strict U.S. foreign asset controls;(2) expanded sanctions targeting sectors of the Russian economy and blocking access to U.S. capital markets, and (3) increased U.S. export controls involving Russian energy and defense firms. These actions are in conjunction with similar measures taken by members of the G-7, theEuropean Union and other states.
I. New Russian Defense Firms Added to SDN List
II. Expanded Sectoral Sanctions Targeting Finance, Energy, and Defense Industries
Pursuant to Executive Order 13662, the Secretary of Treury has also identified specified persons operating in sectors of the Russian economy subject to sanction and implemented through Directives issued by the Office of Foreign Assets Control (OFAC) pursuant to its delegated authorities. The following information provides a summary of the purpose and scope of the Directives, new and amended, which target among other sectors, the financial, energy, and defense sectors of the Russian economy.
OFAC maintains and updates a published list of persons operating in sectors of the Russian economy identified by the Secretary of the Treasury pursuant to Executive Order 13662 –the Sectoral Sanctions Identifications (SSI) List. The SSI List is not part of the Specially Designated Nationals (SDN) List. However, individuals and companies on the SSI List may also appear on the SDN List.
Directive 1, issued on July 16, 2014, prohibits transacting in, providing financing for, or otherwise dealing in debt with a maturity of longer than 90 days or equity if that debt or equity is issued on or after the sanctions effective date ("new debt" or "new equity") by, on behalf of, or for the benefit of the persons operating in Russia’s financial sector named under Directive 1, their property, or their interests in property. On September 12, 2014, OFACamended Directive 1, reducing the tenor of prohibited debt from longer than 90 days to longer than 30 days.
The firms on the SSL List under Directive 1 include banks and financial concerns such as Aktsionerny Kommercheski Bank Bank Moskvy (a.k.a. Bank of Moscow), Bank Vneshney Torgovli Rossiyskoy Federatsi (a.k.a. Bank VTB OAO), and recently added Sberbank Rossii (a.k.a Sberbank of Russia).
Directive 2, as amended, separately prohibits transacting in, providing financing for, or otherwise dealing in new debt of greater than 90 days maturity if that debt is issued on or after the sanctions effective date by, on behalf of, or for the benefit of the persons operating in Russia’s energy sector named under the Directive 2, their property, or their interests in property.
b. Directive 3 (New)
On September 12, 2014, OFAC issued Directive 3, introducing new prohibitions on all transactions in, provision of financing for, and other dealings in new debt of longer than 30 days maturity of persons determined to be subject to the Directive, their property, or their interests in property. Transactions by U.S. persons or within the United States involving derivative products whose value is linked to an underlying asset that constitutes new debt with maturity of longer than 30 days issued by a person subject to Directive 3 are authorized by General License 1Apursuant to Executive Order 13662, as further described below.
OFAC also issued Directive 4 on September 12, 2014, introducing new prohibitions on the provision of goods, services (except for financial services), and technology for certain activities involving certain persons operating in the Russian energy sector. Directive 4prohibits the direct or indirect provision, exportation, or reexportation of goods, services (except for financial services), or technology in support of exploration or production for deep water (depths of more than 500 feet), Arctic offshore, or shale projects that have the potential to produce oil in Russia, or in maritime area claimed by the Russia and extending from its territory, and involve any person determined to be subject to Directive 4 or that person’s property or interests in property. The prohibition on the exportation of services includes, for example, drilling services, geophysical services, geological services, logistical services, management services, modeling capabilities, and mapping technologies. The prohibition does not apply to the provision of financial services, e.g., clearing transactions or providing insurance related to such activities.
d. General Licenses (New)
Specifically, OFAC issued General License 1A, which authorizes certain transactions involving derivative products that would otherwise be prohibited pursuant to Directives 1, 2, or 3. This General License 1A replaced and superseded General License No. 1, dated July 16, 2014, which authorized certain transactions involving derivative products that would have been prohibited pursuant to Directives 1 or 2.
It is important to note that each Directive operates independently of the others. If a transaction involves a person subject to two Directives, for example, a U.S. person engaging in that transaction must comply with the requirements of both Directives. Exemptions in one Directive apply only to the prohibitions contained in that Directive and do not carry over to another Directive.
III. Expanded U.S. Export Controls Affecting Russian Energy and Defense Firms
In conjunction with the announcement from the U.S. Department of Treasury of new targeted sanctions and designations of five (5) Russian defense firms to the SDN List, on September 12, 2014, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) announced the addition of the same five (5) entities to the BIS Entity List: (1) Almaz-Antey Air Defense Concern Main System Design Bureau; (2) Tikhomirov Scientific Research Institute of Instrument Design; (3) Mytishchinski Mashinostroitelny Zavod OAO; (4) Kalinin Machine Plant, JSC; and (5) Dolgoprudny Research Production Enterprise.
Designation on the BIS Entity List imposes a license requirement for the export, reexport or foreign transfer of items subject to the Export Administration Regulations (EAR) to the designated entities, with a presumption of denial. BIS will also require licenses for an additional group of items destined to military end uses or end-users in Russia.
The energy firms on the BIS Entity List overlap with the firms targeted by OFAC on the SSI List under Directive 4: (1) Gazprom Neft OAO (a.k.a. JSC Gazprom Neft), (2) Gazprom OAO (a.k.a. OAO Gazprom), (3) Lukoil OAO (a.k.a. Lukoil), (4) Oil Company Rosenft (a.k.a. OAO Rosneft Oil Company), and (5) Stkrytoe Aktsionernoe Obshchestvo Surgutneftegaz (a.k.a. Surgutneftegas).
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