On Wednesday, July 16, 2014, the United States announced additional sanctions against Russian interests in response to the continuing crisis in Ukraine. Starting in March of this year, the United States began imposing sanctions against Russian organizations and individuals, including a number of individuals associated with President Vladimir Putin’s inner circle. This latest round of sanctions includes targeted restrictions on financing transactions involving two major Russian financial institutions, Gazprombank OAO and VEB, and two Russian energy firms, OAO Novatek, an independent gas producer, and Rosneft, the state-owned oil company. U.S. persons may not provide financing for new debt of longer than 90 days maturity for these four entities or new equity for the two banks. The United States also announced comprehensive sanctions against Russian arms manufacturers and additional Russian government officials.
The Office of Foreign Assets Control (OFAC) of the United States Treasury Department administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals. OFAC’s sanctions programs targeting countries are implemented through country-specific regulations that restrict or, in some cases, prohibit financial transactions and other trade with the targeted country and entities located in that country. In addition, OFAC has designated thousands of individuals, companies and other entities because of their ties to a targeted government or their involvement in harmful activities. These individuals, companies and entities are known as Specially Designated Nationals (SDNs).
The Russian businessmen with close ties to President Putin who previously were added to the SDN list include Gennady Timchenko, Yuri Kovalchuk, Arkady and Boris Rotenberg, and Igor Sechin, the president of Rosneft. In addition, a number of Russian government and military officials and commercial entities have been designated, including:
- OAO Bank Rossiya;
- Volga Group, an investment company owned by Timchenko;
- InvestCapitalBank and SMP Bank, controlled by the Rotenberg brothers;
- Stroytransgaz Group, an energy company that maintains Gazprom’s domestic natural gas pipeline network; and
- Transoil, a railway transporter of oil and oil products.
For all of the individuals and entities that have been placed on the SDN list, all property and property interests in the United States or that come within the possession or control of a U.S. person are blocked. U.S. persons may have no dealings with the property interests of a designated person, and transactions with a designated person or a business owned by the designated individual are prohibited. (OFAC previously issued guidance that an entity is considered owned by a designated person if the person owns 50 percent or more of the entity.)
When the earlier designations were announced in the spring, news reports indicated that if the situation in Ukraine failed to improve, future U.S. sanctions were likely to target specific Russian industries, including financial services and energy. The sanctions announced on July 16 fit within that framework. By barring U.S. persons from providing financing that extends beyond 90 days to Gazprombank, VEB, Novatek and Rosneft, the United States is seeking to close the medium- and long-term U.S. dollar lending window to these Russian institutions. The assets of these four entities are not frozen, and they have not been placed on the SDN list. Indeed, the new status of these entities has caused OFAC to create another list, the Sectoral Sanctions Identifications List (SSIL), to capture those persons for whom dealings are restricted, but not prohibited.
By contrast, the other sanctions targets announced on July 16 were placed on the SDN list. The new additions to the list are:
- eight Russian firms that produce military arms or equipment, including Kalashnikov Concern, the largest firearms producer in Russia;
- the Luhansk People’s Republic and the Donetsk People’s Republic, both of which have asserted governmental authority over regions of Ukraine, as well as Aleksandr Borodai, the self-declared prime minister of the Donetsk People’s Republic;
- Feodosiya Enterprise, operator of a key shipping facility in the Crimean Peninsula for oil imports and exports; and
- four additional Russian government officials.
U.S. persons and their employers should be mindful of OFAC’s regulations prohibiting “facilitation.” U.S. persons may not approve, finance or facilitate any transaction by a foreign person where that transaction by a foreign person would be prohibited if performed by a U.S. person or from the United States. As a result, a person in the United States will be considered to have violated the regulations if he steers a prohibited transaction to a colleague overseas and thereby indirectly assists in advancing the transaction. When a U.S. person is confronted with a proposed transaction in which he cannot lawfully engage, the U.S. person must step away from the transaction without doing anything to direct the transaction to a person who is not covered by OFAC sanctions.