Russia/Ukraine Sanctions

As the world turns… There have been several key developments recently in the Russia sanctions context:

  • Issuance of General License 15.  This general license, issued May 22, authorizes maintenance and winding down of pre-April 6 business with GAZ Group and its subsidiaries through October 23.  The authorization is similar in scope to General License 14, issued on April 23 with respect to Rusal.
  • Issuance of General License 13B.  This general license, issued May 31, added EN+ Group PLC to the list of companies (previously consisting of GAZ Group and Rusal) for which divestment of holdings is permitted, and extended the deadline for divestment from June 6 to August 5.  The general license also permits divestment of holdings in the subsidiaries of the covered companies under certain circumstances.
  • Issuance of General License 16.  This general license, issued just yesterday, authorizes certain activities to maintain or wind down pre-April 6 business with EN+ Group PLC,  EuroSibEnergo, and their subsidiaries through October 23.
  • Lapse of General License 12C.  This general license previously had authorized certain activities to maintain or wind down pre-April 6 business with several Russian companies (see the list below).  That authorization lapsed yesterday, meaning that business with the companies covered by the general license no longer is permitted.
  • President Putin signs Russian “counter-sanctions” into law.  Yesterday, President Putin signed into law a bill that gives him the power to sever relations with “unfriendly” countries and prohibit trade with such countries.  Notably, the bill as initially proposed would have banned a range of US goods and services, including certain US food, alcohol, medicine, and consulting services, but it was watered down significantly before reaching the president’s desk.  Consideration of a related bill, which would criminalize compliance with US sanctions on Russian soil, has been postponed for the time being.

So where do things stand?  Here’s a short summary:
Continue Reading Russia Sanctions: General Licenses, Deadlines, Russian Counter-Measures– What’s the Latest?

On May 14, a cross-party group of Russian lawmakers at the Russian State Duma, the lower house of the Federal Assembly of Russia, introduced an amendment to the Criminal Code of the Russian Federation to create a new offense that would criminalize compliance with US and EU sanctions on Russian soil.  On May 15, the State Duma unanimously approved the proposed amendment in the first reading. If enacted into law, these restrictions would create significant complications for companies seeking to comply with US and EU sanctions.

Part 1 of the amendment prohibits a person from taking any action (or omitting to take any action) for the purposes of implementing sanctions against Russia if such action or omission restricts or denies Russian citizens, corporate entities, or government institutions the performance of ordinary business operations and transactions.  The proposed amendment defines “ordinary business operations and transactions” in broad terms.  This includes performance of statutory and contractual obligations and pre-existing obligations, as well as entry into a “public contract”, and any other operations, which are not ordinarily refused due to the individual characteristics of the counterparty, including the opening of a bank account, making and accepting payments, performing transactions with securities, and accounting for such transactions.  A person guilty of the offense may be punished with, among others, imprisonment for up to four years in prison or a corrective labor colony, or a fine of up to 600,000 rubles (approximately $9,700 USD).  
Continue Reading Russian State Duma Proposes to Criminalize Compliance with US and EU Sanctions and Adopts Retaliatory Measures

Yesterday, OFAC issued General License No. 15 under the Ukraine-Related Sanctions Regulations (31 C.F.R. Part 589), authorizing the maintenance or wind-down of pre-April 6 contracts with GAZ Group and its subsidiaries through October 23, 2018.  Previously, such activity with GAZ Group was permitted only through June 5, 2018 as per General License No. 12B (which has since been superseded, as described below).  OFAC also issued six new Frequently Asked Questions (FAQs).

Similar to the recent easing of restrictions against Rusal as set out in General License No. 14, the new general license extends the period of authorized maintenance/wind-down-related dealings with GAZ Group through October 23, permits exports from the United States to GAZ Group in support of such activity, and removes the requirement that payments to GAZ Group for maintenance/wind-down purposes be made into a blocked account in the United States.  The general license does not authorize divestiture of debt or equity (which is covered by General License No. 13A), dealings with other sanctioned entities (unless permitted by General License No. 12C, described below), or the unblocking of property except for use in maintenance/wind-down-related activity.

As with the general license for Rusal, while the authorization is directly applicable for US persons, it is also of significance to non-US persons. 
Continue Reading OFAC Issues General License Extending Authorization for Dealings with GAZ Group

On May 1, OFAC issued two amended general licenses under the Ukraine-Related Sanctions Regulations (URSR). General License No. 12B, superseding General License No. 12A, authorizes additional activities necessary to the maintenance and winding down of operations or existing contracts. General License No. 13A, superseding General License No. 13, authorizes certain additional transactions necessary to divest from certain blocked persons. OFAC also issued three new FAQs (583-585) and revised four others (570, 571, 578, and 582).

Under General License No. 12B, funds of identified blocked persons may be used for maintenance or wind-down activities, and US financial institutions are now permitted to process funds related to these maintenance/wind-down activities.

Under General License No. 13A, US persons now have until June 6, 2018 to divest from holdings covered by the license. This is one month longer than the previous May 7, 2018 deadline. US persons may also take actions to divest from entities meeting the following criteria: (a) they are owned (50 percent or more) by EN+ Group plc, GAZ Group, and United Company Rusal and (b) their holdings were issued by Irkutskenergo, GAZ Auto Plant, or Rusal Capital Designated Activity Company.
Continue Reading OFAC Eases Maintenance/Wind-Down and Divestment Restrictions in New General Licenses

On Monday, OFAC issued General License No. 14 under the Ukraine-Related Sanctions Regulations (URSR), authorizing the maintenance or winding down of business with United Company Rusal plc (Rusal) through October 23, 2018.  The imposition of sanctions on Rusal, which OFAC listed as a Specially Designated National (SDN) on April 6, had roiled the global aluminum market and sparked fears of a worldwide supply shock.  The Trump Administration appears to have taken these concerns on board in issuing the new general license, with Treasury Secretary Steven Mnuchin noting in a press release that the “the US government is not targeting the hardworking people who depend on RUSAL and its subsidiaries”.  OFAC also issued new Frequently Asked Questions (FAQs) providing interpretative guidance regarding the new general license.

As previously noted, OFAC designated Rusal as an SDN on April 6, cutting it off from all dealings with US persons and subjecting non-US persons to secondary sanctions to the extent they engage in “significant” transactions with the aluminum producer.  These restrictions also apply to all entities owned 50 percent or greater by Rusal.  To soften the blow of the designation, OFAC issued General License No. 12, authorizing the maintenance or winding down of business with Rusal through June 5.  However, the general license did not authorize US persons to export items to Rusal from the United States, and required any payments to Rusal to be made into a blocked account, restrictions that also carried significant implications for non-US persons.

General License No. 14 provides significantly more extensive relief, authorizing the maintenance or winding down of business with Rusal and its subsidiaries through October 23, and removing the restrictions on exports and payments. 
Continue Reading OFAC Issues General License Extending Maintenance / Wind-Down Period for Rusal Dealings

Following up on our earlier blog post, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced new blocking sanctions on April 6, 2018 against seven Russian oligarchs, 12 entities owned or controlled by those oligarchs, 17 senior Russian government officials, a Russian weapons trading company, and a banking subsidiary owned

Today, the US Department of Treasury, Office of Foreign Assets Control (OFAC) designated several Russian individuals and companies as Specially Designated Nationals (SDNs).  Specifically, in response to what Treasury Secretary Steven Mnuchin described as Russia’s “malign activity”, OFAC indicated that it sanctioned

seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary, a Russian bank.

In making the new designations, OFAC issued a press release, web notice, General License No. 12 under the Ukraine-Related Sanctions Regulations (URSR, 31 C.F.R. Part 589), General License No. 13 under the URSR, eight new Frequently Asked Questions (FAQs) related to the new designations, and one updated FAQ related to the Countering America’s Adversaries Through Sanctions Act (CAATSA).

OFAC made the designations pursuant to Executive Orders 13661 and 13662, which are focused on the crisis in Ukraine, as well as Executive Order 13582, which relates to the Syrian civil war.

Continue Reading OFAC Sanctions Russian Oligarchs and Major Russian Companies

The Treasury Department late last night issued several reports to Congress pursuant to mandates in the Countering America’s Adversaries Through Sanctions Act (CAATSA), including under CAATSA Sections 241 (Report on Senior Foreign Political Figures and Oligarchs in the Russian Federation) and 242 (Report on Effects of Expanding Sanctions to Include Sovereign Debt and Derivative Products).  While the headlines on the Section 241 report on Russian oligarchs, senior government officials, and parastatal entities blare “no sanctions imposed,” the details are less reassuring.

In response to a question from Senator Robert Menendez (D-NJ) in testimony before the Senate Banking Committee today, Treasury Secretary Mnuchin stated “There will be sanctions that come out of this,” seemingly referring to the Section 241 report.  Secretary Mnuchin went on later, in response to a separate question from Senator Brian Schatz (D-HI), to describe that intelligence work that went into this report and stated “And now, we will take the basis of that report and look at kind of – as we do in the normal course, where it’s appropriate to put sanctions. . . . So this should in no way be interpreted as we’re not putting sanctions on any of the people in that report.”  While the Secretary’s statements were not entirely clear, they suggest the possibility of sanctions on at least some of the individuals or entities on the Section 241 list as Treasury rolls out additional Russia sanctions going forward.
Continue Reading More Sanctions Ahead After Treasury’s Reports to Congress on Russian Oligarchs, Defense/Intel Sanctions?

Today is the effective date of the expanded sanctions set out in Directive 4 under the US Russia sanctions program, as amended by the US Department of Treasury, Office of Foreign Assets Control (OFAC) on October 31, 2017.  The amendment implemented Section 223 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), signed into law by President Trump last August.  See our previous advisory.

As previously explained, the expanded Directive 4 prohibits US persons from providing goods, services (except financial services), or technology in support of any project worldwide for exploration or production of oil from deepwater, Arctic offshore, or shale in which certain designated Russian entities or their subsidiaries own a 33% or greater ownership interest, or a majority of the voting interests.  OFAC has issued FAQ guidance regarding how to calculate ownership interest where a designated entity owns an indirect ownership stake in a project.

The new restrictions are applicable to projects “initiated” on or after today, January 29. 
Continue Reading Russia Sanctions: Amended OFAC Directive 4 Effective Today

As indicated in recent media reports, for example from Bloomberg and The Wall Street Journal, many are closely watching developments related to the “Russian oligarch” report due from the Trump Administration next week under Section 241 of the Countering America’s Adversaries Through Sanctions Act.  Under Section 241, the Secretary of the Treasury (in consultation with the Secretary of State and the Director of National Intelligence) must submit to Congress by January 29 a “detailed report” that, among other things, identifies “the most significant senior foreign political figures and oligarchs in the Russian Federation,” as well as “Russian parastatal entities.”

One challenging and potentially problematic aspect of the Section 241 report is that CAATSA does not define “oligarch,” nor are we aware of any relevant definition elsewhere in U.S. law or regulation.  Generally speaking, the term “oligarch” has been used in the context of contemporary Russia to refer loosely to very wealthy and politically-connected businessmen, generally with close ties to President Putin, and independent of whether the relevant individuals have necessarily engaged in illicit activity.  Given the lack of a statutory definition and the imprecise use of the term “oligarch” in public circles, the Executive Branch’s own definition will be important in setting the scope for this report.  Section 241 defines the term “senior foreign political figure” by cross-reference to the very broad definition found in the regulations of Treasury’s Financial Crimes Enforcement Network (FinCEN) — this definition includes any current or former senior officials in civilian, military, or judicial positions, or in political parties; state-owned entities and senior executives of state-owned entities; and immediate family members and close associates of any such individuals.  The requirement to identify only “the most significant” senior foreign political figures and oligarchs provides the Executive Branch with additional discretion. 
Continue Reading More on the Russian Oligarch Report