U.S. and EU Expand Ukraine-Related Sanctions on Russian Entities

International Trade & Customs Update

Date: August 01, 2014

On July 29, 2014, the United States and the European Union both announced significant expansions of their respective sanctions against Russia. Further action was deemed necessary due to the downing of Malaysian Airlines Flight 17 and Russia’s continued support for separatists in Ukraine. Both the U.S. and EU sanctions involve restrictions on Russian entities in the financial and energy sectors, and restrictions on exports of dual-use items. In addition, the U.S. sanctions include halting credit and financing by the Export-Import Bank for transactions involving Russia.

United States

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) again expanded its Ukraine-related sanctions to include additional entities in Russia’s financial services sector and added another defense technology entity to the list of Specially Designated Nationals (SDNs). OFAC last took action only two weeks ago (see July 24 Thompson Hine client alert). These new measures coincide with OFAC’s previous actions taken to further restrict U.S. exports to Russia that would assist its energy sector and OFAC’s formal suspension of export credit that encourages exports to Russia and financing for economic development projects in Russia.

Further Sectoral Sanctions on Banks

OFAC has imposed sectoral sanctions on three more Russian banks to increase financial pressure on the Russian government, placing the following banks on the Sectoral Sanctions Identification (SSI) List:

  • Bank of Moscow – Russian state-owned financial institution with nearly 150 offices located throughout Moscow.
  • Russian Agricultural Bank – Russian state-owned bank with the second-largest regional branch network in Russia.
  • VTB Bank OAO – Russian state-owned bank that, when combined with its subsidiaries (VTB Group), is Russia’s second-largest banking group. The VTB Group has more than 1,600 offices in Russia and operates more than 30 banks in 23 countries across Europe, Asia and Africa.

These entities are known by multiple names, which are identified on the full SSI List.

As with the entities OFAC placed on the SSI List on July 16, 2014, U.S. persons (as defined in OFAC regulations) are prohibited from transacting in, providing financing for or otherwise dealing in new debt (of longer than 90 days’ maturity) or new equity for these entities, their property or their interests in property. OFAC has not blocked the property or interests in property of these entities, nor placed them on the SDN List.

State-Owned Entity Added to SDN List

In addition to imposing additional sectoral sanctions, OFAC added another Russian defense technology company to the SDN List:

  • United Shipbuilding Corporation – Russian state-owned company that manufactures ordnance and accessories, and designs and constructs ships for the Russian navy.

As an SDN, this entity’s assets are blocked; any assets within U.S. jurisdiction must be frozen. In addition, transactions by U.S. persons involving this entity or its assets generally are prohibited.

Further Export Restrictions on Energy Sector

In conjunction with OFAC’s latest round of sanctions, the U.S. Department of Commerce’s Bureau of Industry & Security (BIS) announced further trade restrictions with Russia. BIS instituted a policy of denial for exports, reexports or foreign transfers of certain items for use in Russia’s energy sector that may be used for exploration or production from deep water, Arctic offshore or shale projects that have the potential to produce oil. BIS stated that these energy sector restrictions do not target or interfere with the current oil supply or production, but will impact Russia’s ability to explore and produce oil in more technologically challenging future projects and environments.

In addition, BIS has added United Shipbuilding Corporation to its Entity List. Placement on the Entity List imposes a license requirement for the export, reexport or foreign transfer of items subject to the Export Administration Regulations (EAR) to an entity on the list, with a presumption that BIS will deny approval of a license request.

U.S. Export-Import Bank Suspends Credit & Financing

President Obama also announced the formal suspension of credit and financing for deals involving Russia and Russian companies. The Export-Import Bank of the United States (Ex-Im Bank), the official export credit agency of the United States, assists in financing the export of U.S. goods and services to international markets. Ex-Im Bank officials confirmed that as of July 29, the bank would not make any new commitments involving Russia, but also noted that they have not approved any medium- or long-term transactions with Russian companies since February 2014 as a result of the crisis in Ukraine. Bank officials indicated the suspension is due to an “expected increased risk that retaliatory actions and other anticipated events will materially affect reasonable assurance of repayments from legal entities in the Russian Federation.”

European Union

In a joint statement on July 29, European Council President Herman Van Rompuy and European Commission President José Manuel Barroso announced additional EU sanctions against Russia. The statement indicated that the new sanctions would:

  • Limit access to EU capital markets for Russian state-owned financial institutions
  • Impose an embargo on trade in arms
  • Ban exports of dual-use goods for military end users
  • Restrict Russian access to “sensitive technologies,” particularly those related to the oil sector

As further details become available regarding the EU sanctions, we will report in a subsequent bulletin.

FOR MORE INFORMATION

We will continue to monitor the situation and report on any further regulations issued by OFAC and any other activity related to sanctions involving Ukraine and Russia. For more information, please contact:

James A. Losey
Partner, International Trade & Customs
202.263.4135
James.Losey@ThompsonHine.com

Brent Connor
Senior Counsel, International Trade & Customs
202.263.4188
Brent.Connor@ThompsonHine.com

Samir D. Varma
Associate, International Trade & Customs
202.263.4136
Samir.Varma@ThompsonHine.com

Scott E. Diamond
International Trade Specialist, International Trade & Customs
202.263.4197
Scott.Diamond@ThompsonHine.com

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