U.S. Expands Ukraine-Related Sanctions to Russian Financial, Energy & Defense Technology Firms

International Trade & Customs Update

Date: July 24, 2014

On July 16, 2014, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) expanded its Ukraine-related sanctions to include entities in Russia’s financial services, energy and defense sectors, and added more entities and individuals to its list of Specially Designated Nationals (SDNs).

The United States first issued sanctions in March 2014 when Russia annexed the Crimean region of Ukraine. Additional sanctions have been issued on several occasions since then. See Thompson Hine updates issued earlier this year on March 6, March 18, March 21 and May 2. Now, under the authority granted by Executive Orders 13660 (issued March 6, 2014), 13661 (issued March 17, 2014) and 13662 (issued March 20, 2014), OFAC has for the first time imposed sectoral sanctions affecting two Russian financial institutions and two Russian energy firms. Further, OFAC has designated eight Russian arms/defense technology firms and additional entities and individuals as SDNs subject to the Ukraine-related sanctions.

Sanctions on Russian Financial & Energy Entities

For the first time since U.S. sanctions were implemented in response to the crisis in Ukraine, OFAC has placed specific Russian entities on the Sectoral Sanctions Identification (SSI) List:

  • Gazprombank OAO – A Russian financial institution that provides financial services to companies in Russia’s energy industry.
  • VEB – A Russian state-owned financial institution, and the legal successor to Vnesheconombank, which acts as a development bank and payment agent for the Russian government.
  • OAO Novatek – Russia’s largest independent natural gas producer.
  • Rosneft – Russia’s largest petroleum company and third largest gas producer.

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

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. These entities will be denied critical access to medium- and long-term U.S. sources of financing as a result of the SSI sanctions imposed. OFAC has not blocked the property or interests in property of these entities, nor placed them on the SDN List.

Entities & Individuals Added to SDN List

In addition to imposing sectoral sanctions, OFAC added 16 Ukrainian/Russian entities and persons to the SDN List:

  • Aleksandr Borodai – Self-declared “prime minister” of the DPR.
  • Almaz-Antey Corp. –Manufacturer of surface-to-air missile systems.
  • Donetsk People’s Republic (DPR) –Self-proclaimed governmental authority over a region of Ukraine without the authorization of the Government of Ukraine.
  • Federal State Unitary Enterprise State Research and Production Enterprise Bazalt (Bazalt) – Designs and constructs air-launched ordnance, rocket-propelled grenades and armored fighting vehicle ammunition.
  • Feodosiya Enterprise – Operates a major shipping facility on the Crimean peninsula for oil imports and exports.
  • Igor Shchegolev – Aide to the president of the Russian Federation.
  • JSC Concern Sozvezdie – Develops and produces high-tech control and communication systems, radio electronic warfare and special equipment for military forces.
  • JSC MIC NPO Mashinostroyenia – Rocketry company involved with cruise missile complexes capable of surface, underwater and ground platform-based launches.
  • Kalashnikov Concern – Producer of military weapons, including multiple grades and versions of assault rifles, grenade launchers, sniper rifles, military shotguns and aircraft cannons.
  • KBP Instrument Design Bureau – Research and production center that creates precision-guided weapons.
  • Luhansk People’s Republic (LPR) –Self-proclaimed governmental authority claiming control over a region of Ukraine without the authorization of the Government of Ukraine.
  • Oleg Savelyev – Russia’s Minister for Crimean Affairs.
  • Radio-Electronic Technologies – Designs and produces electronic warfare equipment.
  • Sergei Neverov – Deputy Chairman of the State Duma of the Russian Federation.
  • Sergey Besesda – Head of Russia’s Federal Security Service Fifth Service, also known as the Service for Operational Information and International Communications.
  • UralVagonZavod – Russian government-owned company that builds a variety of military equipment, including tanks.

As SDNs, the assets of these entities and individuals are blocked; any assets within U.S. jurisdiction must be frozen. In addition, transactions by U.S. persons involving these entities, individuals or their assets generally are prohibited.

Increased Restrictions on Exports to Russia

In addition to the above actions by OFAC, the Department of Commerce’s Bureau of Industry & Security (BIS) announced on July 16, 2014 the addition of 11 of the same Russian arms and defense technology companies to its Entity List, including Donetsk People’s Republic, Feodosia Enterprise, JSC Concern Radio-Electronic Technologies, JSC Concern Sozvezdie, JSCC Almaz-Antey, Kalashnikov Concern, KBP Instrument Design Bureau, Luhansk People’s Republic, MIC NOP Mashinostroyenia, Research and Production Corporation (UralVagonZavod), and State Research and Production Enterprise (Bazalt).

Placement on BIS’s Entity List imposes a license requirement for the export, re-export or foreign transfer of items subject to the Export Administration Regulations (EAR) to the designated entities, with a presumption that BIS will deny approval of a license request.

FOR MORE INFORMATION

Thompson Hine will continue to monitor the situation and report on any further regulations issued by OFAC and any other activity on 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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