New U.S. Sectoral Sanctions on Russian Energy and Finance Sectors and the Prospect of New EU Sanctions
On July 16, 2014, the United States sharply escalated its sanctions on Russia as a result of Russia's alleged continued involvement in Ukraine, imposing, for the first time, sectoral sanctions on two entities in both the energy and finance sectors. Additionally, the United States sanctioned five individuals and 11 companies under its existing blocking authority and the U.S. Department of Commerce added the same 11 entities to the U.S. Entity List. Simultaneously, the European Union also announced the prospect of new sanctions before the end of July.
Exercising its authority under Executive Order 13662 (summarized here) for the first time, the United States created the Sectoral Sanctions Identification List (SSI). The SSI is distinct from OFAC's Specially Designated Nationals List ("SDN" List) and persons identified under the SSI List are not blocked (unless separately designated on the SDN List).
OFAC targeted two sectors of the Russian economy. First, it issued "Directive 1" targeting two companies in the Russian Financial Sector. U.S. persons are prohibited from transacting in, providing financing for, or otherwise dealing in (a) new debt of more than 90 days maturity or (b) new equity of these entities, their property, or their interests in property:
- Bank for Development and Foreign Economic Affairs (Vnesheconombank) State Corporation (a.k.a. Bank Razvitiya I Vneshneekonomicheskoi Deyatelnosti (Vneshekonombank) Gosudarstvennaya Korporatsiya; Vnesheconombank; VEB)
- Gazprombank Gas Industry OFSC (a.k.a. Gazprombank OAO; Gazprombank OJSC; Gazprombank Open Joint Stock Company; Gazprombank Otkrytoe Aktsionernoe Obshchestvo; Gazprombank Otkrytoe Ak; GPB, OAO; GPB, OJSC)
Second, under "Directive 2" OFAC targeted two companies in the Russian Energy Sector. U.S. persons are prohibited from transacting in, providing financing for, or otherwise dealing in new debt of more than 90 days maturity of these entities, their property, or their interests in property:
- Novatek (a.k.a. Finansovo-Investitsionnaya Kompaniya Novafininvest OAO; OAO Novatek)
- Rosneft (a.k.a. OAO Rosneft Oil Company; Oil Company Rosneft; Open Joint-Stock Company Rosneft Oil Company; Rosneft Oil Company; OJSC Rosneft Oil Company)
Importantly, in a set of published Frequently Asked Questions, OFAC clarified that identification on the SSI does not:
- Block property of the SSI companies unless separately identified on the SDN List.
- Prohibit transactions in debt/equity issued prior to July 16, 2014.
- Prohibit transactions in debt with maturities of 90 days or less.
- Prohibit the maintenance of correspondent accounts (unless the transaction is prohibited).
- Prohibit the processing U.S. dollar-clearing transactions.
- Prohibit transactions in new equity in the Russian energy sector.
Further, OFAC granted a license for derivative products whose value is linked to debt of an SSI with maturity of more than 90 days issued after July 16, 2014 (i.e., debt in which transactions would typically be prohibited for U.S. persons) are authorized by General License 1.
Second, acting under its authority under Executive Orders 13660 and 13661 (summarized here and here), OFAC added five new individuals and 11 companies to the SDN List:
- BESEDA, Sergey - Commander of the Fifth Service of the FSB; Commander of the Service for Operational Information and International Communications of the FSB; FSB Colonel General; Colonel-General.
- BORODAI, Aleksandr - The self-declared "prime minister" of the "Donetsk People's Republic" in Ukraine who has vowed to expel Ukraine's army from his new domain and resist any bid to recapture the city (NOTE: Already sanctioned by the EU on July 11).
- NEVEROV, Sergei Ivanovich - Deputy Chairman of the State Duma of the Russian Federation; Member of the State Duma Committee on Housing Policy and Housing and Communal Services (NOTE: Already sanctioned by the EU (Apr. 28) and Canada (May 12)).
- SAVELYEV, Oleg Genrikhovich - Minister for Crimean Affairs (NOTE: Already sanctioned by the EU (Apr. 28), Canada (May 12), and Australia (June 19)).
- SHCHEGOLEV, Igor - Aide to the President of the Russian Federation.
- DONETSK PEOPLE'S REPUBLIC.
- FEDERAL STATE UNITARY ENTERPRISE STATE RESEARCH AND PRODUCTION ENTERPRISE BAZALT.
- FEODOSIYA ENTERPRISE (NOTE: Already sanctioned by Canada on June 21, 2014).
- JOINT STOCK COMPANY CONCERN RADIO-ELECTRONIC TECHNOLOGIES.
- JOINT STOCK COMPANY CONCERN SOZVEZDIE.
- JOINT STOCK COMPANY MILITARY-INDUSTRIAL CORPORATION NPO MASHINOSTROYENIA.
- JOINT-STOCK COMPANY CONCERN ALMAZ-ANTEY.
- KALASHNIKOV CONCERN.
- KONSTRUKTORSKOE BYURO PRIBOROSTROENIYA OTKRYTOE AKTSIONERNOE OBSHCHESTVO.
- LUHANSK PEOPLE'S REPUBLIC.
These persons are blocked under the authorities of Executive Orders 13660 and 13661 and U.S. persons are generally prohibited from conducting transactions or dealings with any of the newly designated entities and/or other entities identified on the SDN list.
Commerce Entity List Additions
Finally, the U.S. Department of Commerce also added the same 11 entities newly designated by OFAC to the U.S. Entity List. These designations effectively prohibit the export or re-export of U.S.-origin goods, services, or technology subject to the Export Administration Regulations (EAR) to these entities by both U.S. and non-U.S. persons.
New EU Sanctions
Also on July 16, the European Council agreed to expand its existing restrictive measures on Russia. The Council did not announce any new designations, but instructed that the "necessary legal instruments" be developed and adopted by the end of July on a "first list of entities and persons" to be designated under the enhanced criteria. The Council also agreed to suspend new financing operations from the European Investment Bank (EIB) as well as to seek to suspend new lending by the European Bank for Reconstruction and Development (EBRD).
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