White House, European Union Announce Additional Ukraine-Related Sanctions Designations

April 29, 2014

In the Obama Administration’s latest response to the ongoing crisis in Ukraine, the Office of Foreign Assets Control ("OFAC") at the U.S. Department of the Treasury on Monday designated 7 individuals and 17 entities pursuant to Executive Order 13661 "Blocking Property of Additional Persons Contributing the Situation in Ukraine."[1]  In a statement accompanying the new designations, the White House noted that the actions followed Russia’s failure to meet commitments that were made on April 17, 2014 at a meeting in Geneva with the United States and the European Union.[2]   

The designations target certain Russian government officials and entities associated with President Putin’s "inner circle."[3]  Many of the sanctioned entities appear to be controlled either by Bank Rossiya, which was designated on March 16, or by previously sanctioned persons.  Among the sanctioned persons is Igor Sechin, president and chairman of the management board of Rosneft, the Russian state-owned oil company.  Rosneft itself has not been designated.

The Administration also imposed visa bans and, for 13 of the 17 designated entities, a presumption of denial for export license requests.  In particular, the State Department will now deny pending applications for export or re-export of any high technology defense articles or services regulated under the U.S. Munitions List to Russia or occupied Crimea that contribute to Russia’s military capabilities, and will begin revoking existing export licenses meeting these conditions. 

The added sanctioned individuals and entities represent an expansion of efforts to pressure Russia.  It is clear that the Obama Administration has plans that would further expand the scope of the designations.  In the statement accompanying the designations, the White House indicated that it was prepared to sanction entities under Executive Order 13662,[4] which targets key sectors of the Russian economy, including financial services, energy, metals and mining, engineering and defense "[i]f there is further Russian military intervention in Ukraine." 

The European Union (EU) has also issued an additional list of 15 individuals identified as having taken actions that undermine or threaten the territorial integrity, sovereignty and independence of Ukraine.[5]  As with the previous lists of sanctioned persons, released on March 17, 2014,[6] and March 21, 2014,[7] these newly sanctioned individuals are now subject to a travel ban and freeze of their EU assets.  The new list includes Russian Deputy Prime Minister Dmitry Nikolayevich Kozak, a deputy chairman of the Duma, Ludmila Ivanovna Shvetsova, and chief of staff of the Russian military, Valery Vasilevich Gerasimov.  Notably–and unlike the United States–the EU only designated individuals, not companies.  U.S. persons with operations in Europe or who are otherwise subject to EU legal authority should screen for these newly sanctioned individuals and those previously sanctioned by the EU to ensure that they are complying with the EU sanctions that apply to these persons, in addition to screening for individuals designated pursuant to the U.S. Executive Orders.     

In light of the ongoing actions, U.S. companies should prepare a comprehensive response to these developments, including the following actions:

First, ensure that they are in compliance with these new sanctions and have blocked the property of the designated persons and designated entities. 

Second, screen potential business partners to ensure that they are not blocked by virtue of a 50 percent or greater ownership interest by a designated person or entity.[8]

Third, exercise caution in dealings with entities with SDN ownership interest that–while significant–does not render the entity blocked under the 50% rule but leaves it vulnerable to future designation.  The latest round of designations includes entities with a significant ownership interest by a previously designated person or entity.

Fourth, make note of entities with designated persons in key management positions.  While the presence of an SDN in management does not require blocking of the entity, it is unclear what, if any, restrictions exist on interactions with the SDN in the context of, for example, deal-making with the non-sanctioned entity.

Fifth, U.S. companies should develop a strategy to respond in the event of reciprocal Russian sanctions against U.S. businesses.

Finally, U.S. companies must monitor the developments for additional sanctions, particularly in connection with sectors targeted under Executive Order 13662.