As of 6 April 2018, 24 Russian individuals and 14 Russian companies have been added to the list of specially designated nationals (SDNs). The newly-listed SDNs include large companies and individuals with significant business interests.
US persons cannot do business with the SDNs or with any entity that is owned 50% or more in aggregate by one or more SDNs. Non-US persons could face sanctions for knowingly facilitating significant transactions for or on behalf of the SDNs or with any entity that is owned 50% or more in aggregate by one or more SDN - a notable extension of the US sanctions regime to overseas persons and businesses.
Companies now listed as SDNs include:
- EN+ Group plc, a UK-listed hydropower and aluminium conglomerate;
- Renova Group, a Russian conglomerate with interests in aluminium, oil, energy and telecoms;
- United Company Rusal plc, a Hong Kong-listed company and the world's second largest aluminium company; and
- Agroholding Kuban, one of Russia's largest agribusinesses.
Individuals with significant business interests listed as SDNs include:
- Andrey Kostin, CEO of VTB Bank;
- Alexey Miller, CEO of Gazprom; and
- Andrey Akimov, CEO of Gazprombank.
General licences (short-term assistance)
OFAC has issued two general licences, allowing the performance of certain categories of transactions which would otherwise be in breach of the sanctions regime.
One licence authorises certain activities necessary to maintain or wind down operations and contracts that were entered into prior to 6 April 2018 with specific corporate SDNs until 5 June 2018. The licence does not permit the exportation of goods from the US, but pre-existing orders by non-US entities and which do not include US content may proceed so long as they come within the parameters of the general licence.
The second licence authorises transactions for the purpose of transferring debt equity and other holdings by a non-US person to another non-US person in EN+ Group plc, GAZ Group and United Company RUSAL plc.
Any business activity in relation to Russia or Ukraine should also consider:
EU asset freezes
The EU sanctions prohibit any EU company or person, and any overseas company or person while in the EU, from making any funds, or economic resources from which funds could be generated (for example, hardware and technology) available to or for the benefit of the persons listed in the EU sanctions target list.
EU and US sectoral sanctions
- targeted investment bans;
- restrictions on providing, servicing and financing certain oil exploration and production related equipment and services;
- restrictions on providing, servicing and financing dual use goods and technology for specified uses and to particular end users; and
- an arms embargo.
Crimea and Sevastopol restrictions
In addition to the sanctions against Russia, the US and EU have broad embargos in place in relation to business with or in Crimea.
Given that it is a criminal offence to breach the sanctions, legal advice should be taken if a company has any doubt over whether or not a transaction is caught by the sanctions.
We recommend the following compliance steps:
- customer and transactional due diligence and screening against applicable financial sanctions target lists, including EU, US and UK sanctions lists. It is important to remember that the US sanctions apply to entities that are owned 50% or more by one or more SDNs, and EU sanctions apply where a sanctions target derives a financial benefit from a transaction. Due diligence on ownership structures is therefore advisable;
- assessing if equipment and products are on export control lists and ensuring that all necessary licences to export are obtained. In addition to the export controls applicable to the country of export, there is a need to be mindful of US re-export laws when dealing with US-origin content and technology;
- putting in place contractual controls and end-user undertakings – for example, if a business supplies a Russian distributor it would be prudent to obtain a contractual commitment that the distributor will not supply a target of US or EU sanctions;
- training for commercial, legal and compliance teams on the application of sanctions and expert controls.
Tom Stocker is a corporate crime and contentious regulatory expert at Pinsent Masons, the law firm behind Out-Law.com. Chris Richardson is head of forensic accounting services at Pinsent Masons.