On July 29, 2014, the US Department of the Treasury, Office of Foreign Assets Control ("OFAC") announced it has expanded the list of entities designated on the Sectoral Sanctions Identification ("SSI") List to include three Russian state-owned banks. OFAC also designated one Russian state-owned defense technology entity as a Specially Designated National ("SDN"). Concurrently, the US Department of Commerce, Bureau of Industry and Security ("BIS") announced it will be implementing a policy of denying export, reexport, or foreign transfer of certain items or technologies for use in Russia's energy sector that may be used for exploration or production from deepwater, Arctic offshore, or shale projects that have the potential to produce oil.
Additional sectoral sanctions and designations
Pursuant to Directive 1 of Executive Order 13662,1 OFAC expanded the list of entities designated on the SSI List to include the Bank of Moscow, Russian Agricultural Bank, and VTB Bank. US Persons are prohibited from transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity for entities designated on the SSI List, their property, or their interests in property. These banks join Vnesheconombank, Gazprombank, Novatek, and Rosneft on the SSI List. While OFAC has neither blocked the property or interests in property of these banks, nor prohibited transactions with them beyond these specific restrictions, OFAC has cautioned that the scope of prohibited activities and the number of sanctioned financial institutions may be expanded in its discretion, pursuant to EO 13662.
Additionally, OFAC designated, pursuant to EO 13661, Russian defense technology firm United Shipbuilding Corporation as an SDN. US persons are required to freeze any assets in which United Shipbuilding Corporation has any interest (including direct, indirect, or contingent) that come within their possession or control, and must not engage in any transactions with the company or other SDNs.
Additional BIS export restrictions
Concurrently, BIS announced it will be implementing in the near future a policy of denying export, reexport, or foreign transfer of certain items for use in Russia's energy sector that may be used for exploration or production from deepwater, Arctic offshore, or shale projects that have oil-producing potential. BIS stated that the new restrictions will be designed to limit Russia's ability to develop long-term oil projects but will not target or interfere with the current supply of energy from Russia or prevent Russian companies from selling oil and gas to any country. The exact details of the new policy, including what products and technologies will be impacted, were not announced, but the Administration has stated that it intends to issue a regulation soon providing the specific requirements.
In addition to these energy sector restrictions, BIS announced the addition of OJSC United Shipbuilding Corporation, newly designated by OFAC as an SDN, to the Entity List. Designation on the Entity List imposes a license requirement for the export, reexport, or foreign transfer of items subject to the Export Administration Regulations to OJSC United Shipbuilding Corporation, with a presumption of denial.
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We will continue to monitor developments in Russia and Ukraine closely and issue additional briefings as events warrant.
1 As discussed in a prior client briefing, on July 16, 2014, OFAC imposed the first round of sector-based sanctions on specified persons operating in Russia's financial and energy sectors. The E.O. contained two directives. Directive 1 is aimed at Russian financial institutions and Directive 2 is aimed at Russian energy companies.