On February 18, 2019, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), pursuant to Executive Order 13850 (“EO 13850”), designated Rosneft Trading S.A., the Swiss-incorporated, Russian-controlled oil brokerage firm, as a Specially Designated National (“SDN”) for operating in the oil sector of the Venezuelan economy. OFAC also designated the President and Chairman of Rosneft Trading S.A., Didier Casimiro, as an SDN for purporting to act for or on behalf of, directly or indirectly, Rosneft Trading S.A. According to the US Department of the Treasury’s press release, the designations of Rosneft Trading S.A. and Mr. Casimiro are to “prevent the looting of Venezuela’s oil assets by the corrupt Maduro regime.”
Concurrent with the designations, OFAC issued General License No. 36 (“GL 36”), authorizing, through May 19, 2020, transactions ordinarily incident and necessary to the wind down of transactions involving Rosneft Trading S.A. or any entity in which Rosneft Trading S.A. owns, directly or indirectly, a 50% or greater interest. OFAC also issued two new related FAQs (FAQ 817 and FAQ 818).
Separate from the SDN designations, both Rosneft Trading S.A. and its parent company, Open Joint-Stock Company Rosneft Oil Company (“Rosneft”), have been subject to sectoral sanctions under Directives 2 and 4 to Executive Order 13662 (“EO 13662”) since July 2014. Mr. Casimiro is identified on the Rosneft website as its Vice President for Refining, Petrochemical, Commerce, and Logistics.
Implications of the Designations
US Persons (e.g., entities organized under the laws of a US jurisdiction and their non-US branches, individuals or entities in the United States, and US citizens or permanent resident aliens wherever located or employed) are prohibited from engaging in any dealings with Rosneft Trading S.A. and Mr. Casimiro, and any entities in which Rosneft Trading S.A. or Mr. Casimiro owns, directly or indirectly, a 50% or greater interest. GL 36 provides a 90-day authorization for certain wind down activities involving Rosneft Trading S.A., but does not cover wind down activities with Mr. Casimiro. Non-US persons may also trigger US sanctions prohibitions if they cause any SDN-related transactions to occur in whole or in part in the United States or elsewhere by US Persons and can themselves be designated as SDNs if they are determined to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to, or in support of, Rosneft Trading S.A. (following the expiration of GL 36) or Mr. Casimiro.
Because Rosneft Trading S.A.is also subject to sectoral sanctions under Directives 2 and 4 to EO 13662, all US Persons who are winding down transactions with Rosneft Trading S.A. should ensure their activities comply with Directives 2 and 4 because GL 36 only authorizes certain activities necessary to the wind down of transactions prohibited by EO 13850, and not by EO 13662. Further information on the restrictions under Directives 2 and 4 can be found in our prior blogs here and here.
FAQ 817 clarifies that Rosneft Trading S.A.’s designation does not prohibit US Persons from continuing to do business with its parent company, Rosneft Oil Company, provided the dealings do not involve any blocked persons, including Rosneft Trading S.A. and Mr. Casimiro, or any other activities prohibited under other sanctions authorities. This may not be a straightforward analysis depending on the facts, especially in light of OFAC’s past enforcement action in relation to dealings involving its SDN CEO and Chairman, Igor Sechin, on behalf of Rosneft.
By way of reminder, Rosneft and Rosneft Trading S.A. have been listed on the US Department of Commerce Bureau of Industry and Security’s Entity List since September 2014 and September 2015, respectively, which means any exports, reexports, or in-country transfers of items subject to the Export Administration Regulations to these Rosneft entities are subject to licensing requirements where the exporter (i) knows that the items will be used for targeted end-uses (i.e., deepwater, Arctic offshore, or shale projects) or (ii) is unable to determine whether the items will be used for such end-uses. Further information on Entity List licensing requirements can be found in our prior blog posts here and here.