Effective Tuesday, July 29, 2014, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) announced an expansion of sanctions related to the crisis in Ukraine by designating a Russian shipbuilding company as a “Specially Designated National” (“SDN”) and by adding three Russian banks to the list of entities subject to OFAC’s sectoral sanctions targeting parties operating in certain sectors of the Russian economy. On the same day, the US Commerce Department’s Bureau of Industry and Security (“BIS”) announced the adoption of a policy denying the export, reexport, or in-country transfer of certain items for use in Russia’s energy sector and its intention to add the same Russian shipbuilding company to the Entity List.
1. SDN Designation
Effective July 29, 2014, OFAC announced the addition of United Shipbuilding Corporation, a Russian shipbuilding, repair and maintenance firm, to the US Specially Designated Nationals and Blocked Persons List (“SDN List”) pursuant to Executive Order 13661. “US Persons” are now prohibited from dealing (directly or indirectly) with the property and interests in property of United Shipbuilding Corporation and any entities owned 50% or more by United Shipbuilding Corporation. For purposes of the Ukraine-related sanctions program, “US Persons” include (i) entities organized under US laws and their non-US branches, (ii) individuals or entities in the United States, and (iii) US citizens or permanent resident aliens (“Green Card” holders) wherever located or employed. While non-US Persons, including separately incorporated foreign subsidiaries of US companies, generally are not subject to restrictions under US sanctions targeting Russia, such non-US Persons may nonetheless be subject to US jurisdiction for these purposes if they cause any SDN-related transactions to occur in whole or in part in the United States or anywhere by US Persons.
2. Sectoral Sanctions Designations
Also effective July 29, 2014, OFAC designated Bank of Moscow, Russian Agricultural Bank, and VTB Bank OAO under sanctions targeting Russia’s financial sector pursuant to Directive 1 of Executive Order 13662. These three banks are now included on the Sectoral Sanctions Identifications List (“SSIL”). These banks are not SDNs subject to a property blocking/freeze requirement. Under Directive 1, however, “US Persons” (see definition above) are prohibited, as of July 29, 2014, from transacting in, providing financing for, or otherwise dealing in new debt (e.g., bonds, loans, extensions of credit) of longer than 90 days maturity or new equity in relation to those banks or any entity owned 50% or more by any of those banks. Other than these specific restrictions, US Persons are generally not prohibited from engaging in transactions and dealings with these banks (including dealings in debt or equity issued prior to July 29, 2014) provided such transactions do not involve the property or interests in property of a SDN.
3. Strengthened US Export Controls Targeting Russia’s Energy Sector
In a coordinated statement, BIS announced that it will institute a policy denying the export, reexport, or in-country transfer of certain items that may be used in Russia’s energy sector to explore or produce deepwater, Arctic offshore, or shale projects with the potential to produce oil. BIS clarified that these measures are intended to affect Russia’s ability to develop long-term, technically challenging energy projects but not the current supply of energy from Russia or the sale of oil and gas to any country. BIS has not specified which items would be subject to this policy or whether the policy would capture items (including certain EAR99 items) that are not currently subject to licensing requirements for export to Russia.
4. New Designation on the Entity List
In the same statement, BIS announced that it will add United Shipbuilding Corporation to the Entity List, found in Supplement No. 4 to Part 744 of the Export Administration Regulations (“EAR”). The Entity List includes parties for which there is a heightened BIS licensing requirement for the export, reexport, or in-country transfer, directly or indirectly, by any person of items (i.e., goods, software, and technology) subject to the EAR. Based on prior Entity List designations under US sanctions targeting Russia, the new licensing requirement for United Shipbuilding Corporation is likely to apply to both controlled and non-controlled (i.e., “EAR99”) items with a presumption of denial of the license application.
