EECONOMICCONOMIC SSANCTIONSANCTIONS DDAYAY 22EECONOMICCONOMIC SSANCTIONSANCTIONS‐‐ DDAYAY 22

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RREVIEWEVIEW

IN LIGHT OF WHAT COULD BE DONE, SANCTIONS AGAINSTRUSSIA ARE ACTUALLY QUITE MILDRUSSIA ARE ACTUALLY QUITE MILD

THE US IS THE MAIN CONCERN BECAUSE OF FINANCIALMARKETS AND EXTRATERRITORIAL REACH OF US SANCTIONSMARKETS AND EXTRATERRITORIAL REACH OF US SANCTIONS

IN THE US THE DIFFICULTY LIES IN AUGUST 13 0%REINTERPRETATION OF THE 50% RULE AND THE INTERLINKED

STRUCTURES OF RUSSIAN BUSINESS

ALWAYS THINK ABOUT:Who, Against whom, What

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, g ,+ Why & How to comply

READ ANY EO (13660,13661 OR 13662) AT SECTION 6(C)AT SECTION 6(C).US citizensPermanent residents (green card holders)

WWHOHOEntity organized under US law (for example Delaware registered WWHOHO p gcorporations, where ever headquartered)q )Foreign branchesAny person/entity findable in the USAny person/entity findable in the US unless diplomatic immunity

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SUBSIDIARIES EXEMPT (BUT THIS COULD BE

CHANGED—IRAN SANCTIONS INCLUDE SUBSIDS)

AAGAINSTGAINST WWHOMHOM

PERSONS AND ENTITIES NAMED BY TREASURY DEPARTMENTIN CONJUNCTION WITH STATE DEPARTMENT TO BE (SEEIN CONJUNCTION WITH STATE DEPARTMENT TO BE (SEEAPPROPRIATE ORDER, SECTION 1(A)Responsible for or complicit in . . .related to Ukraine (EO 13660)Officials of RF Govt, or owned or controlled by high officials, or operating in the arms sector (EO 13661)Operate in financial services, energy, metals & mining, engineering and defense (EO 13662) (So far this is only 

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g g ( ) ( yrestriction on long term financing and export controls.) 

AAGAINSTGAINST WWHOMHOM““THETHE DEVILDEVIL ISIS ININ THETHE DETAILSDETAILS””““THETHE DEVILDEVIL ISIS ININ THETHE DETAILSDETAILS””

BEWARE THE 50% RULETHE 50% IS CUMULATIVE

SDN Papa 35% + SDN Mama 20% = blocked child p

THE 50% RESETS TO 100% AT EACH LEVEL OF THESUBSIDIARY RELATIONSHIPSUBSIDIARY RELATIONSHIP

Parent is on SDN list and owns 50% of childTherefore child is blockedChild owns 50% of grandchild

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gGrandchild also blocked

THE KEY IS IN THE LISTS SDN=blocked individuals and companies SSI=Limited financing g

• 30 days debt or equity for banks, • 90 days debt for energy sector

WWHATHATDPL,EL, UVL=exports prevented or licensed

SCOPE OF A SANCTIONWWHATHAT SCOPE OF A SANCTION Specified Prohibited Actions of course+Facilitating (general legal advice needs license)+Facilitating (general legal advice needs license)+Conspiracies Indirect facilitation (US “person” can’t pay a Indirect facilitation (US  person can t pay a foreign company to do what US “person” can’t)

Transactions with “intent” or “effect” of evading

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Transactions with  intent  or  effect  of evading sanctions 

WWHATHAT AAGAINSTGAINST WWHOMHOM NAMEDNAMED . . . O. . . ONN SDN LSDN LISTISTCh ft

April 11

• Chernomorneftegaz• 7 Individuals –Crimean “separatists / officials

• 17 companiesApril 28

• 17 companies• 7  More Individuals

May 20•Magnitsky List‐12 individuals (but technically this was not connected with Ukraine Sanctions)

June 20• 7 Ukrainian “Separatists”

• 8 Arms companies • 4 entities/people fromJuly 16

8 Arms companies           4 entities/people from • 4 government officials       E. Ukraine (13660)

• United Shipbuilding CorporationJuly 29

p g p• Aug 30  Asia Bank (a.k.a Chemeximbank): An Iranian‐owned bank in Russia for Iranian sanctions reasons

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Sept 12• 6 Defense production companies

WWHATHAT AAGAINSTGAINST WWHOMHOM——SSI SSI LLISTSISTS

Directive 1Directive 1Finance SectorFinance Sector

Directive 2Directive 2currently applies to Sberbank VEB

currently applies to energy companies Finance SectorFinance Sector

No financing or other dealings in new debt with maturity over 

Energy Sector  Energy Sector  No financing or other dealings in new debt with maturity over

Sberbank, VEB, VTB, Gasprombank,

Bank of Moscow, Russian Agricultural

gy pGasprom Neft, Novatek, Rosneft, Transneft

90 30 days, and no new equity. 

with maturity over 90 daysBank.

Directive 3Directive 3Defense SectorDefense Sector

Directive 4 Directive 4 Energy SectorEnergy Sector

currently applies to Gazpromcurrently applies Defense SectorDefense Sector

No financing or other dealings in new debt with maturity over 

No exporting or reexportinggoods, services (except financial) or tech for  

deepwater Arctic offshore

Gazprom, Gazprom Neft, Lukoil, Surgutneftegas

y pponly to Rosneft

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30 days deepwater, Arctic offshore or shale projects

g gand Rosneft

WWHATHAT AAGAINSTGAINST WWHOMHOM——SSI SSI LLISTSISTSWWHATHAT EFFECTSEFFECTS ONON FINANCIALFINANCIAL TRANSACTIONSTRANSACTIONSWWHATHAT EFFECTSEFFECTS ONON FINANCIALFINANCIAL TRANSACTIONSTRANSACTIONS

Pre OFAC FAQ 371 Debt includes bonds, loans, extensions of credit loan guarantees letters of creditextensions of credit, loan guarantees, letters of credit, drafts, bankers acceptances, discount notes or bills, or commercial papercommercial paper. Equity includes stocks, share issuances, depositary 

i h id f i l hireceipts, or any other evidence of title or ownership.Includes all financing in support of prohibited new debt or new equity; and any dealing in, including provision of services in support of, such new debt or 

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new equity.

WWHATHAT AAGAINSTGAINST WWHOMHOM——SSI SSI LLISTSISTSWWHATHAT EFFECTSEFFECTS ONON FINANCIALFINANCIAL TRANSACTIONSTRANSACTIONSWWHATHAT EFFECTSEFFECTS ONON FINANCIALFINANCIAL TRANSACTIONSTRANSACTIONS

Clearing operations, correspondent banking OKD li i D i R i ill OKDealing in Depository Receipts still OK

• But does entity use same ISIN for new & old traunches?

OK to advise & confirm LOCs if SSI is beneficiary. (395)OK if SSI continues to draw down on credits issued before the sanction. (FAQ 394)  Renegotiation not OK.Generally OK to continue old contracts with creditGenerally OK to continue old contracts with credit.Transactions in derivatives generally OK (Gen Lic 1(a))OK if h SSI i h l d i d i

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OK if the SSI is the lender to non sanctioned entity

WWHATHAT AAGAINSTGAINST WWHOMHOM——SSI SSI LLISTSISTSWWHATHAT EFFECTSEFFECTS ONON FINANCIALFINANCIAL TRANSACTIONSTRANSACTIONSWWHATHAT EFFECTSEFFECTS ONON FINANCIALFINANCIAL TRANSACTIONSTRANSACTIONS

OK to deal securities of entity with SSI underwriter (405)OK i i i l i iOK to engage in transactions to exit or replace partic. in existing long‐term loan facilities to an SSI (FAQ 407)OK to extend credit to a third party to buy goods from an SSI, even if the term exceeds 90 days. (FAQ 408)OK to extend a series of short‐term loans to an SSI entity that exceed a cumulative period of 90 days as long as no p y grollover.  (FAQ 409)NOT OK to extend payment terms over 90 days to an SSI

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NOT OK to extend payment terms over 90 days to an SSI under purchase agreement, even without interest. (410)

. . . OR IF YOUR FUNDS AREBLOCKED, APPLY FOR A LICENSE A “LICENSE” IS PERMISSION FROM OFAC TO DO A  LICENSE  IS PERMISSION FROM OFAC TO DO

SOMETHING OTHERWISE PROHIBITED. GENERAL LICENSES APPLY TO EVERYONE SPECIFIC

IIFF YOUYOU

GENERAL LICENSES APPLY TO EVERYONE, SPECIFICLICENSES—ONLY TO YOU.

SEE TRADE SANCTIONS REFORM ACT

CANCAN’’TT DODO SEE TRADE SANCTIONS REFORM ACT FORM ON OFAC WEBSITE

HTTP://WWW.TREASURY.GOV/RESOURCE‐WHATWHATYOUYOU

CENTER/SANCTIONS/PAGES/LICENSING.ASPX GET LEGAL ADVICE—YOUYOU

WANTWANT . . .. . . APPLICATIONS SHOULD BE WRITTEN CAREFULLY

AND VERY DETAILED

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NO APPEAL FROM A DENIAL

LICENSE APPLICATION CONTAINSLICENSE APPLICATION CONTAINSFACT STATEMENTFACT STATEMENT

JURISDICTION STATEMENT

POLICY ARGUMENT

SUGGESTED LANGUAGE FORAAPPLYINGPPLYINGFORFOR AA

LICENSEFORFOR AALLICENSEICENSE CAN TAKE 2‐3 MONTHS

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DDENIZENIZBBANKANKONEONE MONTHMONTH STOCKSTOCK PERFORMANCEPERFORMANCE

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WWHATHAT AAGAINSTGAINST WWHOMHOM‐‐EAR ELEAR EL

Entity ListEntity List‐‐All entities on SDN ListAll entities on SDN ListPlus Directive 4 CompaniesPlus Directive 4 Companies Plus 5 Defense Contractors for             Plus 5 Defense Contractors for             

• Gazprom;• Gazpromneft;

all end uses:all end uses:• Almaz‐Antey Air Defense Concern 

Main System Design Bureau;p• Lukoil; • Rosneft; and 

Main System Design Bureau;• Tikhomirov Scientific Research 

Institute of Instrument Design;;• Surgutneftegas.Provided end use could  be 

• Mytishchinski MashinostroitelnyZavod

• Kalinin Machine Plant, JSC; Deepwater/Artic Oil or Shale

, ;• Dolgoprudny Research Production 

Enterprise. 

15Plus any export with military end uses or end users.Plus any export with military end uses or end users.

WWHYHY CCOMPLYOMPLY? ? 

Mens rea knowing or reason to knowMust do reasonable due diligence depending on theMust do reasonable due diligence depending on the circumstances (will discuss later)At absolute minimum you must look at the lists & ownersAt absolute minimum, you must look at the lists & ownersCan’t be intentionally stupid or try to avoid knowledge

Sanctions are very highSanctions are very high. • Can be up to $250,000 or 2xtransaction, per transactionF Wilf l i l ti i l d t 20 j il ti fFor Wilful violations can include up to 20 years jail time for individuals or $1 million per transaction per entityPer Transaction means each occurrence each item etc

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Per Transaction means each occurrence, each item etc.Can lose export licenses, right to make govt tenders

EU “REU “RESTRICTIVEESTRICTIVE MMEASURESEASURES” T” THEORYHEORYEU  REU  RESTRICTIVEESTRICTIVE MMEASURESEASURES  T THEORYHEORY

SINCE LISBON TREATY, EU HAS BEEN MOST ACTIVE

“WHO YA GONNA CALL?” PROBLEM WHO YA GONNA CALL?  PROBLEMIMPLEMENTATION LEFT TO MEMBER STATES

Varying penalties and varying legal detailsNo financing assistance from EUgVarying abilities and political willVarying speeds of implementationVarying speeds of implementation

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SSTEPTEP BBACKACK TOTO AA LLITTLEITTLE BBASICASIC EU LEU LAWAWEU IS GOVERNED BY THE EUROPEAN COUNCIL, THECOUNCIL OF MINISTERS, THE COMMISSION AND THEPARLIAMENT. Don’t be confused:

• European Council—heads of state or government of all member states (highest body of EU)(highest body of EU)

• The Council of Ministers (generally just called the Council)—ministers of all the member states.

– People vary depending on the issues being discussed• Council of Europe—a quasi separate, human rights body.

The Commission—executive branch‐initiates and enforces laws. (President is Jose Barroso)The Parliament—the legislative branch

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EU REU RESTRICTIVEESTRICTIVE MMEASURESEASURES TTHEORYHEORY CONTCONT

TREATY OF ROME ORIGINALLY KEPT FOREIGN AND SECURITY

EU REU RESTRICTIVEESTRICTIVE MMEASURESEASURES TTHEORYHEORY CONTCONT.. TREATY OF ROME ORIGINALLY KEPT FOREIGN AND SECURITY

POLICY FOR THE MEMBER STATES. 1992 M T C 1992 MAASTRICHT TREATY STARTED IDEA OF COMMON

FOREIGN & SECURITY POLICY (CFSP) 1999 AMSTERDAM TREATY APPOINTED A HIGHREPRESENTATIVE FOR FOREIGN & SECURITY POLICY (“HR CFSP”) HELD BY JAVIER SOLANO UNTIL 2009

2009 LISBON TREATY‐QUAL. QUALIFIED MAJORITY VOTING ONSOME ISSUES + HR CFSP GIVEN MORE POWER, NOW CHAIRSTHE COUNCIL & SITS AS VP OF COMMISSION.Post held by Catherine Ashton.

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EU REU RESTRICTIVEESTRICTIVE MMEASURESEASURES TTHEORYHEORY CONTCONTUNDER JOSE SOLANO, 1999 WAS 1ST TIME EU THOUGHTEU REU RESTRICTIVEESTRICTIVE MMEASURESEASURES TTHEORYHEORY CONTCONT..

SERIOUSLY ABOUT CFSP AND POWER TO SANCTION.2004‐Basic Principles on the Use of Restrictive Measures 10198/1/042005‐2009 Council of the European Union, Guidelines2005 2009 Council of the European Union, Guidelines on Implementation and Evaluation of Restrictive Measures (Sanctions) in the Framework of the EUMeasures (Sanctions) in the Framework of the EU Common Foreign and Security Policy, 16967/09 PESC 1656 FIN 551 (Dec. 15, 2009).1656 FIN 551 (Dec. 15, 2009).2004‐2008 Restrictive Measures‐‐Update of the EU Best Practices for the Effective Implementation ofBest Practices for the Effective Implementation of Restrictive Measures, 8666/1/08 (Apr. 24, 2008) 20

TTWOWO KKEYEY BBACKGROUNDACKGROUND DDOCUMENTSOCUMENTSTTWOWO KKEYEY BBACKGROUNDACKGROUND DDOCUMENTSOCUMENTS

THE GUIDELINES 16967/09 d lAimed at EU regulatorsTHE BEST PRACTICES 8666/1/08THE BEST PRACTICES 8666/1/08Aimed at member statesAimed at member states

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GGUIDELINESUIDELINESGGUIDELINESUIDELINESPURPOSE TO CHANGE POLICY—NOT ECONOMIC MOTIVES

SHOULD BE DIRECTED AT PEOPLE WHOSE POLICIES/ACTIONSCAUSEDCAUSED

MUST COMPLY WITH HR, ECHR & STATE CONSTITUTIONS.Right to go to the European Court of Justice. 

MUST SET OUT CLEAR CRITERIAMUST SET OUT CLEAR CRITERIA

IF TARGETING FAMILY, SHOULDN’T TARGET CHILDREN

SHOULD HAVE HUMANITARIAN NEED EXEMPTIONS.DECISION EXPIRATION SHOULD TRIGGER RECONSIDERATIONDECISION EXPIRATION SHOULD TRIGGER RECONSIDERATION

Regulations should continue until repealed  22

GGUIDELINESUIDELINESGGUIDELINESUIDELINESSETS OUT DEFINITIONS THAT APPLY TO ALL RESTRICTIVE

MEASURES:  technical assistance,technical assistance, funds, f i f f dfreezing of funds, economic resources, freezing of economic resources, dual use goods.dual use goods.

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EEUROPEANUROPEAN UUNIONNION BBESTEST PPRACTICESRACTICESEEUROPEANUROPEAN UUNIONNION BBESTEST PPRACTICESRACTICESWHAT TO DO IN CASES OF MISTAKEN IDENTITY

WHEN DE‐LISTING IS APPROPRIATE

STATES MUST IMPLEMENT PROMPTLYSTATES MUST IMPLEMENT PROMPTLY

FREEZING TRUMP ALL PREEXISTING CONTRACTS

SANCTIONS SHOULD TARGET ASSETS “BELONGING TO ORCONTROLLED BY” DESIGNATED PERSONCONTROLLED BY  DESIGNATED PERSON

Explains what “economic resources belonging to or t ll d b ”controlled by” means

DISCUSSES HOW TO CONSIDER EXEMPTION REQUESTS

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HOW EU SHOW EU SANCTIONSANCTIONS AREARE PPASSEDASSEDHOW EU SHOW EU SANCTIONSANCTIONS AREARE PPASSEDASSEDHIGH REP FOR CFSP PROPOSES TO COUNCILHIGH REP FOR CFSP PROPOSES TO COUNCILCOUNCIL “DECISION” (UNANIMOUS)Binding legislation that can apply to individuals or to member states.Decision sets forth basic provisions and usually contains a sunset date.Can be recognized by CFSP in the citation

COUNCIL DECISION IS FOLLOWED CLOSELY AFTER BYCOUNCIL DECISION IS FOLLOWED CLOSELY AFTER BYCOUNCIL REGULATION THAT IMPLEMENTS THE DECISION

Usually has no sunset, needs to be repealed.25

HOW EU SHOW EU SANCTIONSANCTIONS EENDNDHOW EU SHOW EU SANCTIONSANCTIONS EENDNDTHEORETICALLY: DECISION CAN EXPIRE ON DATETHEORETICALLY: DECISION CAN EXPIRE ON DATE

MENTIONED AND THEN REGULATIONS MUST BEREPEALEDREPEALED

But realistically this might not happen because the C il i h d i h l l i i hCouncil is charged with regularly reviewing them

SCHOLARS DIFFER ON WHETHER THEY WILL HAVE TO BEUNANIMOUSLY VOTED ON TO END‐‐PROBABLYRegs can be amended with qualified majority voteRegs can be amended with qualified majority vote But in RF case this doesn’t include removing targets.

BUT ANYWAY STATES CAN PASS A QUALIFIED ABSTENTION26

Sanctions ChronologySanctions ChronologyUnited StatesUnited States •• European UnionEuropean Union March 6 E.O. 13660 March 16 E O 13661

pp March 17 Council Decision 

2014/145/CFSP  & Reg. 269/2014 March 16 E.O. 13661 March 20 E.O. 13662 (SSI) April 28 (7 officials 17 co’s )

3/21, 4/28, 5/28‐ adds people June 23 D 386 , CR 692‐ Cr. goods

April 28 (7 officials, 17 co s.) May 8, 31 CFR 589 July 16 Directives 1 & 2 SSI List

July 29 Joint US/EU Ann’cem’t July 30‐31 

July 16 Directives 1 & 2, SSI List July 29 Joint US/EU Ann’cem’t Aug 13 OFAC Guidance (50%)

Annex I to CR 428/2009 (dual use) CR 833/2014 (finance sanctions) Annex 2 to CR 833/2014 (shale etc) Aug 13‐OFAC Guidance (50%)

Sept 12 Amend Directive 1Directives 3 and 4

Annex 2 to CR 833/2014 (shale etc) CR 825/2014 (Crimea investment)

CR 826/2014 (more officials)Directives 3 and 4General License 1(a)

S t 17 A d EAR 744 21

/ ( ) Sept 8 Decision 2014/658‐9/CFSP 

&CR 959‐961/2014, & Amendmt

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Sept 17 Amend EAR 744.21 to CR 428/2009 Coming Soon‐‐Guidance

SSIMPLIFICATIONIMPLIFICATIONSSIMPLIFICATIONIMPLIFICATION

DECISION 145 AND REG 269 AND AMENDMENTSDECISION 145 AND REG 269 AND AMENDMENTSTHERETO —ASSET FREEZES AND TRAVEL BANS (SDN 

)LIST EQUIVALENT)Not actual ban on doing business but ban on gproviding any funds and economic resources benefitting directly or indirectly to.g y yDirectly or indirectly benefitting a target is presumed ifpresumed if

• Asset More than 50% owned (note difference from US)• Asset controlled by targetAsset controlled by target

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SSIMPLIFICATIONIMPLIFICATION 22SSIMPLIFICATIONIMPLIFICATION 22SECTORAL SANCTIONS (SSI LIST EQUIVALENT) INDECISION 2014/512 & REG 833/2014.  IN SEPT.  EXPANDED BY DECISION 2014/659 & REG 960/2014. / /Prohibit EU citizens and EU‐incorporated companies from dealing in bonds and other securitized debt andfrom dealing in bonds and other securitized debt and money‐market instruments with maturity over 30 days issued by named finance institutions anddays issued by  named finance institutions and companies in energy and defense sectors.Includes Investment Services!Includes Investment Services!And now also prohibits loans over 30 days in finance 

(b d ’ l d di li idisector  (but doesn’t apply to trade credits or liquidity crises for EU company subsidiaries of RF targets) 29

THE SAME SECTORAL SANCTIONS REGS (DECISION2014/512 & REG 833/2014, DECISION 2014/659 & REG 960/2014) ALSO PROHIBIT. / )Export of (listed in Reg 833) oil related technologiesE t f il l t d iExport of oil related services.

To ANY person or company in Russia or elsewhere but for use in RussiaException for “binding authorization” (ie license)Exception for  binding authorization  (ie license)Presumption of denial for artic, deep water or shale 

NO EXPORT OF ITEMS WITH MILITARY END USE OR USER

NO DUAL USE EXPORTS TO 9 ENTITIES LISTED IN REG 960O U US O S O 9 S S G 960Dual use exports listed in Annex 1 to Reg 428/200930

SSIMPLIFICATIONIMPLIFICATION 33CRIMEA & SEVASTOPOL INVESTMENT SANCTIONS DECISION386 AND REGULATIONS 692/2014 AND 825/2014386 AND REGULATIONS 692/2014 AND 825/2014Basically a boycott on EU investment and exports to Crimea, covering 

• import into EU of goods originating in Crimea or Sevastopol; – providing, directly or indirectly, financing or financial assistance, insurance or reinsurance related to the import of such goods 

• Export of goods from EU equipment and tech for• Export of goods from EU equipment and tech for– infrastructure projects in the transport, telecommunications, and energy sectors gy

– exploitation of oil, gas, and minerals  

• Investment  in or providing financing for the same

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TTOO SSUMUM UUPPTTOO SSUMUM UUPPEU SANCTIONS DO EVERYTHING THE US ONES DO, Asset freezesTargeted sanctions on long term capital for namedTargeted sanctions on long term capital for named banks and entitiesE t t lExport controls

PLUS MORE—TRAVEL BANS

FAIRLY THOROUGH BAN ON DOING BUSINESS WITHCRIMEACRIMEA

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Some US EU DifferencesSome US EU DifferencesffffUnited States Lists differ—Sanctions more

European Union Sanctions more government Lists differ Sanctions more 

businessmen & businesses, and different goods

Sanctions more government officials and military

Certain individuals in Crimea 50% rule differs—

Entire Crimea is prohibited in possession of over 50% or 

owns directly or indirectly.   50% not OK

pin position to exercise dominant influence

Scope of SDN differs‐‐Must have a license to collect on such contracts although it’s

Allow collection from SDNs of payments on contracts t d i t d f dsuch contracts, although it s 

likely to be granted Sunset—under NEA –one

entered into and performed before sanctions

Sunset as stated in each Sunset under NEA  one  year unless continued by Pres

Sunset as stated in each Council Decision 

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PPLUSLUSPPLUSLUSEU HAS HUMAN RIGHTS PROTECTIONS

EU HAS MORE EXCEPTIONS.INDIRECT BENEFIT PRESUMPTION REVERSES THE BURDENINDIRECT BENEFIT PRESUMPTION REVERSES THE BURDEN

OF PROOF.EU FACILITATING OR CIRCUMVENTION –MENS REA IS“INTENT”INTENT

FINANCING BAN SPECIFICALLY INCLUDES REINSURANCE.STATES CAN ADD THEIR OWN QUIRKS

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The EndThe End

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