Ukraine Crisis—U.S. UkraineRelated Sanctions
Business in Russia May Be Difficult
September 3, 2014
View the Blog at www.uschinatradewar.com
Introduction
William Perry
Larry Ward
Partner – Seattle
Dorsey & Whitney LLP
(206) 903-8894
perry.william@dorsey.com
Partner – Seattle
Dorsey & Whitney LLP
(206) 903-8817
ward.lawrence@dorsey.com
Bill Perry is a Partner and International Trade
Lawyer in the Seattle office of Dorsey &
Whitney LLP and author of the blog,
www.uschinatradewar.com. He previously
served as an attorney in the Office of General
Counsel, U.S. International Trade Commission,
and the Office of Chief Counsel and Office of
Antidumping Investigations, U.S. Commerce
Department. Since 1991, Mr. Perry has won
more than fifty antidumping and countervailing
duty cases for Russian, Ukrainian, Latvian and
Chinese producers/exporters and U.S.
importers.
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Larry Ward is a Partner in Dorsey’s Seattle
office and a member of the Corporate practice
group. As an international business attorney,
Mr. Ward concentrates his practice on U.S.
national security and international trade
compliance law, including matters related to
U.S. export controls and representation of
clients before the Department of the Treasury
on matters involving the sanctions administered
by the Office of Foreign Assets Control (OFAC).
He has specific experience with the sanctions
regulations regarding Ukraine/Russia and
individuals and entities classified under those
regulations as “Specially Designated Nationals”
(SDNs).
U.S. Ukraine-Related Sanctions
• Great deal of confusion and uncertainty surrounding business
with Russian companies
• Executive Orders 13660, 13661, and 13662 define how U.S.
Government will identify targets of sanctions (e.g., financial
services, energy, metals and mining, engineering, and defense
sectors and government agencies and officials)
• 31 CFR 589 –”Blocking”/“Asset Freezing” sanctions prohibiting
transactions with specific persons and entities
• Sanctions are administered by Treasury—Office of Foreign
Assets Control (“OFAC”)
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U.S. Persons Including Subsidiaries of
Canadian Companies
• U.S. persons are prohibited from conducting transactions, dealings, or
business with Specially Designated Nationals and Blocked Persons
(SDNs). Also must block the property or interest in property of SDNs
that they hold or that is located in the United States.
List can be found at http://sdnsearch.ofac.treas.gov/. See also:
www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx
• When such SDN property is blocked, it must be reported to OFAC
within 10 days, and cannot be dealt in by U.S. persons without prior
authorization from OFAC.
• Includes United Shipbuilding and a number of Russian Banks: Bank
Rossiya, SMP Bank
• Civil penalties of up to $250,000 or 2x transaction value, per violation
(strict liability regime); criminal fine up to $1 million, up to 20 years in
prison, or both
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SSI List
• July 29, 2014 – OFAC issued a new “Sectoral Sanctions
Identification List” (the “SSI List”) that identifies specific Russian
persons and entities covered by these sectoral sanctions.
See: www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx
• U.S. persons are prohibited from engaging in certain
transactions with persons and entities on the SSI List but are
not required to “freeze” or “block” property or interests in
property of such persons and entities as if they were SDNs.
• Specifically U.S. 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 these persons … their property, or their interests in
property. All other transactions with these persons or involving any property in
which one or more of these persons has an interest are permitted, provided such
transactions do not otherwise involve property or interests in property of a person blocked
pursuant to Executive Orders 13660, 13661, or 13662, or any other sanctions programs
implemented by the Office of Foreign Assets Control [i.e., an SDN]”
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50% Rule
• General OFAC policy restrictive measures apply automatically
to any entity owned 50% or more by SDN, even if entity not
specifically named as SDN.
• Even if company is not on SDN/SSI list, company wishing to do
a transaction with a Russian company needs to determine in
writing whether the company is 50% or more owned by any
SDN or controlled by an SDN.
“U.S. persons are advised to act with caution when considering a transaction with a nonblocked entity in which one or more blocked persons has a significant ownership interest
that is less than 50 percent or which one or more blocked persons may control by means
other than a majority ownership interest”
• Such entities may become named SDNs in the future.
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SDN/SSI Lists Not Static (continued)
• SSI and SDN Lists not static but evolving. List will likely expand
based on Russian behavior in Ukraine. Everything could
change overnight.
• Do not rely on a dated list. Keep checking.
www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx
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Export Controls—BIS Commerce
• August 6, 2014 – Commerce Department Bureau of Industry
and Security (BIS) issued new sanctions blocking exports of
certain energy-sector technologies
• Require an export license for items used deepwater, Arctic
offshore, or shale projects to produce oil or gas in Russia
• Items subject to a license denial under the rules include
drilling rigs, horizontal drilling parts, drilling and completion
equipment, and subsea processing equipment
• No savings clause
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Another Twist—Yukos Arbitration Award of
$50 Billion Against Russia
• Massive arbitration award issued on July 18, 2014 by arbitral
tribunal in The Hague under Permanent Court of Arbitration.
• Court unanimously held that the Russian Federation
breached its international obligations under the Energy
Charter Treaty by destroying Yukos Oil Company.
• Court awarded Yukos shareholders $50 billion.
• Massive search for Russian Federation assets to pay off the
award. Able to enforce in any of the 150 countries bound by
the 1958 New York Convention on the Recognition and
Enforcement of Foreign Arbitral Awards.
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