U.S. Sanctions on Russia: Overview and
Compliance Guidance
Momentum Webinar
May 8, 2014
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Agenda
Regulatory Overview
Ukraine-Related Restrictions
Lessons from Other Sanctions Programs
Questions
Regulatory
Overview
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Sanctions – The Basics
• Comprehensive
What • Selective
• Programmatic
Who
How
• Office of Foreign Assets Control (OFAC)
• Specific sanctions regulations codified in 31
C.F.R. Chapter V
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Sanctions – KEY POINTS
U.S. persons wherever located, U.S.
companies, any national while in the U.S
SDNs
50% Ownership by SDNs
Exports of Services / Facilitation
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Magnitsky Sanctions
Targets persons involved in human rights
violations in Russia
Authorities connected to corruption-related
concerns
18 individuals designated in April 2013
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Military and Security Exports
• Exports of items or technical data
What designed or modified for military use
Who
• Department of State, Directorate of
Defense Trade Controls (DDTC)
How
• International Traffic in Arms Regulations
(ITAR)
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Dual Use / Commercial Exports
What
Who
How
• Exports of nearly all U.S.-origin items and
related technology not designed for military use
• Bureau of Industry and Security (BIS)
• Export Administration Regulations (EAR)
Ukraine-Related
Restrictions
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Recent Developments in Ukraine
Nov. 2013
• Under threat of economic penalties from Russia,
Ukraine breaks off plans to sign partnership
agreement with EU
Nov. 2013Feb. 2014
• Large-scale protests in Ukraine, President
Yanukovych seeks refuge in Russia, Russia enters
Crimea
March 2014
• Continued Russian occupation of Crimea, U.S.
(and allies) impose sanctions
Sanctions - Executive Orders
 3 Executive Orders issued in March authorizing
economic sanctions against Russia
– Not geared toward entire Russian economy, but
– Broader scope with each successive EO
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Executive Order 13660
 Issued on March 6, 2014
 Allows for designations of individuals involved in
or related to:
– Threatening security, democratic processes, of
Ukraine
– Misappropriation of Ukrainian assets
– Unauthorized assertion of government authority
– Material support for any of the above
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Executive Order 13661
 Issued March 16, 2014
 Allows for designations of:
– Russian Federation government officials;
– Persons operating in Russia’s arms industry;
– Persons owned or controlled by a senior official of the
Russian government;
– Persons providing material assistance to senior
Russian government officials or blocked parties.
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Executive Order 13662
 Issued March 20, 2014
 Allows for designations of:
– Parties operating in sectors of the Russian economy
“as may be determined” by Treasury and State
• “Such as” financial services, energy, metals and mining,
engineering, and defense and related materiel.
– Entities owned or controlled by persons blocked in the
EO, or
– Persons providing support to those blocked.
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Sanctions Designations
 March 20, 2014
– 1 bank (Bank Rossiya)
– 20 individuals (Russian government officials, others)
 April 11, 2014
– 7 high-profile Crimean separatists
– Chernomorneftegaz gas firm, Crimean branch
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Congressional Action
Support for the Sovereignty, Democracy, and
Economic Stability of Ukraine Act of 2014
 Requires sanctions – with available waiver - related to:
–
–
–
–
Human rights abuses in Ukraine;
Undermining the peace or sovereignty of Ukraine;
Acts of corruption in Ukraine; or
Providing material assistance for the above.
 Other sanctions encouraged
 Allows for aid to Ukraine
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Export Restrictions
 Department of Commerce (BIS):
– Announced (on March 26) that, since March 1, 2014
and until further notice, it had not issued and will not
issue licenses for exports or re-exports to Russia.
– Does not affect existing licenses, but
– Affects all exports to Russia requiring licenses, not just
those to targeted individuals
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Export Restrictions (cont.)
 Department of State (DDTC):
– March 27: announced that, until further notice, it will not
issue any authorizations for exports of defense articles
or services to Russia.
– Does not affect existing licenses, but
– Amounts to indefinite, absolute arms embargo on
Russia
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Export Restrictions (cont.)
 State and Commerce Departments Revocations
– Existing export licenses for high technology items that could
contribute to Russia’s military capabilities
– Internal discussions continuing on how revocations will be
announced, and when they will be implemented
– Unclear what items may be in line for revocation
– Not clear if there would be grace period for exporters to comply
– There may not be much guidance – the revocations may just
start happening with little notice
 Commerce Department added 13 parties on the Entity List
– Additional licensing requirement with presumption of denial
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Export Restrictions (cont.)
Additional OFAC Designations on April 28
– 7 individuals, including two in Putin’s “inner circle”
– 17 companies in a wide array of industries, including
financial services
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Summary: Prohibited Transactions
 Transactions with designated persons
– Includes entities 50% or more owned by those
persons, and their subsidiaries
 Transactions involving blocked property
 Transactions routed through designated banks
 Exports of U.S.-origin items that require a license
for Russia
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Summary: Permissible Transactions
 Transactions with persons or entities that are not
designated
 Shipments of items under existing licenses
(maybe)
 Financial transactions routed through Russian
banks other than Bank Rossiya or other
designated banks (for now)
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Lessons from
Other Sanctions
Programs
Sanctions and Foreign Policy
 Sanctions rapidly track political developments
 For example: Libya 2011
– Feb. 22: Qaddafi speech vowing to kill protesters
“house by house”
– Feb. 25: EO blocks assets of virtually entire
government of Libya
– August: Rebels storm Qaddafi’s compound
– September: General License authorizing transactions
with virtually entire government of Libya
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Increasing Jurisdiction
 For example: Iran 2010-Present
– Increase in scope, breadth of sanctions
– Multilateral sanctions
– U.S. restrictions against non-U.S. persons
 Practical effect: forces major non-U.S.
companies, financial institutions to choose
between Iranian, U.S. markets
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Potential Impact of Sanctions
3000
2500
2000
•GDP (in billions)
•Source: IMF World
Economic Outlook Oct.
2013
1500
1000
500
0
Iranian Economy
Russian Economy
Russia Challenges
 Developed economy with close ties to Europe
– Natural gas
– Banking system
– Stock markets
 Ownership restrictions for SDNs may be
significant
– E.g. Hartwall Arena in Helsinki, Finland
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Compliance Steps
 Know your customers
– Designated parties and entities they own / control
– Regular, up-to-date screening
 Know your bank (and that of your customers)
 Know your classifications
– Plan for license requirements
 Follow developments
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Compliance Steps (cont.)
 Inventory exposure to Russia
 Evaluate future business in accordance with
increased risk
 Educate LOBs on effect of sanctions, including
licensing requirements
– Set-offs, insurance, guarantees
 Contingency planning in case of sanctions
– License applications that may need to be filed
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Questions?
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Thank you!
Lorraine Lawlor
Wells Fargo
Lorraine.B.Lawlor@wellsfargo.com
Thad McBride
Sheppard Mullin
tmcbride@smrh.com
Mark Jensen
Sheppard Mullin
mjensen@smrh.com