|May 22, 2014|
Previously published on May 7, 2014
As the events in Ukraine and Russia continue to unfold, the reaction by the US and the EU, including imposing sanctions, will impact individuals, businesses, and entire sectors.
As a polycentric firm, with no headquarters, no dominant culture and no flag, and with partners throughout the world, including Russia, Ukraine and Central and Eastern Europe, Dentons is particularly well positioned to explain the nuances that surround every facet of these complicated developments to our clients.
This client update contains an analysis of the policy issues arising from the current situation in Ukraine.
We try to present the facts as they are known, and the potential ramifications of what might happen, without taking a position that could be perceived as political in any way. We believe this is the best way to serve our clients.
On April 28, 2014, the United States and the EU each imposed an expanded range of sanctions targeting Russian and Ukrainian individuals and entities in connection with the on-going events in Ukraine. The sanctions impose asset freezes and visa bans, and prohibit the issuance of certain export licenses.
Key aspects of the evolving sanctions landscape
- The US has established a wide-ranging set of Ukraine-related sanctions. Via three Executive Orders, the US established a legal framework for sanctions on a broad array of individuals and entities determined to be contributing to the situation in Ukraine.1 The initial sanctions, which included asset freezes and US visa bans, targeted officials directly involved in Russia’s annexation of Crimea and senior officials of the former Yanukovych administration in Ukraine. The recent sanctions announced April 28 widen the list of individuals to include seven senior government officials and 17 companies closely linked to the previously sanctioned individuals, who are considered members of the inner circles of Russia’s leadership. The April 28 sanctions also restrict the export of certain US-origin items to 13 of those 17 companies and rejects all pending applications and existing US licenses for the export or re-export of technology that could benefit the Russian military.
- The US has not imposed broad sanctions on Russia as a country. Thus far, the US sanctions authorized by the three Executive Orders do not impose a commercial embargo of Russia, nor do they restrict ordinary trade or investment -- unless a prohibited party is involved.
- The European Union imposed targeted sanctions on a total of 48 individuals in connection with the situation in Ukraine. The Council of the European Union, giving force to its Decision 2014/145/CFSP authorizing travel restrictions and the freezing of funds and economic resources of certain individuals believed to have been responsible for actions “which undermine or threaten the territorial integrity, sovereignty and independence of Ukraine“ (“designated individuals”), adopted Council Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine. While Council Regulation (EU) No 269/2014 imposed sanctions on 21 individuals, Council Regulation (EU) No 284/2014 expanded the list of persons by 12, for a total of 33. On April 28, 2014, Council Regulation (EU) No 433/2014 was issued expanding these restrictive measures, to include 15 additional persons.
- The EU list of designated individuals does not include sanctions on legal entities or Russia as a country. The list of the designated individuals has been annexed to the Council Regulation 269/2014, as amended by Council Regulation 284/2014. As with other EU sanctions, this list is limited to individuals or entities that are specifically named, although additional parties can be added as approved by the Council.
- Further steps to de-escalate tensions were agreed upon by the United States, the European Union, Ukraine, and Russia in the April 17, 2014 “Joint Statement on Ukraine." However, what the United States and EU view as the worsening of the security situation in Eastern Ukraine and absence of “concrete actions” by Russia in support of the Joint Statement, gave rise to the April 28 Sanctions announcement. Australia, Canada, Japan and Switzerland have also imposed sanctions.
Given the pace of ongoing political, diplomatic, military and commercial events on the ground, and continuing negotiations between and among the EU, Russia, Ukraine and the US, active monitoring of the sanctions landscape is particularly critical. Additional or enhanced sanctions can be imposed by the US or EU under the authorities currently in use without any further advance notification. These additional sanctions could incorporate actions against entire sectors of the Russian economy as authorized in Executive Order 13662.
New sanctions under Ukraine-related Executive Order (EO 13662)
On April 28, 2014, pursuant to Executive Order 13662, the US Department of the Treasury imposed sanctions on seven Russian government officials, including 2 members of President Putin’s inner circle, as well as 17 companies linked to Putin’s inner circle. In addition, the US Department of Commerce imposed restrictions on 13 of those companies by imposing a license requirement (with presumption of denial) for the export, re-export or other foreign transfer of US-origin items to the companies. The President of the United States also directed the US Department of Commerce and US State Department to deny export license applications for any high technology items that could contribute to Russia’s military capabilities, and to revoke any existing export licenses for high technology items related to such military use.
The April 28 sanctions designations target seven individuals, including two leaders of Russian oil company Rosneft: Mr. Igor Sechin, President and Chairman of the Rosneft Management Board, and Mr. Sergei Chemezov, a member of the Rosneft board of directors and Director General of Rostec, the State Corporation for Promoting Development and Export of Russian Technologies.2
Other named individuals include: Mr. Oleg Belavantsev (Russia’s appointed envoy to Crimea); Mr. Dmitry Kozak (Deputy PM of Russia); Mr. Evgeniy Murov (Director, Federal Protective Service of Russia); Mr. Aleksei Pushkov (Chairman, State Duma Committee of Foreign Affairs); and Mr. Vyacheslav Volodin (President Putin’s First Deputy Chief of Staff).
The 17 companies designated on April 28 include the Volga Group, an investment firm that manages assets of Gennady Timchenko, former co-owner of Gunvor Trading (targeted in the previous round of sanctions on March 20) and several energy-related Volga Group subsidiaries, including Sakatrans, LLC, which operates coal and iron ore terminals in Muchka Bay; TransOil, which ships oil and petroleum products by rail; and the Stroygazmontazh holding company (SGM Group), which includes a gas pipeline construction company.
The expanded sanctions also include three banks: InvestCapitalBank, JSB SobinBank, SMP Bank, and two financial institutions, Abros Investment Company and CJSC Zest (a leasing company), both of which are subsidiaries of the already-sanctioned Rossiya Bank. Also included in these sanctions are two private aviation companies affiliated with Sheremetyevo International Airport, Avia Group and Avia Group Nord, and Aquanika, a mineral water company also owned by Volga Group.
New sanctions under Ukraine-related Council Implementing Regulation (EU) no. 433/2014
Pursuant to Decision 2014/145/CFSP authorizing restrictive measures against “persons, entities and bodies” and in “view of the gravity of the situation” in Ukraine, the Council of Europe adopted on April 28, 2014 Council Regulation (EU) No 433/2014, which named 15 additional persons subject to restrictive measures. The total number of Russian and Ukrainian persons now subject to visa bans and assets freezes is 48.
The April 28 EU sanctions against 15 Russian officials did not name any executives or board members of state-owned Rosneft oil group, as did the US sanctions, issued the same date. EU sanctions have not included restrictions against corporate entities. So far, only natural persons have been named in the three rounds of EU sanctions to date.
Persons named in the most recent EU sanctions include high-level officials in Moscow, Russian officials associated with the integration of annexed Crimea and leaders of pro-Russia militia and protestors who have been occupying state buildings in Eastern Ukraine.
These include General Valery Gerasimov, chief of the Russian general staff in Moscow, and Dmitry Kozakhe, Deputy Prime Minister, who was put in charge of Crimea’s development. Also named was Igor Dmitrievich Sergun, Director of GRU (Main Intelligence Directorate) and Deputy Chief of the General Staff of the Armed Forces of the Russian Federation. He is alleged to be responsible for directing activity of GRU officers in Eastern Ukraine. From Crimea, several persons were named including Sergei Ivanovich Menyailo, acting governor of the Ukrainian annexed city of Sevastopol.
Persons named in these new EU sanctions based on their alleged associations and activities in Eastern Ukraine include (i) Igor Stelkov, identified as Russian military intelligence officer sent to promote unrest in Eastern Ukraine; (ii) Denys Pushylin, a leader of the “Donetsk People’s Republic”, participant in the seizure and occupation of the regional administration authority, and regular spokesperson for the separatists; (iii) Valery Bolotov, leader of the separatist group “Lugansk Guard”, who took part in the seizure of Lugansk Regional Office of Security Service, and also has close ties to the “Army of Southeast”.3
The authorization of US and EU sanctions is one component of an exceptionally complex and fluid legal and political dynamic. Events on the ground are unfolding at a rapid pace, and Russia has already responded by imposing sanctions on nine US individuals.4
Given the potential for rapid changes to the legal landscape without advance notice, active monitoring of the policy landscape is critical to identifying and addressing risk.
- The underpinnings of this legal framework are three Executive Orders issued by the President of the United States: (1) Executive Order 13660, issued on March 6, 2014; (2) Executive Order 13661, issued on March 17, 2014; and (3) Executive Order 13662, issued on March 20, 2014.
- The US Department of the Treasury has issued a letter of clarification that neither Rosneft nor Rostec is designated as a “Specially Designated National” subject to US sanctions pursuant to Executive Order 13661.
- Complete lists of individuals named in the three EU decisions are found at (i) Council Regulation (EU) No 433/2014 of April 28, 2014; (ii) Council Regulation (EU) No 284/2014 of March 21, 2014; and (iii) Council Regulation (EU) No 284/2014 of March 17, 2014.
- See The Ministry of Foreign Affairs of the Russian Federation (English version).