• Sanctions against Russia: US Ups the Game Whilst the EU Limits its Sanctions to Further Individuals
  • May 8, 2014
  • Law Firm: Dentons Canada LLP - Toronto Office
  • 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.

    The story so far...
    Since our last Client Alert, tensions over Russia's stance on Eastern Ukraine have steadily worsened, culminating with the imposition of further sanctions against Russian individuals and companies.

    The sanctions imposed by the US and EU had previously targeted individuals who were senior in the previous Ukrainian regime and those politicians and senior military personnel regarded as being close to the Russian President or otherwise involved in the annexation of Crimea and the on-going unrest in Ukraine. The sanctions had been limited to asset freezes and travel/visa bans on the listed or "designated" persons. The US also added Bank Rossiya to its sanctions list, on the grounds that it is the personal bank for senior officials of the Russian Federation.

    The approach so far has therefore been to impose list-based sanctions rather than more far-reaching economic sanctions that are sector or country based. From the perspective of the EU, both political and particularly economic considerations have precluded agreement between the Member States on more far-reaching sanctions which could lead to adverse trade implications or impact the supply of energy resources.

    Nevertheless, the impact for those within the EU and US who must comply with the sanctions cannot be underestimated. In particular, for financial institutions, fund managers and brokers who often deal with off-shore entities, it may be difficult to establish ultimate beneficial ownership. In addition, the territorial reach extends beyond the EU and US. For example, UK and US citizens and companies must comply wherever they may be, as well as any person or institution based in a UK overseas territory.

    US latest developments
    On 28 April
    , the US expanded its sanctions to include 7 additional Russian Government officials, including 2 linked to President Putin's "inner circle", and 17 companies, including (in the Banking sector) Abros, Investscapitalbank, Sobinbank and SMP Bank and (in the energy/natural resources/transport/ construction sectors) Stroytransgaz Group companies, Transoil and Avia Group.

    The officials named include: Igor Sechin, who is President of the state-owned oil company Rosneft; Vyacheslav Volodin, First Deputy Chief Of Staff to the Presidential Administration; and the Deputy Prime Minister, Dmitry Kozak.

    In addition to the visa ban and asset freeze, the US Commerce department has put in place additional restrictions on 13 of the named 17 companies, by imposing a license requirement "with a presumption of denial" for the export, re-export or other foreign transfer of US origin items to those companies.

    The State Department also announced, with immediate effect, that the Department's Directorate of Defense Trade Controls will deny pending export licenses for high-technology goods or services regulated under the US Munitions List to Russia or occupied Crimea which could "contribute to Russia's military capabilities". It will revoke any existing licenses that meet those conditions. All other pending applications and existing licenses will receive a case-by-case evaluation to determine their contribution to Russia's military capabilities.

    EU latest developments
    The EU agreed on 28 April, at a meeting of the 28 Member States, to impose sanctions on a further 15 individuals, who will be subject to the same visa ban and asset freeze as the designated persons previously identified. The list of the additional 15 individuals have been published in the EU's Official Journal and brings the total number of those targeted by EU Sanctions to 48.

    These additional measures, once again only targeting individuals close to the President, fall short of the more extensive additional sanctions imposed by the US. However, leaders of the Member States have agreed to begin preparation for more extensive sanctions which would target Russia's economy as a whole, possibly including the banking system, mining and oil and gas industries.

    The additional list of EU designated persons, which includes Russian Deputy Prime Minister Dmitry Kozak (but, unlike the additional US Sanctions, does not include Igor Sechin) can be found here.

    It is vital that individuals and entities operating in any Member State of the EU have appropriate controls in place to ensure that any dealings with designated persons and (in the case of the US sanctions) companies are immediately flagged and steps are taken to prevent a breach of the EU sanctions (as enacted in each Member State).

    We are continuing to monitor the position and will provide additional bulletins as events develop.