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Review of US sanctions against the Russian Federation


The law firm “Nadmitov, Ivanov & Partners” presents to your attention an overview of US sanctions against Russia, introduced from 2014 to the present.

Overview

In March 2014, the US President announced an emergency situation in the country in connection with the threat posed by the actions of the Russian Federation on the territory of Ukraine. In 2014, the US adopted four Directives that set a number of sanctions against those responsible for actions in Ukraine, against organizations operating in certain sectors of the Russian economy, as well as sanctions on economic relations with the territory of the Crimea. The Directives have been amended several times. The last changes were made in October 2017.

Thus, the sanctions imposed by the United States against Russia are divided into three categories:

  1. Personal sanctions against certain individuals and legal entities;
  2. Sectoral sanctions against companies operating in certain sectors of the economy;
  3. Ban on investment, import and export of goods, technologies and services to Crimea and from Crimea. The United States maintains sanctions lists of individuals and legal entities that are subject to personal and sectoral sanctions. These lists are periodically supplemented. The latest changes to the sanction lists of persons subject to sectoral and personal sanctions were introduced on 26 January 2018.

Personal sanctions

Transactions related to the transfer, payment, export or other transactions with property or property rights of persons on an approved sanctions list, as well as organizations, in which such persons own more than 50% of the shares, are prohibited.

Sectoral sanctions

Citizens and legal entities of the United States are prohibited from entering into certain transactions under the four Directives with companies operating in certain sectors of the Russian economy. Prohibited transactions include transactions on the financing of companies and the provision of loans for a period exceeding the established Directives.

Ban on investment and trade embargo

The following transactions involving Crimea are prohibited:

  1. Investments in Crimea by US citizens, wherever they are;
  2. Import into the United States of any goods, services or technology from the Crimea;
  3. Export, re-export, sale or delivery from the United States or US citizens, regardless of their location, of any goods, services or technologies from the Crimea or to the Crimea;
  4. Any approval, financing, simplification or guarantee by US citizens, regardless of their location, transactions involving foreign nationals, the conclusion of which is prohibited by the United States.

Novels of the US sanctions policy in 2017

On August 2 2017, the US President signed the Law on Sanctions against Russia (HR 3364). The Law affects a wide range of companies operating in the extractive industries and financial services, including the energy sector. Due to the wide nature of the sanctions, they can influence the alleged transactions involving Russian individuals. The main features of the new law are described below.

The existing personal sanctions, that were introduced by the Barack Obama administration at the time of signing the law, are codified and continue to operate. The law prohibits the conclusion of transactions with persons against whom personal sanctions are imposed, without the permission of the US Treasury. Sectoral sanctions at the time of signing the law, affecting the sphere of financial services, energy, the defense sector, as well as the sphere of oil production, have been expanded. The law prohibits financing of companies included in the list of sectoral sanctions, as well as the provision of loans to these companies for a period exceeding the statutory limits.

The law also noted that Russian state-owned companies operating in the railway sector, the metals and mining sectors, can also be penalized. However, on the official website the US Department of the Treasury Department of Foreign Assets Control emphasizes that imposing sanctions on these companies is not a requirement of law, and maintaining contact with partners under sanctions is important for the US government. In this regard, the introduction of sanctions against companies operating in the above sectors, seems unlikely.

A significant novelty of the US sanctions policy was that oil projects related to deepwater exploration and production, exploration and production on the Arctic shelf, as well as slate projects in which a person included in the sanctions list owns a 33% or more stake, also fall under the sanctions. Usually, the US Treasury Department sets a threshold of 50% ownership or more. It should be noted that these are new projects initiated after January 29, 2018. Previously, restrictions applied to some similar projects in Russia or in Russian territorial waters. Now, the location of the project does not affect the applicability of restrictions if a person from the sanctions list has a share exceeding the threshold set by the new law. The Department of Control of Foreign Assets of the US Treasury notes that the restrictions do not apply to the provision of financial services.

The law establishes restrictions on the use of US correspondent accounts by foreign financial organizations that are involved in major transactions in certain activities related to arms and energy, or facilitate the conclusion of such transactions by persons falling under sanctions lists. Previously, such restrictions could be imposed at the discretion of the US authorities, but now these restrictions have become imperative. The law allows to impose sanctions against persons investing in Russian export power pipelines. Such sanctions will not apply to investments and loans made before August 2, 2017. Sanctions are also not applicable to investments and other activities related to the repair and maintenance of pipelines built before August 2, 2017. The State Department also notes that it will try to avoid the occurrence of damage in the energy sphere of US partners and the threat to public health and safety when deciding on the imposition of sanctions. In addition, sanctions can be imposed against persons who consciously enter into “major transactions” with persons operating in the Russian defense and intelligence sector. These sanctions are applicable to transactions concluded after August 2, 2017. The Guide to the Application of Such Sanctions, developed by the State Department, notes that not all actually large transactions will be recognized as such for the purposes of the sanctions policy. The guide also contains a list of relevant Russian companies. However, the inclusion of companies in this list does not automatically imply sanctions against them. The State Department will assess the transactions on various factors, such as the impact of the deal on the national security and foreign policy interests of the United States, the nature and extent of the deal, the extent of the connection of the deal with the Russian defense and intelligence sector.

The law also expanded the circle of persons subject to fines for deliberate conclusion of transactions with Russian persons included in the sanctions list. Now the fine can be imposed on foreign citizens who violate the sanctions regime against Russian people. In addition, the law allows the imposition of sanctions against persons who undermine the US cybersecurity or violate human rights. Sanctions can be imposed against persons who make investments that facilitate the privatization of a state-owned company in Russia, the benefits of which are received by Russian officials. Sanctions can also be imposed on persons who supplied arms to Syria.

“The Kremlin Report”

On January 29, 2018, the Treasury Secretary issued a report listing high-ranking politicians and oligarchs. The list includes 43 persons who are part of the administration of the President of the Russian Federation, 31 persons from the ministerial apparatus of the Government of the Russian Federation, 40 other high-ranking political leaders, and 96 oligarchs whose fortune is estimated at $ 1 billion or more. Unpublished (classified) part of the report may contain a list of persons holding lower positions compared to the listed officials and politicians, as well as those whose state is estimated at less than $ 1 billion. The list of so-called “quasi-state” companies (i.e., having a state share of more than 25% and revenues as of 2016 exceeding $ 2 billion) remains unpublished. The development of the report is a requirement of the US Law on Countering America’s Opponents through Sanctions. As stated in the report itself, it does not in itself constitute a sanctions list, and inclusion in the report of individuals should not be interpreted as imposing sanctions against these persons. Also, inclusion of persons in the report does not mean that these persons are identified as falling under the criteria of any sanctions program, does not entail any restrictions or prohibitions in the interaction of American citizens and companies with these persons.

April sanctions in 2018

On April 6, 2018, the US Treasury imposed the first sanctions on 18 Russian politicians and businessmen, some of whom already appeared in the “Kremlin report”. The new SDN (Specially Designated Nationals) list includes 7 businessmen, 17 officials and 15 companies. Each person is provided with brief information indicating the reasons for inclusion in the sanctions list. Businessmen on the list: the main owner of Rusal Oleg Deripaska, the owner of Renova Viktor Vekselberg, the VTB presidency Andrei Kostin, Gazprom’s predecessor Alexei Miller, the Gazprombank presidency Andrei Akimov, the senator and businessman Suleiman Kerimov, the head of Surgutneftegaz Vladimir Bogdanov. The legal entities were also sanctioned: the Kuban agroholding (included in the Basic Element of Oleg Deripaska), the Basic Element, the Renova group of companies, B-Finance Limited, En +, GAZ, Gazprom drilling, Eurosibenergo, Rosoboronexport, Rusal plc, Gallistica Diamante, Ladoga Management, Russian Machines, Russian Financial Corporation bank and NPV Engineering. Also included in the list are the following Russian officials: Interior Minister Vladimir Kolokoltsev, Rosgvardia’s Director Viktor Zolotov, Roskomnadzor Head Alexander Zharov, Security Council Secretary Nikolai Patrushev, Director of the Russian Institute for Strategic Studies Mikhail Fradkov and others. The sanctions measures are introduced in accordance with the Law on Counteraction opponents of the United States through sanctions (CAATS), as well as the Decrees (Executive Order) of the President of the United States 13661, 13662 and 13582, and the inclusion in the SDN list entails the following consequences:

  • Funds, property, real estate, bank accounts, stakes in companies or securities located in the United States that belong to individuals or entities on the sanctions list are frozen;
  • Until the sanctions are lifted, these individuals will not be able to dispose of these assets;
  • Legal entities or individuals from the United States are prohibited from conducting any operations with persons from the SDN list;
  • In this case, the Office of Foreign Assets Control of the US Treasury published two “general licenses” to minimize possible losses from the abrupt termination of commercial relations with persons on the sanctions list. Until June 5, 2018, Americans and local companies must cease all operations, contracts and agreements with those who are under sanctions. In this case, all payments must be transferred to a special account with a US bank. Within 10 working days after the expiration of this period, US citizens and companies must provide a detailed report to the US Treasury on each such transaction and contract. And in respect of EN +, GAZ and Rusal, there is a shortened time – until May 7 – for the exit of American citizens and companies from their capital and sale of debt instruments.
  • Also, for this sanction regime, it is specifically provided that counterparties who are not from the USA, with all the knowledge carrying out operations in the interests or on behalf of persons on the sanctions list, may also be subject to sanctions.

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If you have any questions regarding any aspect of our conclusion, please contact us and we will be happy to discuss your questions.

10 April 2018


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