The Treasury Department’s Office of Foreign Assets Control (OFAC) issued Directives 1 through 4 on September 12 pursuant to Executive Order 13662 (March 20, 2014), “Blocking Property of Additional Persons Contributing to the Situation in Ukraine.”
With regard to debt financing in Directive 1, U.S. persons (and persons located in the U.S.) are prohibited from entering into transactions:
1) with certain named entities operating in Russia’s financial sector (e.g., Bank of Moscow and Gazprombank)
2) that involve debt with maturity of longer than 30 days or equity,
3) if that debt or equity is issued on or after July 16, 2014 (aka “new debt” or “new equity”).
For named entities operating in Russia’s energy sector (e.g., AK Transneft and Gazprom Neft), Directive 2 applies the same prohibition to new debt — but not equity — of longer than 90 days maturity. (For Directive 1, the allowable maturity of debt instruments issued by the named financial sector persons decreased from 90 days to 30 days since it was originally issued July 16, 2014.)
Directive 3 covers the defense sector, prohibiting dealings in new debt of longer than 30 days maturity of certain named entities, i.e., Rostec. However, certain transactions involving derivative products that would otherwise be prohibited by Directives 1 through 3 may be authorized by General License 1A (September 12, 2014).
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OFAC clarified in its FAQs that U.S. financial institutions may continue to maintain correspondent accounts and process U.S. dollar-clearing transactions for the persons subject to Directives 1 through 3 so long as those activities do not involve transacting in, providing financing for, or otherwise dealing in transaction types prohibited by these Directives.
Directive 4 prohibits the provision of goods, services (except for financial services), and technology for certain activities involving certain persons operating in the energy sector of the Russian Federation. Pursuant to General License 2 (September 12, 2014), OFAC is giving U.S. persons until September 26, 2014 to wind down all applicable transactions.
The Sectoral Sanctions Identifications (SSI) List has a list of persons determined to be subject to these OFAC Directives.
Finally, OFAC also announced Friday that it added five Russian defense companies to the SDN List. (U.S. persons are generally prohibited from engaging in transactions with parties listed on the SDN List as well as with entities owned directly or indirectly — 50 percent or more, including in the aggregate — by parties on the SDN List.)
U.S. persons must not only reject transactions or dealings prohibited by these directives but may also be required to report such rejected transactions to OFAC within 10 business days.
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Related BIS export controls
On September 15, the Commerce Department’s Bureau of Industry and Security (BIS) issued a final rule that 1) added a total of ten entities operating in Russia’s defense and energy sector to the BIS’ Entity List and 2) imposed additional license requirements for items intended for military end use or military end-users in Russia.
The rule will become effective upon publication in the Federal Register.
Also with regard to the energy sector, BIS imposed a licensing requirement, effective August 6, 2014, on exports, re-exports, and in-country transfers involving specific items when used directly or indirectly in exploration for, or production of, oil or gas in Russian “deepwater” (more than 500 feet) or Arctic offshore locations or shale formations in Russia.
BIS is reviewing license applications for any covered items (e.g., drilling rigs or software for hydraulic fracturing) or transactions subject to Entity List restrictions with a presumption of denial.
The Treasury Department’s resource page for all Ukraine-related sanctions is here.
Nina Mohseni is an associate at Hodes Keating & Pilon, a customs and international trade law firm in Chicago. She serves as the Vice President of Organization of Women in International Trade, Chicago Chapter and is the founder and past chair of the International Corporate & Trade Law Committee of the Chicago Bar Association, where she remains active.