presentation

Report
Russia / Ukraine Sanctions & Export Controls
US and EU Sanctions Update
Sylwia Lis, Partner, Washington, D.C
Sunny Mann, Partner, London
1 October 2014
Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss
Verein with member law firms around the world. In accordance with the common
terminology used in professional service organisations, reference to a "partner"
means a person who is a partner, or equivalent, in such a law firm. Similarly,
reference to an "office" means an office of any such law firm.
© 2014 Baker & McKenzie LLP
Agenda
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Jurisdictional Issues
Designated Parties
Energy Sector Controls
Export Controls
Sectoral / Financial Sanctions
Compliance Tips
© 2014 Baker & McKenzie LLP
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Sanctions Toolbox
Comprehensive
Individuals / Entities
Goods / Technology
Services
Investment
Asset freeze /
Blocked property
Arms / Dual-use
Finance
Sectors
Making available /
Dealing
Sanctioned country
origin
Insurance
Funds transfer
Other
Brokering
Anti-circumvention / Facilitation / Causing violations
© 2014 Baker & McKenzie LLP
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Sanctions against Russia / Ukraine
© 2014 Baker & McKenzie LLP
Includes:
EU, U.S., Japan, Canada, New Zealand, Australia, Iceland,
Moldova, Georgia, Norway, Switzerland, Liechtenstein, Albania
and Montenegro
4
Jurisdictional Issues
Who Must Comply with EU Sanctions?
• EU sanctions measures typically apply to:
• Any entity incorporated in an EU Member State and its EU and nonEU branches
• Any entity incorporated outside the EU, but only in respect of any
business conducted in the EU
• Any directors, officers, employees, agents, etc. located in the EU
(irrespective of nationality)
• Any directors, officers, employees, agents, etc. that are nationals of
an EU Member State (even if located outside the EU)
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Who Must Comply with U.S. Sanctions?
• U.S. Sanctions
• Apply to “U.S. Persons”
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Entities organized under U.S. laws and their non-U.S. branches
Employees (regardless of nationality) of above entities
Individuals and entities in the United State
U.S. citizens and permanent resident aliens (“Green Card” holders)
wherever located or employed
• Non-U.S. Persons may be subject to U.S. jurisdiction if they cause
prohibited transactions to occur in whole or in part in the United
States or anywhere by U.S. Persons
• Separately incorporated foreign subsidiaries of U.S. companies
are NOT U.S. Persons
© 2014 Baker & McKenzie LLP
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Consider…
EU/US nationals
working in
Russia for a
Russian Corp?
Transaction
denominated in
USD?
© 2014 Baker & McKenzie LLP
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Designated Parties
DP / SDN Controls
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EU and U.S. list-based sanctions programmes: EU Designated Parties (“DPs”) and U.S. Specially
Designated Nationals (“SDNs”)
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EU sanctions on DPs:
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Prohibition on “making available” “funds” or “economic resources”, directly or indirectly, to or for
the benefit of DPs
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Freeze on funds and economic resources belonging to, owned, held or controlled by DPs
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Administered and enforced by each EU Member State
U.S. sanctions on SDNs:
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Prohibition on U.S.-Person dealings with SDNs, directly or indirectly, and any entity 50% or more
owned by one or more SDNs, or “facilitation” of such dealings
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Requirement to block SDN property and interests in property
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Administered and enforced by Office of Foreign Assets Control (“OFAC”)
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Prohibition under EU and U.S. sanctions in relation to acts of circumvention/facilitation
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Non-U.S. Persons may also have liability for causing a U.S. Person to violate sanctions (e.g., U.S.
dollar payments, ordering goods from United States for supply to SDNs)
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Dealings with Affiliates of DPs / SDNs
Non-DP Shareholder
DP Shareholder
60%
Customer
40%
Company
• EU: Assess whether counterparty is majority owned or controlled by one or
more DPs; test is complex and subject to EU Member State interpretation
• U.S.: Assess whether counterparty is 50% or more owned by SDNs
• Screening of counterparty’s name only would not address risk of dealing with
non-designated entity that is owned/controlled by DP/SDN
• Other forms of indirect dealings may be caught (e.g., distributor relationship)
© 2014 Baker & McKenzie LLP
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Russia & Ukraine: DPs / SDNs to Date
EU: 141 individuals + 23 entities
US: 57 individuals + 36 entities
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Executive Order 13660 (March 2014)
– 23 SDNs
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Executive Order 13661 (March 2014)
– 70 SDNs
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Executive Orders codified into
Ukraine-Related Sanctions
Regulations, 31 CFR Part 589
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H.R. 4152 (“Support for the
Sovereignty, Integrity, Democracy,
and Economic Stability of Ukraine Act
of 2014”) (April 2014) – no SDNs
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22 individuals for misappropriation of
Ukrainian state funds / human rights
violations
119 individuals + 23 entities for actions
undermining or threatening the
territorial integrity, sovereignty and
independence of Ukraine (incl. 9
entities whose ownership has been
transferred contrary to Ukrainian law)
© 2014 Baker & McKenzie LLP
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Compare & Contrast
Designated Parties
EU DPs and U.S. SDNs are found on respective EU/U.S. lists or
not formally designated but affiliated with EU DPs or U.S. SDNs
Different tests for nondesignated DPs and
SDNs
EU: entities owned or controlled by DPs
U.S.: entities 50% or more owned by one or more SDNs
EU: primarily political figures and limited number of entities
Sanctions Targets
U.S.: political figures, oligarchs, and many entities
Administration/
Enforcement
© 2014 Baker & McKenzie LLP
EU: Member State Governments
U.S.: OFAC
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Questions?
Energy Sector Controls
EU Restrictions on Oil Industry in Russia
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Prior authorisation is required for:
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Sale, supply, transfer or export listed of equipment and technology used in the oil
(and gas) industry to or for use in Russia
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Providing related technical assistance, brokering services, financing or financial
assistance
Controlled equipment and technology:
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Listed in Annex II to the EU Russia Sanctions
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Focused on drilling equipment and pipelines
Authorisation will not be granted if supply relates to projects in Russia regarding:
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Deep water oil
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Arctic oil
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Shale oil
Exception: pre-1 Aug. contracts / agreements
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EU Restrictions on Oil Industry in Russia (cont’d)
• Prohibited:
• Provision of drilling, well testing, logging and completion
services, and supply of specialised floating vessels for deep
water oil exploration and production, arctic oil exploration or
production or shale oil projects in Russia
• Carve-outs:
• Pre-12 Sept. contracts (includes “framework agreements”
and “ancillary contracts”)
• Urgent prevention or mitigation of event where likely serious
and significant impact on human health and safety or the
environment
• Note: EU guidance being developed regarding exceptions
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U.S. Russian Oil Industry Sanctions Program
• New licensing requirement as of August 6, 2014
• For exports, reexports, and transfers (in-country) of any item (i.e., goods,
software, technology) subject to the Export Administration Regulations
(“EAR”)
• Listed in Supplement No. 2 to Part 746 (“Russian Oil Industry List”) or
• Specified in Export Control Classification Numbers (“ECCNs”) 0A998
(new), 1C992, 3A229, 3A231, 3A232, 6A991, 8A992, or 8D999 (new)
• When it is known that the item will be used directly or indirectly or when it
cannot be determined whether the item will be used
• In exploration for, or production of, oil or gas in
• Russian deepwater (greater than 500 feet);
• Arctic offshore locations; or
• Shale projects in Russia (collectively, “Russian Oil Industry EndUses”)
© 2014 Baker & McKenzie LLP
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U.S. Russian Oil Industry Sanctions Program (cont’d)
• License applications will be reviewed
• With a presumption of denial
• With respect to a Russian Oil Industry End-Use that has the
potential to produce oil
• (End-uses with potential to produce gas will be reviewed on caseby-case basis)
• Only EAR License Exception GOV is available
• Russian Oil Industry List – examples:
• Drilling rig
• Parts for horizontal drilling
• Drilling and completion equipment
• Wireline and down hole motors and equipment
• Drill pipe and casing
© 2014 Baker & McKenzie LLP
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Compare & Contrast
License requirements
EU oil sectoral measures require authorisation to be obtained
irrespective of the use to which the targeted equipment and
technology is to be put
U.S. licensing requirement triggered when Russian Oil Industry
End-Uses implicated or cannot be ruled out
Presumption of Denial
Both in the EU and U.S. the focus is in both cases on deep water,
Arctic or shale oilin Russia
Product Scope
Annex II and Russian Oil Industry List are similar at a high level, but
there are distinctions in specific entries
Controls on Services
EU controls technical assistance, brokering services, financing or
financial assistance, drilling, well testing, logging and completion
services and supply of floating vessels
Grand-fathering
Unlike the U.S., EU controls have limited grand-fathering
Extraterritorial application
Unlike the EU, U.S. export controls apply extraterritorially to both
U.S. and non-U.S. Persons
© 2014 Baker & McKenzie LLP
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Export Controls
Export Controls and Sanctions Key Questions
© 2014 Baker & McKenzie LLP
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Recap on Basics of EU Export Controls
• Common EU-wide dual-use framework and common control list (“EU
Dual-Use List”)
• Generally licence is required for all exports of EU Dual-Use List items
to location outside the EU
• No re-export or deemed export controls
• Military items dealt with under separate national regimes
• National implementation by EU Member States, particularly in respect
of licensing and enforcement
© 2014 Baker & McKenzie LLP
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EU Dual-Use Controls Against Russia
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Prohibit:
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Sale, supply, transfer or export, directly or indirectly, EU Dual-Use List items, to
anyone in Russia or for use in Russia, if items are or may be intended, in whole or in
part, for military use or for a military end-user
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Military use is presumed if end-user is Russian military
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Sale, supply, transfer or export, directly or indirectly, EU Dual-Use List items to
Annex IV companies (9 defence and mixed defence companies)
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Provision of related technical assistance, brokering services, financing or financial
assistance
Permitted:
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Pre-1 August / 12 September contracts / agreements (depending on prohibition)
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Provision of assistance necessary to the maintenance and safety of existing
capabilities within the EU
• Aeronautics and space industry and existing civil nuclear capabilities for non military
use and for a non military end-user
© 2014 Baker & McKenzie LLP
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EU Arms Embargo Against Russia
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Prohibits:
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Sale, supply, transfer or export of arms and other items controlled under EU Member
State Military Lists to Russia
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Provision of technical assistance, brokering services, financing or financial
assistance, insurance and reinsurance services related to the above
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Import, purchase or transport of the same items from Russia
Permitted:
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Pre-1 Aug. contracts / agreements
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Provision of spare parts and services for maintenance and safety of existing
capabilities in the EU
Also triggers enhanced UK ‘trafficking and brokering’ controls; licence required for “any
act calculated to promote” the supply of UK Military List items to Russia from a third
country
© 2014 Baker & McKenzie LLP
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EU Military End-Use Control
• Applies to otherwise non-controlled items
• Where Russia is the purchasing country or country of destination, you
must obtain an export licence from the relevant EU Member State
authority if has been informed by relevant authority, or is aware, that
the items are or may be intended for a “military end-use”:
• Incorporation into military items listed in the EU Member State
military list
• Use of production, test or analytical equipment and components, for
the development, production or maintenance of military items listed
in such lists
• Use of any unfinished products in a plant for the production of
military list items in such lists
© 2014 Baker & McKenzie LLP
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U.S. Export Controls
• Exports/reexports of certain items subject to U.S. jurisdiction to Russia or
occupied Crimea may require a license, whether by U.S. Persons or non-U.S.
Persons
• International Traffic in Arms Regulations (“ITAR”)
• U.S. or non-U.S. Persons dealing in U.S. defense articles/services
• Administered and enforced by Directorate of Defense Trade Controls
(“DDTC”)
• Export Administration Regulations (“EAR”)
• U.S. or non-U.S. Persons exporting/reexporting/transferring U.S. “dual-use”
items (having military and civilian applications)
• Administered and enforced by U.S. Bureau of Industry and Security
(“U.S. BIS”)
© 2014 Baker & McKenzie LLP
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U.S. International Traffic in Arms Regulations
• Export/reexport of military items (“defense articles” or “defense
services”) to Russia or occupied Crimea require a license
• ITAR claims jurisdiction over non-U.S. items that incorporate a U.S.
defense article
• Policy of denial for “high technology” defense articles or services that
contribute to Russia’s military capabilities
© 2014 Baker & McKenzie LLP
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U.S. Export Administration Regulations
• For Russia, “items subject to the EAR” include:
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Items of U.S. origin
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Items exported from the United States
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Non-U.S. items containing more than 25% controlled U.S. content by
value, or
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Certain foreign direct products of controlled U.S. technology
• Policy of denial for export/reexport of “high technology” items subject
to the EAR that may contribute to Russian military capabilities
• Separate licensing requirement for certain items subject to the EAR
destined for military end uses or end-users in Russia (effective
September 17)
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Supplement No. 2 to Part 744
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9x515 and “600-series” ECCNs
© 2014 Baker & McKenzie LLP
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U.S. Export Administration Regulations (cont’d)
• Exports, reexports, or transfers of “items subject to the EAR” to
Russian parties on the EAR’s Entity List require a license
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Applies to controlled and non-controlled (i.e., EAR99) items
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Policy of denial for Russian parties on Entity List
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Examples: Chernomorneftegaz, Feodosiya Enterprise, Volga Group,
Stroytransgaz, Transoil
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These Russian parties on Entity List are also SDNs
Energy sector designations on Entity List (effective September 17, 2014)
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Russian parties: Gazprom, Gazprom Neft, Lukoil, Rosneft, Surgutneftegas
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License requirement when it is known that an item will be used directly or
indirectly or when it cannot be determined whether an item will be used for a
Russian Oil Industry End-Use
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Policy of denial when Russian Oil Industry End-Use has potential to produce oil
© 2014 Baker & McKenzie LLP
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Compare & Contrast
EU: Not applicable
Extraterritoriality
U.S. export controls are extraterritorial for items
(i.e., goods, software, technology) subject to the ITAR or EAR
EU controls on technical assistance, brokering services,
financing or financial assistance, trafficking and brokering/military
end-use
Additional controls
Specific licensing requirements apply to
parties on EAR’s Entity List
EU: Member State Governments
Administration /
enforcement
U.S.: DDTC or BIS
© 2014 Baker & McKenzie LLP
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Questions?
Sectoral / Financial
Sanctions
EU Restrictions on Access to Capital Markets
• Prohibited to directly or indirectly purchase, sell, provide investment services
for or assistance in the issuance of, or otherwise deal with, “transferable
securities” or “money-market instruments” with a maturity:
• Exceeding 90 days, issued after 1 Aug. - 12 Sept., or
• Exceeding 30 days issued after 12 Sept. by:
1.
Listed financial institutions (Sberbank, VTB Bank, Gazprombank,
Vnesheconombank (VEB) and Rosselkhozbank (Russian
Agricultural Bank)
2.
Non-EU persons/ entities/bodies whose proprietary rights are
directly or indirectly owned more than 50% by any of (1), or
3.
Persons/entities/bodies acting on behalf or at the direction of the
above
• Excluded are other financial services
© 2014 Baker & McKenzie LLP
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EU Restrictions on Access to Capital Markets (cont’d)
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Prohibited to directly or indirectly purchase, sell, provide investment services for or
assistance in the issuance of, or otherwise deal with, “transferable securities” or “moneymarket instruments” with a maturity exceeding 30 days issued after 12 Sept. by:
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Listed persons, entities or bodies established in Russia and predominantly engaged
and with major activities in the conception, production, sales or export of military
equipment or services (OPK Oboronprom, United Aircraft Corporation and
Uralvagonzavod);
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Listed persons, entities or bodies established in Russia, which are publicly controlled
or with over 50% ownership, have estimated total assets of over 1 trillion Russian
Roubles and whose estimated revenues originate for at least 50% from the sale or
transportation of crude oil or petroleum products (Rosneft, Transneft and Gazprom
Neft);
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Non-EU persons, entities or bodies whose proprietary rights are directly or indirectly
owned more than 50% by any of (1) or (2); or
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Persons, entities or bodies acting on behalf or at the direction of any of (1), (2) or (3)
© 2014 Baker & McKenzie LLP
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EU Restrictions on Access to Other Financing
• Prohibited to directly or indirectly make or be part of any arrangement to make
new loans or credit with a maturity exceeding 30 days to any legal person,
entity or body subject to the capital market access restrictions described
above, after 12 Sept.
• Permitted:
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Loans or credit that have a specific and documented objective to provide
financing for non-prohibited imports or exports of goods and non-financial
services between the EU and Russia
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Loans that have a specific and documented objective to provide
emergency funding to meet solvency and liquidity criteria for legal persons
established in the EU, whose proprietary rights are more than 50% owned
by any Annex III entity (Sberbank, VTB Bank, Gazprombank,
Vnesheconombank (VEB) or Rosselkhozbank (Russian Agricultural Bank))
© 2014 Baker & McKenzie LLP
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EU Restrictions: Crimea and Sevastopol
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Prohibited to:
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Import into the EU “goods originating” in Crimea or Sevastopol
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Provide financing or financial assistance, insurance or reinsurance related to these goods
Exceptions:
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Where a certificate of origin is obtained from Ukrainian authorities
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Limited grand-fathering until 26 Sept.
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Additional prohibitions in respect of targeted sectors in Crimea and Sevastopol:
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Creation, acquisition, or development of infrastructure in the transport, telecommunications or
energy sectors
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“Exploitation” of oil, gas or “mineral resources”
Prohibitions in relation to these sectors target:
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Investment in entities or formation of JVs in respect of these sectors
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Sale, supply, transfer, export of key equipment and technology to or for use in Crimea or
Sevastopol (note: grand-fathering provision for pre-30 July contracts / agreements until 28
Oct.)
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Provision of related services
© 2014 Baker & McKenzie LLP
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U.S. Sectoral Sanctions: Energy Sector
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Target entities on OFAC’s Sectoral Sanctions Identification List (“SSIL”) and
entities 50%-or-more owned by SSIL Parties
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Significantly expanded on September 12, 2014 with immediate effect
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Directive 2 (energy sector) - new parties as of September 12, 2014
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Prohibition on U.S. Persons transacting in, providing financing for, or otherwise
dealing in “new debt of longer than 90 days maturity” for Directive 2 parties, their
property, or their interests in property
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Directive 2 parties: AK Transneft; Gazprom Neft; Novatek; and Rosneft
Directive 4 (energy sector) - new directive as of September 12, 2014
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Prohibition on U.S. Persons providing, exporting, or reexporting any U.S. or nonU.S. goods, services (except for financial services), or technology to Directive 4
parties for Russian Oil Industry End-Uses that have potential to produce oil
•
Directive 4 parties: Gazprom; Gazprom Neft; Lukoil; Rosneft; and Surgutneftegas
•
General License No. 2 to wind down prohibited activities by September 26, 2014
© 2014 Baker & McKenzie LLP
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U.S. Sectoral Sanctions: Financial & Defense Sectors
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Directive 1 (financial sector) - expanded as of September 12, 2014
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Prohibition on U.S. Persons transacting in, providing financing for, or otherwise
dealing in “new debt of longer than 30 days maturity” and/or “new equity” for
Directive 1 parties, their property, or their interests in property
•
Credit restrictions applied to new debt of longer than 90 days maturity issued
between July 16 or 29 and September 12, 2014
•
Directive 1 parties: Vnesheconombank; Gazprombank; Bank of Moscow; VTB
Bank; Russian Agricultural Bank; and Sberbank
Directive 3 (defense sector) - new directive as of September 12, 2014
•
Prohibition on U.S. Persons transacting in, providing financing for, or otherwise
dealing in “new debt of longer than 30 days maturity” for Directive 3 party
•
Directive 3 party: Rostec
© 2014 Baker & McKenzie LLP
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U.S. Sectoral Sanctions: Overview Chart
Sectoral Sanctions Identifications List Directives
Entity Name
Date Sanctioned
Directive No.
AK Transneft (new)
9/12/14
2
Bank of Moscow
7/29/14
1
Gazprom (new)
9/12/14
4
Gazprom Neft (new)
9/12/14
2&4
Gazprombank
7/16/14
1
Lukoil (new)
9/12/14
4
Novatek
7/16/14
2
Rosneft
7/16/14
2&4
Rostec (new)
9/12/14
3
Russian Agricultural Bank
7/29/14
1
Sberbank of Russia (new)
9/12/14
1
Surgutneftegas (new)
9/12/14
4
Vnesheconombank
7/16/14
1
VTB Bank
7/29/14
1
An entity 50% or more owned by one or more of the above sanctioned parties is subject to the same directives.
© 2014 Baker & McKenzie LLP
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Compare & Contrast
Capital Markets /
Loans
EU was limited to “transferable securities” and “money-market
instruments” but has now been expanded to align to a greater extent
with U.S. coverage
Financial Sector
Significant correlation between EU and U.S. sanctions regarding
entities targeted under financial sector measures, but some
distinctions
Novatek and Lukoil targeted by U.S. sectoral sanctions but not EU
EU regime includes additional targeted measures
Measures against
Crimea / Sevastopol
U.S. measures do not specifically target Crimea / Sevastopol
© 2014 Baker & McKenzie LLP
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Compliance Tips
How can you comply?
Due diligence / screening on counterparties
• Clearly documented standardized process for screening against sanctions
lists
• At least screen against information in your possession and in public domain
• Risk-based assessment of counterparties, shareholders and other third
parties to screen
Determine which future exports/reexports may require licenses
© 2014 Baker & McKenzie LLP
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How can you comply?
Contractual protections
• Obtain certifications/representations/warranties from counterparties
• Require screening by distributors and agents
• Review option to terminate or suspend contracts
Stay up-to-date on sanctions developments
© 2014 Baker & McKenzie LLP
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Thank You!
© 2014 Baker & McKenzie LLP
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Questions?
Speakers
Sunny Mann
Speaker – London
T + 44 20 7919 1397
F + 44 20 7919 1099
[email protected]
Sylwia Lis
Speaker – Washington, DC
T+ 1 202 835 6147
F+ 1 202 416 7147
[email protected]
Sylwia Lis is a partner in our Washington, DC office and has
extensive experience advising companies on US laws relating
to exports and reexports of commercial goods and technology,
defense trade controls and trade sanctions — including
licensing, regulatory interpretations, compliance programs and
enforcement matters. She also has advised clients on national
security reviews of foreign investment administered by the
Committee on Foreign Investment in the United States (CFIUS),
including CFIUS-related due diligence, risk assessment, and
representation before the CFIUS agencies.
© 2014 Baker & McKenzie LLP
Sunwinder (Sunny) Mann is a Partner in the compliance and
risk management team of Baker & McKenzie London. He
joined the London office as a trainee solicitor in 2000 and
qualified as a solicitor in March 2002. He undertook an 18month secondment to the Washington, DC and New York
offices, where he worked as part of the international trade and
antitrust teams. He has also spent some time in the Sydney
and Hong Kong offices. He spent nine months on secondment
with a major UK mobile network operator and a further four
months with a major consumer goods manufacturer. He is a
visiting professor at the Bruges and Warsaw campuses of the
College of Europe.
Sunny's practice focuses on international trade compliance,
particularly export controls and trade sanctions. He has
successfully resolved numerous UK disclosure and
enforcement cases and also advises on UN, EU and UK
sanctions.
,
47
Russia / Ukraine Sanctions & Export Controls
US and EU Sanctions Update
Sylwia Lis, Partner, Washington, D.C
Sunny Mann, Partner, London
1 October 2014
Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss
Verein with member law firms around the world. In accordance with the common
terminology used in professional service organisations, reference to a "partner"
means a person who is a partner, or equivalent, in such a law firm. Similarly,
reference to an "office" means an office of any such law firm.
© 2014 Baker & McKenzie LLP

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