More Restrictions on Business with Russia
May 1, 2014
This week, the U.S. government imposed further significant sanctions against Russia1 in response to Russian President Vladimir Putin’s decision to reclaim the Crimean Peninsula as a part of the Russian Federation. These sanctions are the broadest placed on Russia by the United States since the end of the Cold War. The newest sanctions include the designation of seven additional Russian government officials and seventeen entities, all of which are linked to President Putin’s inner circle (collectively, “sanctioned persons”). These actions, likely a sign of further sanctions to come, mean that U.S. companies may not do business with these sanctioned persons absent a license from the appropriate U.S. government agency, and assets of the sanctioned persons in the United States must be frozen. In addition to these sanctions, two key agencies have imposed a presumption of denial for license requests regarding exports and re-exports of “high technology” items to “Russia or occupied Crimea.”2
The Designation of Seven Additional Individuals and Seventeen Additional Entities
On April 28, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) placed seven additional individuals, listed as Russian government officials, and seventeen entities on OFAC’s List of Specially Designated Nationals (“SDN list”) pursuant to Executive Order 13661.3 On that same day, the Commerce Department’s Bureau of Industry and Security (BIS) added thirteen of those seventeen entities to the BIS Entity List. As a result of these designations, without a license, no U.S. company may deal in any way with any property owned or controlled by any of these persons, including transferring funds, exporting goods, and/or providing any services. These prohibitions apply to the sanctioned persons as well as any entity that is “owned” or “controlled” by a sanctioned person—presumed by OFAC whenever a sanctioned person owns a 50 percent or more interest, directly or indirectly, of that entity.
These designations may affect U.S. companies in a variety of ways, including prohibiting the export and import of goods and services, prohibiting the financing of transactions involving a sanctioned person, and/or prohibiting the financing of or investment into a U.S. company from an entity that includes a sanctioned person as an officer or member of the board of directors.
BIS and the Department of State Restrict Export Licenses to Russia
Further, on April 28, BIS and the Department of State’s Department of Defense Trade Controls (DDTC) announced stricter export licensing policies regarding the transfer of “high technology” items to “Russia or occupied Crimea.” Both agencies will (1) deny “pending applications for licenses to export or re-export any high technology item to Russia or occupied Crimea that contribute[s] to Russia’s military capabilities,” (2) “revoke any existing export licenses” for any high technology item to Russia or occupied Crimea that contributes to Russia’s military capabilities, and (3) conduct a “case-by-case review of all other pending applications and existing licenses to determine their contribution to Russia’s military capabilities.” Significantly, neither DDTC nor BIS has issued any written guidance defining “high technology” items. The agencies will notify license-holders whose licenses are revoked, and existing licenses continue to be valid until holders are contacted by the applicable agency.
What the Sanctions Mean to You
These new sanctions reinforce the importance of export control and sanctions compliance screening. U.S. companies should always ensure that all relevant lists, including OFAC’s SDN list and BIS’s Entity List, are screened prior to providing a service, download, or export to anyone outside of the United States. Companies should further ensure that SDN screening providers have the updated lists or, if a company conducts its own SDN screening, it should ensure that its in-house personnel have the most updated lists.
Further, companies should review their current and proposed license applications and watch for further clarifications and/or sanctions in this area. In addition, companies should closely monitor any changes in orders or requests for quotations for items that were destined for Russia but now may be stopped by the increased sanctions, as the sanctioned persons may be seeking alternate routes to obtain U.S.-origin high technology items.
President Obama has made it clear that as long as Russia continues its occupation of the Crimean Peninsula, the U.S. will maintain and expand its sanctions as appropriate. While OFAC is not currently expected to impose a full-scale embargo against Russia such that U.S. assets there would be impacted, we believe that the next stage of U.S. actions against Russia will likely include broader sanctions, possibly targeting areas such as banking and defense. Given the uncertainty in the region and the sanctions imposed thus far, U.S. companies will want to carefully screen their transactions in Russia.
Wilson Sonsini Goodrich & Rosati will continue to keep you informed of further significant sanctions. In the meantime, for more information on the new Russian sanctions or any other sanctions program, please contact one of the export control and sanctions compliance attorneys who authored this WSGR Alert: Josephine Aiello LeBeau (firstname.lastname@example.org), Melissa Mannino (email@example.com), Anne Seymour (firstname.lastname@example.org), or Kate McCarthy (email@example.com).
1 As discussed in our prior WSGR Alert of March 26, 2014.
2 The announcement by the Commerce Department’s Bureau of Industry and Security is available here. The State Department’s announcement is available here. The Treasury Department’s announcement is available here.
3 This executive order is issued in response to “the actions and policies of the Government of the Russian Federation with respect to Ukraine that . . . undermine democratic processes and institutions in Ukraine; threaten its peace, security, stability, sovereignty, and territorial integrity; and contribute to the misappropriation of its assets. . . .” Executive Order 13661, issued March 17, 2014.