The Latest on Ukraine (with Turza Comment)

By an overwhelming 378-34 vote on April 1, the U.S. House of Representatives passed the amended version of H.R. 4152 that was approved by the Senate last week. The bill provides for sanctions against "persons responsible for violence or who undermine the independence, sovereignty, or territorial or economic integrity of Ukraine," as well as those "complicit in or responsible for significant corruption in the Russian Federation." The final bill omits the funding for controversial International Monetary Fund reforms that was included in the original Senate version of the bill but encountered stiff Republican resistance. The final bill also removes provisions included in an earlier House version of the bill, amending the Iran, North Korea and Syria Nonproliferation Act to require President Obama to "expedite the implementation" of that act.

Also on April 1, it was reported that JP Morgan had blocked a less-than-$5000 payment from the Russian embassy in Astana, Kazakhstan to the Sogaz Insurance Group. The action was apparently the result of Bank Rossiya's ownership stake in Sogaz. (Bank Rossiya was sanctioned by the United States on March 20, 2014, under the authorities granted by Executive Order 13661. Bank Rossiya has not been sanctioned by the European Union or any country other than the U.S.) JP Morgan blocked the transaction notwithstanding reports that Bank Rossiya had reduced its stake in Sogaz from 51% to 48.5% on March 11 – nine days before Bank Rossiya was sanctioned. Under standard OFAC guidance, an entity is not automatically subject to sanctions by operation of law unless 50% or more of it is owned by a Specifically Designated National ("SDN"). Sanctions may still apply, however, if Bank Rossiya exercises "control" over the subsidiary entity.

James Treanor and Keith Gerver, associates in Cadwalader's Washington Office, have been monitoring the U.S. response to the Ukrainian situation.

Turza Comment: H.R. 4152 now goes to the President for signature, and although White House Press Secretary Jay Carney stated that the White House welcomed the congressional action, President Obama may take his time implementing the legislation's sanction provisions. As efforts to reach a diplomatic resolution with Russia continue this week, the U.S. Government and its allies can be expected to avoid significant provocation (while holding the threat of additional sanctions in reserve if talks fail). Observers will be watching for specific guidance from OFAC relating to Sogaz and other entities owned and/or controlled by Bank Rossiya and other Ukraine and Ukraine 2 Specially Designated Nationals.