U.S. Expands Ukraine-Related Sanctions (with Turza Comment)

On Monday, April 28, 2014, the United States expanded its Ukraine-related sanctions program, designating an additional seven Russian individuals and seventeen entities. (See Updated List of Specially Designated Nationals and Blocked Persons.)

Notably, the list included Igor Sechin, the President and Chairman of Russia's leading oil company, Rosneft. The list did not include Rosneft itself and, to preclude any questions about the effect of Sechin's designation, the Treasury Department's press release announcing the new sanctions included a statement confirming that Rosneft "has not been sanctioned." Each of the entities designated by the U.S. on April 28 was named due to its relationship to (i.e., being owned or controlled by) four previously designated Russian oligarchs and one entity: Arkady and Boris Rotenberg, Gennady Timchenko, Yuri Kovalchuk, and Bank Rossiya. All of the new additions were made under the authority of Executive Order 13661 (UKRAINE 2). To date, no designations have been made under Executive Order 13662, which authorizes sector-based sanctions against broad swaths of the Russian economy.

The Obama Administration was joined by Canada, which imposed sanctions on nine individuals and two entities, and by the European Union, which announced that it had imposed sanctions on an additional fifteen individuals. The Canadian amendments included five of the seven individuals named by the U.S. on April 28, as well as the oligarch brothers Arkady and Boris Rotenberg (whom the U.S. had previously designated on March 20). The additions to the EU sanctions list are to be made public on Tuesday, April 29. An updated list of Russian and Ukrainian individuals and entities sanctioned by all jurisdictions is available here.

Turza Comment: Notwithstanding comments and rumors of potentially crippling sector-based measures, the current sanctions regime remains more symbolically than truly impactful. The United States and its allies refrained from adopting any sector-based sanctions, reportedly holding these measures in reserve to employ "if there is further Russian military intervention in Ukraine," according to a White House statement. And while the U.S. action significantly increased the number of entity designations from two companies to nineteen, many of the new additions likely were already subject to sanctions under OFAC's "50% Rule." This rule, contained in OFAC's standard "Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked," provides that an entity is sanctioned by operation of law when a Specially Designated National ("SDN") owns a 50% or greater stake therein; interests of less than 50% are subject to "significant ownership" and/or "control" tests. Furthermore, many of the entities named – including construction and management services firms, and a soft-drink maker – are unlikely to have substantial U.S. assets or business dealings. Notable absences from the new U.S. designations include Gazprom and its CEO, Alexey Miller.The absence of more aggressive designations may be due to Europe's far greater interdependence with Russia and its exposure to significant potential economic fallout from broader sanctions against Russia's leading companies. The U.S. is mindful of Europe's perceived vulnerability, and may also hope that refraining from imposing more expansive sanctions will allow productive diplomatic talks to occur and a mediated resolution to the Ukraine crisis to be achieved. Any movement of Russian forces across the border, however, may lead to further action by both the U.S. and European governments.

See: Updated OFAC Specially Designated Nationals and Blocked Persons List; Executive Order 13661; Executive Order 13662; OFAC Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked; List of Russian and Ukrainian Individuals and Entities Sanctioned.See also: Cabinet Sanctions Page (accessible to Cabinet subscribers only). For more information, please contact Dale Turza.