Sanction Update (with Turza Comment)
On July 29, 2014, both the United States and Europe announced additional sanctions against Russia, including sectoral sanctions designed to target companies in the Russian financial, energy and arms industries.
The U.S. Department of Treasury announced sectoral sanctions against three Russian financial institutions, as well as an asset freeze against a company in the Russian arms sector. The newly designated financial institutions named to the Sectoral Sanctions Identifications List under Directive 1 to Executive Order 13662 are the Bank of Moscow, the Russian Agricultural Bank and VTB Bank. (A full list of entities subject to sectoral sanctions is available here.) Under Directive 1, U.S. persons are prohibited from transacting in, providing financing for, or otherwise dealing in new equity or new debt of longer than 90 days' maturity for sanctioned companies, as well as their property or interests in property. Treasury also blocked the assets of the United Shipbuilding Corporation, the largest shipbuilder in Russia, by adding the company to its Specially Designated Nationals ("SDN") List under Executive Order 13661 (UKRAINE2). (A full list of individuals and entities subject to asset blocking and travel restrictions is available here.)
On the same day, the European Council announced an agreement on sectoral and other additional sanctions against Russia. While the targets of the new measures will not be published officially until later this week, European Council President Herman Van Rompuy issued a statement that the Council's actions "will limit access to EU capital markets for Russian State-owned financial institutions, impose an embargo on trade in arms, establish an export ban for dual use goods for military end users, and curtail Russian access to sensitive technologies particularly in the field of the oil sector." Significantly, these restrictions are to apply to new contracts only.
A European Council Background Note explained further that, with respect to the restriction on access to EU capital markets, "EU nationals and companies may no more buy or sell new bonds, equity or similar financial instruments with a maturity exceeding 90 days, issued by major state-owned Russian banks, development banks, their subsidiaries and those acting on their behalf. Services related to the issuing of such financial instruments, e.g. brokering, are also prohibited." With regard to the restriction on energy-related technology, the Background Note stated that the exporting of certain equipment to Russia will be subject to prior authorization, and "[e]xport licenses will be denied if products are destined for deep water oil exploration and production, arctic oil exploration or production and shale oil projects in Russia."
Finally, Japan has announced that it will impose additional sanctions against Russia as a result of Moscow's continued support for Ukrainian separatists. The Japanese sanctions will include asset freezes on individuals and entities, along with restrictions on imports from Crimea. The names of the individuals and entities sanctioned by Japan are to be released later this week.
Also on July 29th, Congressman Dana Rohrabacher (R-CA) presided over a Joint Subcommittee Hearing in the House Committee on Foreign Affairs. Witnesses discussed MH Flight 17 and the escalating crisis in Ukraine, and included Ian Brzezinski (Resident Senior Fellow for the Atlantic Council's Brent Scowcroft Center on International Security); Anthony Salvia (Executive Director at the American Institute in Ukraine); the Honorable William B. Taylor (Vice President for Middle East and Africa at the United States Institute of Peace and Former U.S. Ambassador to Ukraine); and Dr. Leon Aron (Resident Scholar and Director of Russian Studies at the American Enterprise Institute). Consistent with the actions announced by the Obama Administration on the same day, participants at the hearing strongly advocated for targeted and sectoral sanctions directed against the Russian defense, financial and energy industries.
Turza Comment: The actions announced by the United States and the European Union represent an important escalation in sanctions against the Russian economy. The move was particularly significant for Europe, which to date has refrained from adopting sectoral sanctions. Cadwalader will continue to monitor future developments, including the expected official publication later this week of Europe's new measures (and the naming of additional sanctioned individuals and entities).