Sanctions Summary - Week of July 21 (with Turza Comment)

Ukraine-Related Developments

Canada

On Thursday July 24, 2014, Canada announced additional targeted sanctions against Russian and Ukrainian individuals and entities in connection with the ongoing crisis in Ukraine. Significantly, Canada followed the approach adopted by the United States last week by imposing sectoral sanctions on three large Russian companies in the financial and energy industries. The three companies, OAO Gazprombank, Vnesheconombank ("VEB"), and Novatek, were all named to the U.S. Sectoral Sanctions Identifications List on July 16. Canada did not designate Rosneft, Russia's largest oil company, which was also named to the U.S. Sectoral Sanctions list on July 16.

Similar to the U.S. action last week - which included the creation of Directive 1 and Directive 2 under Executive Order 13662 - the Canadian government also announced the creation of Schedule 2 (relating to the financial sector) and Schedule 3 (relating to the energy sector) as amendments to its previously enacted regulations. (See amendments here.) Also similar to the U.S. sectoral sanctions, the Canadian measures prohibit any person in Canada, or any Canadian outside of Canada, from transacting in, providing, or otherwise dealing in new equity and short-term debt financing with respect to any entities named under Schedules 1 and 2. (A full list of all individuals and entities subject to sectoral sanctions by the United States and Canada is available here.)

An additional seven companies were designated under the pre-existing Schedule 1 to Canada's Russian sanctions regulations, thus prohibiting all transactions and dealings with them. All seven of these companies operate in the Russian arms industry, and all were added to the U.S. Specially Designated Nationals list on July 16. (A full list of the companies designated today is available here.)

Finally, Canada's measures also included the designation of eight Ukrainian individuals and two Ukrainian entities. Seven of these individuals and both entities had previously been designated by the United States and/or the European Union. (A full list of all individuals and entities subject to travel bans and asset freezes is available here.)

European Union

Also, on July 24, the European Council announced its decision to impose further targeted sanctions in connection with the situation in Ukraine. The names of the 15 individuals and 18 entities subject to EU travel bans and asset freezes were released on Friday, July 25, and are available here. The individuals include Aleksandr Bortnikov, Director of the Federal Security Service ("FSB"), Mikhail Fradkov, Director of the Foreign Intelligence Service of the Russian Federation, and Ramzan Kadyrov, President of Russia's Republic of Chechnya, who on June 1, 2014 "expressed his readiness to send 74,000 Chechen volunteers to Ukraine if requested to do so." The entities sanctioned by the European Union include the Luhansk People's Republic, the Donetsk People's Republic, and other Ukrainian associations, militias, and organizations deemed responsible for undermining the territorial integrity, sovereignty and independence of Ukraine. The entities also include nine Ukrainian companies "whose ownership has been transferred contrary to Ukrainian law."

Significantly, the European Council also discussed sectorial sanctions that may, among other things, impose a ban on European investors buying new debt or shares of banks owned 50% or more by the state. According to news reports, the largest banks with more than 50% state ownership are: VEB, VTB, Sberbank, and the Russian Agricultural Bank. (See reporting from Reuters) Proposals on restricting access to capital markets, energy-related technology, and defense and dual use goods were also discussed, and may be adopted by the Council as early as next week. (See EU Press Release)

United States

In a related development, on July 25, Congressman Jeb Hensarling (R-TX), Chairman of the House Financial Services Committee, issued a letter calling on President Obama to halt U.S. Export-Import Bank deals with Russia. The letter argues that Russian firms - including recently-sanctioned banks such as VEB and Gazprombank - derive substantial benefits from deals with the Export-Import Bank, and Congressman Hensarling urges that Russia be deprived of these benefits as part of a broader strategy of enhanced sanctions on Russia's energy and financial industries.

Other Sanctions-Related Developments

Also last week, on July 24, Bank of America N.A. settled charges brought by the U.S. Department of Treasury that it processed several hundred transactions for drug traffickers named to the Office of Foreign Asset Control's Specially Designated Nationals ("SDN") list. According to he Department of Treasury, Bank of America processed approximately $91,192 in transactions on behalf of individuals on the SDN list between 2005 and 2009, and failed to file timely reports on five accounts owned by Specially Designated Nationals between 2006 and 2009. Bank of America agreed to pay $16.56 million to resolve the allegations.

Turza Comment: Notwithstanding international outrage over the downing of MH Flight 17 over Eastern Ukraine last week, the European Union and Canada have been slow to follow the U.S.'s lead with respect to sectoral sanctions against Russian companies. But following Thursday's action, Canada's sanctions regime is roughly in line with the U.S.'s approach - with the notable exception of Rosneft, a key player in the Russian energy industry, which to date is subject to U.S. sanctions only. It remains to be seen whether Europe will keep pace with North America through the introduction of sectoral sanctions next week, or if instead domestic concerns over gas supplies and other factors may require Brussels to adopt a more measured approach.

Related news: Sanctions Summary - Week of July 7 (with Turza Comment) (July 14, 2014)Sanctions Update (with Turza Comment) (June 27, 2014); Canada Imposes Sanctions on Ukrainian and Russian Individuals (with Turza Comment) (June 23, 2014); Sanctions Update (with Turza Comment) (June 20, 2014).See also the Cabinet Sanctions Page (some materials are accessible to Cabinet subscribers only). For more information, please contact Dale Turza, James Treanor or Keith Gerver.