U.S. Significantly Expands Ukraine-Related Sanctions; Europe Announces New Measures (with Turza Comment)
On July 16, 2014, the European Council convened a meeting in Brussels and announced a number of measures against Russia for its failure to "actively use its influence over illegally armed groups . . . in order to achieve a rapid de-escalation" of the crisis in Ukraine. The meeting did not result in any immediate designations, but it did produce a commitment to expand restrictive measures against entities deemed responsible for the instability in Ukraine. The Council is now tasked with adopting "the necessary legal instruments and [deciding] by the end of July on a first list of entities and persons, including from the Russian Federation, to be listed under the enhanced criteria." (See European Council Conclusions.)
On the same day, the United States adopted an even more aggressive approach by imposing "a broad-based package of sanctions on entities in the financial services, energy, and arms or related materiel sectors of Russia, and on those undermining Ukraine's sovereignty or misappropriating Ukrainian property." (See Treasury Press Release.) The sanctions were imposed by the Treasury Department pursuant to Executive Orders 13660, 13661 and 13662.
In addition to individual and entity designations reflected on the Department of Treasury's Specially Designated National ("SDN") list (described in further detail below), the U.S. sanctions announced on July 16 were notable for the introduction of a Sectoral Sanctions Identifications List, which is to include entities named under two "Directives" issued pursuant to the authority of E.O. 13662: Directive 1, which concerns the Russian financial services sector, and Directive 2, which relates to Russia's energy sector.
Both Directives 1 and 2 prohibit U.S. persons from "transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity" for any individuals or entities named under the Directives (including their property and interests in property). Directive 1, which is applicable to the financial services industry, further prohibits dealings in "new equity" of any named person (including their property and interests in property). In both cases, "new" debt and equity is any debt or equity issued on or after July 16, 2014, by, on behalf of, or for the benefit of any person named under the Directives. (See OFAC FAQ - Questions 370-375.)
At present, two large Russian financial institutions, Gazprombank OAO and VEB, are named under Directive 1. Russia's largest petroleum company and third largest gas producer, Rosneft, and Russia's largest independent natural gas producer, OAO Novatek, are named under Directive 2. These four entities have not been added to Treasury's SDN list, therefore, they are not subject to the more comprehensive ban on financial dealings that such designations would entail.
In addition to enacting the first "sectoral" sanctions against Russian companies, the Treasury Department announced the designation of eight more companies under E.O. 13661: Kalashnikov Concern (Russia's largest firearms producer); Almaz-Antey; Federal State Unitary Enterprise State Research and Production Enterprise Bazalt ("Bazalt"); JSC Concern Sozvezdie; JSC MIC NPO Mashinostroyenia; KBP Instrument Design Bureau; Radio-Electronic Technologies; and Uralvagonzavod.
Four Russian officials were also targeted pursuant to E.O. 13661: Sergey Beseda (head of the Russian Federal Security Service ("FSB") Fifth Service); Oleg Savelyev (Russia's Minister for Crimean Affairs); Sergei Neverov (Deputy Chairman of the State Duma of the Russian Federation); and Igor Shchegolev (an Aide to Russian President Vladimir Putin).
Finally, pursuant to E.O. 13660, the Treasury Department designated Feodosiya Enterprise for its complicity in the misappropriation of state assets of Ukraine. Under the same Executive Order, the Treasury Department designated Aleksandr Borodai (the self-declared "prime minister" of the Donetsk People's Republic) along with the Donetsk People's Republic and the Luhansk People's Republic for asserting "governmental authority over a part or region of Ukraine without the authorization of the Government of Ukraine." A full list of individuals and entities sanctioned in connection with the situation in Ukraine is available here.
Turza Comment: The actions taken by the United States and Europe on July 16 demonstrate that Western leaders are prepared to carry out their threats to impose additional costs on the Russian government and economy if perceived meddling in Ukraine is not stopped. The new measures, particularly those enacted by the United States, represent a significant escalation. Whether these enhanced measures are the first of more to come - and how they are received in European capitals - remains to be seen. European attitudes may favor increased sanctions more resolutely if evidence demonstrates that the Russians are, either directly or indirectly, involved in the crash of the Malaysia Airlines passenger jet, which carried 295 people, in a rebel-controlled area of eastern Ukraine.
See also: Cabinet Sanctions Page (some materials are accessible to Cabinet subscribers only). For more information, please contact Dale Turza, James Treanor or Keith Gerver.