August 18, 2014
On July 16, 2014, the U.S. Treasury Department (Treasury) expanded economic sanctions against the Russian Federation in connection with the ongoing conflict in Ukraine. On July 29, 2014, in response to, among other things, the shooting down (on July 17) of Malaysia Airlines Flight 17 over eastern Ukraine, the Treasury again expanded sanctions against Russia – this time in coordination with further sanctions imposed by the European Union (EU). These latest sanctions are significant because they are targeted at large enterprises in key sectors of Russia’s economy, including its financial and energy sectors, rather than directly at participants in the separatist movement in Ukraine and their supporters.
Background
Against the backdrop of the seizure of government buildings in Crimea by pro-Russian separatists, the purported declaration of independence from Ukraine by Crimea and Crimea’s subsequent signing of a treaty joining the Russian Federation, the United States imposed sanctions in March 2014 against the leaders of the rebellion in Crimea and their supporters in the Russian Federation. During the period beginning shortly after the takeover of government buildings in Crimea and ending shortly after the annexation of Crimea by Russia, President Barack Obama issued three executive orders relating to the situation in Ukraine. These orders were issued under the authority granted to the President by the U.S. Constitution and various laws (including the International Emergency Economic Powers Act (50 U.S.C. § 1701 et seq. (IEEPA)) and the National Emergencies Act (50 U.S.C. § 1601 et seq. (NEA)).
Following EO 13662, there have been a series of expansions of Ukraine-related sanctions through the Treasury’s naming as SDNs additional individuals and entities believed to be involved in separatist movements in Crimea and, later, in eastern Ukraine, as well as various supporters in the Russian Federation.5 Any property and interests in property of such SDNs that are or come to be in the United States, or that are or come to be within the possession or control of any U.S. person (collectively, Blocked Property) may not be transferred, paid, exported, withdrawn or otherwise dealt in unless such transaction is authorized under the implementing rules.6 However, prior to the "sectoral sanctions" discussed below, the Treasury had not issued sanctions under EO 13662 against persons merely because they operated in particular sectors of the Russian economy (other than those operating in the arms sector).
U.S. and Allies Impose Additional Restrictions and Sanctions on Russia
Beginning on July 16, 2014 – before the downing of Malaysia Airlines Flight 17 over eastern Ukraine – the U.S. government issued a series of new sanctions aimed at key sectors of the teetering Russian economy. After the downing of the Malaysian passenger plane, the U.S. government added to the Ukraine-related sanctions in coordination with its European allies.
On July 31, 2014, the EU issued its own sanctions, which had been limited at that time towards individuals. The EU’s sanctions largely mirrored many of the newer sanctions imposed by the United States against Russia, including the sanctions against Russia’s five largest banks, prohibition against military assistance and the restriction on the sale, supply, transfer or export of oil and gas-related equipment and technologies.8
Conclusion
Due to the continued Russian support of Ukraine rebels and escalating violence, as well as the ineffectiveness of previous sanctions, the U.S. and EU continue to ratchet up political and economic pressure. With the recent addition of the “sectoral sanctions” described above and the evolving nature of the targets of Ukraine-related sanctions, it is vital that persons conducting business in Russia or with Russian individuals or entities proceed with caution to avoid violating the various current sanction regimes and would be best served seeking legal advice on planned activities.
1.79 Fed. Reg. 13493 (Mar. 10, 2014). A copy of this Federal Register notice can be accessed here.
2. A U.S. person is defined by the implementing rules as “any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.”
3. 79 Fed. Reg. 15535 (Mar. 19, 2014). A copy of this Federal Register notice can be accessed here.
4. 79 Fed. Reg. 16169 (Mar. 24, 2014). A copy of this Federal Register notice can be accessed here.
5. The Treasury made additional designations on March 20, 2014, April 11 and 28, 2014, May 8, 2014, June 20, 2014 and July 16 and 29, 2014. Presently, the number of individuals and entities added to the SDN listing under the Ukraine-related sanctions stands at approximately 90.
6. The rules implementing EO 13660, EO 13661 and EO 13662 (Executive Orders) can be found at 79 Fed. Reg. 26365 (May 8, 2014). The prohibitions against transactions involving Blocked Property also extend to any property and interests in property owned by an entity in which the SDN owns, directly or indirectly, a 50% or greater interest. Individual SDNs blocked by the Executive Orders are also denied entry into the United States.
7. EAR Section 746.5.
8. Council Regulation (EU) No. 833/2014 (Jul. 31, 2014), which can be accessed here.