Worldwide: Sanctions Round Up: First Quarter 2018

RUSSIA

This quarter was marked by significant activity against Russia, with the Trump Administration for the first time imposing new sanctions explicitly in response to Russia's alleged meddling in the 2016 US Presidential election and for a costly cyber attack which targeted the US last year. As described further below, the Trump Administration began the year by designating dozens of individuals and entities for their alleged continued involvement in separatist activities in Ukraine. In March, the Administration targeted multiple Russian entities and related individuals for various cyber-related offenses, including for attempting to undermine the 2016 US Presidential election. In April, the Administration imposed its most severe round of sanctions yet, targeting dozens of Russian oligarchs and government officials in further response to the Russia's "range of malign activity around the globe."

Along with the ratcheting up of sanctions, diplomatic tensions between the two countries continued to escalate this month after U.K. authorities blamed Russia for a nerve agent attack against a former double agent and his daughter, who were residing in the United Kingdom. On March 26, the US expelled 60 Russian diplomats and announced the closure of the Russian consulate in Seattle, Washington. Russia denied responsibility for the attack and, in response to the US measures, expelled 60 US personnel and closed the US consulate in St. Petersburg. Commentators in the US have speculated that the Russian government remains concerned about potential financial sanctions that could be implemented by the U.K. and US governments, particularly as to Russian sovereign debt, although the Treasury Department has thus far indicated it is not considering such measures.

RUSSIAN OLIGARCHS AND STATE OFFICIALS

On April 6, OFAC announced blocking sanctions against numerous Russian business tycoons, their associated companies, and senior government officials in response to what Treasury Secretary Steven Mnuchin called the Russian government's "disproportionate benefit of oligarchs and government elites" and the country's "range of malign activity around the globe" from Ukraine to Syria. The sanctions sparked an immediate selloff of Russian equities and the ruble, leading to the largest drop in Moscow-traded stocks in four years.

The most prominent of sanctioned oligarchs included billionaire Oleg Deripaska, as well as several companies he controls, including En+ Group PLC, the largest operator of Siberian power plants, and United Company RUSAL PLC, Russia's biggest aluminum producer, among others. OFAC specifically noted that a number of the sanctioned individuals appeared in the reports submitted by the Administration to Congress in January, which identified Russia's most prominent government officials and oligarchs, as was required by the Countering America's Adversaries Through Sanctions Act (CAATSA).

As with other blocking sanctions, all US-based property of the designated persons is blocked, and US persons are generally prohibited from dealing with them. By extension, non-US persons are prohibited from engaging in transactions with the SDNs where there exists the presence of a US nexus (e.g., US dollar payments, involvement of US personnel, etc.) OFAC published two general licenses, described further below, allowing a grace period for US persons to wind down previously existing operations and to divest from the sanctioned entities, noting that any payment made for the benefit of the blocked entities relating to the wind-down activities must be deposited into a blocked account at a US financial institution.

Importantly, these designations are likely to have significant implications for non-US persons as well, as CAATSA requires the Treasury Department to impose mandatory secondary sanctions on non-US persons who knowingly facilitate significant transactions with these SDNs. Indeed, concurrently with the sanctions, OFAC published additional guidance emphasizing that, pursuant to CAATSA section 228, non-US persons could face mandatory sanctions if they are determined to "knowingly facilitate significant transactions" with any Russian person subject to US sanctions. Foreign financial institutions likewise face restrictive measures pursuant to CAATSA section 226 for knowingly facilitating significant financial transactions on behalf of any such persons. OFAC reiterated its previous guidance that a transaction will not be considered "significant" if US persons would not require specific licenses from OFAC to participate in it.1

Although OFAC's ultimate approach to enforcing these CAATSA provisions against non-US persons remains to be seen, it assured that the "United States remains committed to coordinating with our allies and partners in order to mitigate adverse and unintended consequences of these designations." Despite this overture, US Treasury Undersecretary Sigal Madelker, speaking in London following the announcement of the sanctions, explicitly warned that "[t]here of course would be consequences for U.K. financial institutions" that continue to do business with the sanctioned Russian oligarchs and related entities. "There could be secondary sanctions implications."

In total, OFAC designated seven Russian oligarchs and twelve affiliated companies, seventeen senior Russian government officials and one state-owned Russian weapons trading company and its subsidiary, a Russian bank. The designations were made pursuant to E.O. 13661 and E.O. 13662 (targeting Russian Government officials and persons participating in Russia's energy sector), authorities codified by CAATSA as well as E.O. 13582 (targeting the Government of Syria and its supporters). The following individuals and entities were designated as SDNs:

Designated Russian Oligarchs

  • Vladimir Bogdanov - Director General of Surgutneftegaz, a Russian oil company (itself previously sanctioned under Directive 4 of the sectoral sanctions program).
  • Oleg Deripaska - purported senior official who has been investigated for money laundering, threatening business competitors, obtaining illegal wiretaps and various extortion and racketeering schemes.
  • Suleman Kerimov - member of the Russian Federal Council alleged to have laundered hundreds of millions of euros through the purchase and sale of villas in France.
  • Igor Rotenberg - owner of Russian oil and gas drilling company Gazprom Burenie.
  • Kirill Shamalov - son-in-law of President Vladimir Putin and shareholder of Siber, a Russia-based oil and gas exploration company.
  • Andrei Skoch - deputy of the Russian Federation's State Duma with alleged ties to Russian organized criminal groups.
  • Viktor Vekselberg - Founder and Chairman of the Renova Group, a network of asset management and investment funds operating in the Russian economy.

Designated Oligarch-Owned Companies

  • B-Finance Ltd (BVI) - owned or controlled by Oleg Deripaska.
  • Basic Element Limited (Jersey) - owned or controlled by Oleg Deripaska.
  • EN+ Group (Jersey) - owned or controlled by Oleg Deripaska.
  • EuroSibEnergo (Russia) - owned or controlled by Oleg Deripaska.
  • United Company RUSAL PLC (Jersey) - owned or controlled by EN+Group.
  • Russian Machines (Russia) - owned or controlled by Oleg Deripaska.
  • GAZ Group (Russia) - owned or controlled by Oleg Deripaska.
  • Agroholding Kuban (Russia) - owned or controlled by Oleg Deripaska.
  • Gazprom Burenie, OOO (Russia) - owned or controlled by Igor Rotenberg.
  • NPV Engineering Open Joint Stock Company (Russia) - owned or controlled by Igor Rotenberg.
  • Ladoga Menedzhment, OOO (Russia) - owned or controlled by Kirill Shamalov.
  • Renova Group (Russia) - owned or controlled by Viktor Vekselberg.

Designated Russian State-Owned Firms:

  • Rosoboroneksport - weapons trading company with alleged ties to the Assad regime in Syria. According to OFAC, Rosoboroneksport has sold billions of dollars' worth of weapons to support the Government of Syria.
  • Russian Financial Corporation Bank - designated for being owned by Rosoboroneksport.

Russian Government Officials

  • Andrey Akimov - Chairman of the Management Board of state-owned Gazprombank.
  • Mikhail Fradkov - President of the Russian Institute for Strategic Studies.
  • Sergey Fursenko - member of the board of directors of Gazprom Neft, a subsidiary of state-owned Gazprom.
  • Oleg Govorun - Head of the Presidential Directorate for Social and Economic Cooperation with the Commonwealth of Independent States Member Countries.
  • Alexey Dyumin - Governor of the Tula region of Russia.
  • Vladimir Kolokoltsev - Minister of Internal Affairs and General Police of the Russian Federation.
  • Konstantin Kosachev - Chairperson of the Council of the Federation Committee on Foreign Affairs.
  • Andrey Kostin - President, Chairman of the Management Board, and Member of the Supervisory Council of state-owned VTB Bank.
  • Alexey Miller - Chairman of the Management Committee and Deputy Chairman of the Board of Directors of state-owned company Gazprom.
  • Nikolai Patrushev - Secretary of the Russian Federation Security Council.
  • Vladislav Reznik - member of the Russian State Duma.
  • Evgeniy Shkolov - Aide to the President of the Russian Federation.
  • Alexander Torshin - Deputy Governor of the Central Bank of the Russian Federation.
  • Vladimir Ustinov - Plenipotentiary Envoy to Russia's Southern Federal District.
  • Timur Valiulin - Head of the General Administration for Combatting Extremism within Russia's Ministry of Interior.
  • Alexander Zharov - Head of Roskomnadzor (the Federal Service for the Supervision of Communications, Information Technology and Mass Media).
  • Viktor Zolotov - Director of the Federal Service of National Guard Troops and Commander of the National Guard Troops of the Russian Federation.

Footnotes

1 OFAC has advised that it will consider the totality of the facts and circumstances when determining whether transactions or financial transactions are "significant." OFAC will consider the following list of seven broad factors: (1) the size, number and frequency of the transaction(s); (2) the nature of the transaction(s); (3) the level of awareness of management and whether the transaction(s) are part of a pattern of conduct; (4) the nexus between the transaction(s) and a blocked person; (5) the impact of the transaction(s) on statutory objectives; (6) whether the transaction(s) involve deceptive practices; and (7) such other factors that the Secretary of the Treasury deems relevant on a case-by-case basis. See FAQ 542.

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