On March 20, 2014, President Obama issued Executive Order 13662 further expanding the authorization of the U.S. to sanction parties for threatening stability in Ukraine. As outlined below, this Executive Order broadens the authorization announced in Executive Order 13660 of March 6, 2014 (see Holland & Knight alert, "Crisis in Ukraine: U.S. Imposes Targeted Sanctions," March 6, 2014), and expanded by Executive Order 13661 of March 16, 2014.
Following through on its threat, the U.S. government has now started actively targeting President Putin's inner circle for sanctions under this new authority. The U.S. is unlikely to impose comprehensive sanctions on Russia or Russian government-owned entities. However, if the crisis deepens, additional rounds of sanctions are likely against top Russian officials and select entities thought to be owned or controlled by them.
The fluid situation and rapidly changing sanctions create significant risk management challenges for companies doing business in Russia and parts of Ukraine. In particular, unlike typical individuals whose assets are blocked by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC), some of the Russian oligarchs targeted for sanctions may own and control a number of companies which would then be considered sanctioned entities.
Executive Order 13660 of March 6, 2014. Executive Order 13660 put in place legal authority for the U.S. government to take action against persons responsible for asserting authority over regions of Ukraine without authorization of the government of Ukraine. In particular, it requires U.S. persons (principally U.S. banks) to seize the property of persons designated under the Executive Order, as well as imposing a visa ban and blocking donations to these parties.
Executive Order 13661 of March 16, 2014. Executive Order 13661 expanded the scope of Executive Order 13660, by authorizing sanctions on, among others, officials of the Russian government and any individual or entity that is owned (50 percent or more) or controlled by, has acted for or on behalf of, or has provided material or other support to, a senior Russian government official. Executive Order 13661 included an annex listing the names of seven individuals who are subject to the sanctions.
Executive Order 13662 of March 20, 2014. This most recent Executive Order expands authorization beyond that in the prior two Executive Orders by authorizing sanctions on individuals and entities that operate in key sectors of Russia's economy, including the financial services, energy, materials and mining, engineering, and defense and related material sectors, and any individual or entity that is owned (50 percent or more) or controlled by, has acted for or on behalf of, or has provided material or other support to these sanctioned parties.
To date, OFAC has designated approximately 30 parties as specially designated nationals (SDNs), including a few Ukrainian officials, several Russian government officials and members of the Russian leadership's inner circle, and one Russian bank (Bank Rossiya, a.k.a. Aktsionerny Bank Russian Federation). Under long-standing OFAC guidance, any entity owned or controlled by these persons should also be considered an SDN. U.S. persons are essentially prohibited from doing business with these designated persons, and are obligated to block and report to OFAC any assets owned by these persons in their possession.
Currently, the Obama administration has been taking action, and coordinating sanctions with allies, without any intervention by Congress. According to a senior congressional advisor, Congress is working on a three-pronged legislative strategy to address the situation in Ukraine that includes:
These actions would support and not fetter the Obama administration's efforts. However, as evidenced by U.S. sanctions legislation on Iran, congressional leaders have shown a willingness to dictate specific sanctions policy through legislation.
For companies doing business in Russia and Ukraine, managing and mitigating the risks is critical. The following are areas that are essential for companies to be proactive:
It is likely that the crisis and the sanctions will continue to change rapidly, therefore the information in this alert may quickly become outdated. Companies with potentially affected business operations should monitor events closely and institute advance planning now.
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Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.
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