March 6, 2014

Crisis in Ukraine: U.S. Imposes Targeted Sanctions

Holland & Knight Alert
Jonathan M. Epstein


  • An Executive Order issued today by President Obama authorizes the blocking of property and the imposition of visa bans on individuals who threaten Ukraine's stability. Under the Executive Order, the Treasury Department's Office of Foreign Assets Controls (OFAC) is likely to designate certain former and current Ukrainian officials immediately as Specially Designated Nationals (SDNs).
  • Given the situation in Ukraine, companies doing business there should be thinking now about contingency plans should the crisis worsen.

This morning, President Obama issued an Executive Order authorizing the blocking of property and imposition of visa bans on persons threatening stability in Ukraine. Initially, the U.S. will likely target for sanctions only certain current or former Ukrainian government officials, including ousted Ukrainian president, Viktor Yanukovych, and former prime minister Mykola Azarov. (Such individuals will likely be identified as SDNs by OFAC. This U.S. action appears to mirror action taken by the European Union.

At this point, the U.S. sanctions are limited. Given geopolitical considerations, it is unlikely the United States will impose broad sanctions on Russia or Russian entities. However, as we have seen in other crises, events can move swiftly and companies doing business in Ukraine (and perhaps Russia as well) should at least be considering their worst-case-scenario contingency plans.

What is the scope of U.S. sanctions under the Executive Order?

The Executive Order issued today puts 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. Persons may be designated under the Executive Order for their involvement in:

  • undermining the democratic process in Ukraine
  • threatening the peace, security, sovereignty or territorial integrity of Ukraine
  • misappropriating assets of the State of Ukraine or of economically significant entities in Ukraine
  • asserting government authority over any part of Ukraine without the authorization of the Government of Ukraine

According to press reports, the visa ban is already in effect. The "blocking" of assets will not officially take effect until OFAC designates individuals or entities as SDNs under the Executive Order.

What further U.S. sanctions are likely?

OFAC is likely to designate certain former and current Ukrainian officials immediately. We foresee the U.S. targeting individuals and groups in Crimea that are pushing for Crimean independence, and perhaps Ukrainian entities and major industrial entities in Crimea tied to such groups or the Russian government. We believe that the Obama administration will try to act in concert with the European Union and other allies, as multilateral sanctions have proven far more effective than unilateral U.S. action. However, as with Iran, the U.S. Congress may take an activist role. The House Foreign Affairs Committee scheduled hearings on the crisis in Ukraine for today.

Although the Executive Order is broad enough to authorize sanctions against Russian officials, sanctions against Russian senior officials or against Russia are highly unlikely at this stage. However, such sanctions would become more likely if the situation in Ukraine escalated into armed conflict involving Russian forces. In addition, if the United States were to sanction Russia, Russian officials, or Russian entities, there would likely be similar retaliatory sanctions imposed by Russia on U.S. officials or U.S. entities.

What steps should my company be taking?

For companies with business operations in Ukraine, there is not only the risk of targeted sanctions against certain individuals entities, but more important, the effect of unrest or political instability on a company’s businesses and risk to individual employees in-country. While each company’s operations and exposure is different, it is not too early to start thinking about contingencies. Some preliminary steps to consider:

  • identify what operations/personnel you have in Ukraine; start to outline when/how you would wind down those operations and when you would withdraw personnel.
  • identify long-term contracts to buy/supply goods from Ukraine; for example, do you have materials critical for your manufacturing coming from companies in Crimea?
  • for operations in Ukraine, review relevant insurance to understand exclusions related to civil unrest, military action, etc.
  • for vessel operators, understand the charter and insurance restrictions for war-risk and voyages to war-zones, and look into the availability of war-risk insurance

While this alert is current as of today’s date, the situation in Ukraine (and the U.S. response) has the potential to change very rapidly. As a result, companies with affected business operations are well advised to monitor events closely.

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