Russia sanctions

Russia: EU prolongs economic sanctions by six months

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Russian

Infographic – EU sanctions against Russia over Ukraine

Since 2014, the EU has imposed different types of sanctions against Russia in response to the illegal annexation of Crimea.See full infographic

On 27 June 2019, the Council prolonged economic sanctions targeting specific sectors of the Russian economy until 31 January 2020.

This decision follows an update from Chancellor Merkel and President Macron to the European Council of 20-21 June 2019 on the state of implementation of the Minsk Agreements, to which the decision as to maintain the sanctions is linked.

Following this update, the European Council called for an urgent resumption of negotiating efforts with a view to the implementation of the Minsk Agreements and for measures aimed at rebuilding confidence among the parties. In this context, EU leaders unanimously agreed to maintain the economic sanctions on Russia. The Council formalised this decision today by written procedure.  

The measures target the financial, energy and defence sectors, and the area of dual-use goods. They were originally introduced on 31 July 2014 for one year in response to Russia’s actions destabilising the situation in Ukraine and strengthened in September 2014.

The economic sanctions prolonged by this decision include:

  • limiting access to EU primary and secondary capital markets for 5 major Russian majority state-owned financial institutions and their majority-owned subsidiaries established outside of the EU, as well as three major Russian energy and three defence companies

  • imposing an export and import ban on trade in arms

  • establishing an export ban for dual-use goods for military use or military end users in Russia

  • curtailing Russian access to certain sensitive technologies and services that can be used for oil production and exploration

In addition to these economic sanctions, several EU measures are also in place in response to the crisis in Ukraine including:  

  • targeted individual restrictive measures, namely a visa ban and an asset freeze currently against 170 individuals and 44 entities, in force until 15 September 2019;

  • restrictive measures in response to the illegal annexation of Crimea and Sevastopol, limited to the territory of Crimea and Sevastopol, in force until 23 June 2020.

The duration of the economic sanctions was linked by the European Council on 19 March 2015 to the complete implementation of the Minsk Agreements, which was foreseen to take place by 31 December 2015. Since this did not happen, the sanctions have remained in place.

Link:

EU Notice, Infographic

Issuance of Amended Venezuela-related General License; Temporary Extension of Ukraine-related General Licenses

The Department of the Treasury’s Office of Foreign Assets Control (OFAC) is amending Venezuela-related

Today OFAC extended the expiration date of two general licenses related to GAZ Group by issuing General License No. 13L – Authorizing Certain Transactions Necessary to Divest or Transfer Debt, Equity, or Other Holdings in Certain Blocked Persons, and General License No. 15F – Authorizing Certain Activities Necessary to Maintenance or Wind Down of Operations or Existing Contracts with GAZ Group, or Certain Automotive Safety Activities.

In addition, General License No. 15F includes a new authorization for certain safety-related activity.

Links:

OFAC Notice

Venezuela General License 13B

Ukraine-Related General License 13L

Ukraine-Related General License 15F

Link:

EU Notice

Today, OFSI (part of HM Treasury) posted a new short document (4 pages including the cover image) about what sanctions on Russia will look like after the UK exits the European Union.

There are sections on asset freezes, transferable securities or money-market instruments (listing specific restricted firms), loan and credit arrangements, and Crimea-related investments. (If it cut and pasted better, I would post it, but…).

Link:

OFSI guidance

Interesting case: Haverly settled two Apparent Violations of the Ukraine Related Sanctions Regulations (the first under this program) for $75,375, knocked down from a base penalty of $125,000 (and a maximum of $590,282). The violations were not self-reported, but were non-egregious.

The practical upshot is that Haverly invoiced Rosneft (on the SSI List under Directive 2) with terms of 30 and 70 days, under the magic 90 day limit. However, Rosneft asked for additional info and, by the time Haverly came up with it, it was past 90 days, making for a prohibited extension of credit:

From on or about May 31, 2016, to on or about October 27, 2016, Rosneft made four attempts to remit payment related to the second invoice, each of which was rejected by financial institutions after determining the transaction was prohibited by OFAC’s regulations as debt of greater than 90 days maturity of an SSI entity subject to Directive 2. At points during the period associated with these rejected payment attempts, Haverly received information from Rosneft, including copies of Society for Worldwide Interbank Financial Telecommunication messages amongst and between financial institutions regarding the rejected transactions — some of which contained information and instructions stating that the underlying activity may have a nexus to sectoral sanctions.

However, at the time of the payment attempts Haverly did not have a sanctions compliance program and did not recognize that the delayed collection of payment was prohibited. Haverly did not approach OFAC for guidance or authorization, however, and instead explored various options to collect the payment associated with the second invoice from Rosneft. At the suggestion of Rosneft, Haverly re-issued and re-dated the second invoice. Haverly then successfully received payment on the second invoice from Rosneft on January 11, 2017.

And here are the General Factors considered in calculating the final penalty:

OFAC considered the following to be aggravating factors:

(1) With respect to the second apparent violation, Haverly demonstrated reckless disregard for U.S. economic sanctions requirements by repeatedly ignoring warning signs that its conduct constituted or likely constituted a violation of OFAC’s regulations;

(2) Haverly’s management team had actual knowledge of the conduct giving rise to the apparent violations; and

(3) Haverly did not possess a formal OFAC sanctions compliance program at the time the apparent violations occurred.

OFAC found the following to be mitigating factors:

(1) The apparent violations resulted in minimal actual harm to the sanctions program objectives of the URSR, and OFAC would have likely authorized the transactions had Haverly requested a license to receive the payments;

(2) Haverly has not received a Penalty Notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the apparent violations;

(3) Haverly is a small company with a limited number of employees; and

(4) Haverly engaged in remedial efforts that included the creation of a Sanctions Compliance Officer position, and implementation of a risk-based compliance program with screening designed to review all current and future clients of Haverly for OFAC purposes.

OFAC added in Haverly’s commitments to better compliance, including regular risk assessments, a commitment to creating a culture of compliance and ongoing training.

OFAC closes with a warning about SSI violations:

This enforcement action highlights the risks associated with engaging in transactions involving sectors of the Russian economy subject to U.S. economic and trade sanctions. The development and implementation of a risk-based sanctions compliance program would provide such companies with an ability to assess prospective and real-time transactions for potential prohibitions and violations of OFAC’s regulations. An effective sanctions compliance program includes policies, procedures, and controls capable of identifying at-risk transactions and customers or counter-parties for review; escalating such matters to a sanctions compliance officer or point-of-contact for proper analysis; an ability to respond and react to warning signs regarding potential violations, including transactions blocked or rejected by financial institutions in accordance with OFAC’s regulations; and an adequate training program. OFAC encourages companies to exercise enhanced due diligence in business relationships with entities subject to the SSI List and to avoid the use of unorthodox business practices — such as the amendment or alteration of trade documents, or resubmission of payment information without a sanctions- related term, phrase, or location.

Link:

OFAC Enforcement Information

So, if you’ve read the releases from OFSI & the EU, OFAC, Canada and Australia, you’ll notice that they all designated some Russian persons and entities for actions in the Sea of Azov/Kerch Strait, eastern Ukraine and/or Crimea. But they all did different things…

The UK and EU regulators designated 8 persons, the US 6 persons and 8 entities, Canada 114 persons and 15 entities (claiming previously having designated 300 total parties), and Australia added 10 persons.

So, does this bring everyone to the same sanctioned parties? Because, after all, sanctions are most effective when you can cut off more of the world’s financial markets from the people you are trying to influence or punish.

(See the US’ ineffective Cuba sanctions program, if you need any real proof)