In March 2014, President Obama issued three Executive Orders (the “Orders”) relating to the escalating crisis in Ukraine. In this Client Alert, we examine each of the Orders, and the implications under U.S. law for individuals and companies conducting business and transactions in Russia or in Europe generally.
March 6, 2014: The First Executive Order
On March 6, 2014, President Obama signed Executive Order 13660 (“E.O. 13660”), providing the Secretary of the Treasury with the authority to impose targeted economic sanctions against individuals or entities who engage in broadly-defined activities that “undermine democratic processes or institutions in Ukraine” or “threaten the peace, security, stability sovereignty, or territorial integrity of Ukraine.” Any person or entity designated under E.O. 13660 is considered “blocked.” To the extent the property and assets of such person or entity are in the U.S. or under the control of a U.S. person, all such property and assets will be frozen. The provision or receipt of funds, goods or services by, to, or for the benefit of any blocked person is prohibited. In addition, a U.S. person is prohibited from doing business with blocked persons or entities, as well as individuals or entities controlled by such a blocked person or entity.1
March 17, 2014: The Second Executive Order
Less than two weeks after the issuance of E.O. 13660, President Obama issued Executive Order 13661 (“E.O. 13661”), which authorizes the imposition of sanctions on any person determined to be:
- An official of the Government of the Russian Federation;2
- Operating in the arms or related materiel sector in the Russian Federation;
- Owned or controlled by, or acting for or on behalf of, a senior official of the Government of the Russian Federation or a person blocked under E.O. 13661;
- Materially assisting, sponsoring, or provided financial, material, or technological support for, or goods or services to, a senior official of the Government of the Russian Federation or a person blocked under E.O. 13661.
E.O. 13661 also prohibits transactions that evade or avoid, have the purpose of evading or avoiding, cause a violation of, or attempt to violate E.O. 13661. Lastly, E.O. 13661 expands upon a pre-existing ban on U.S. visas for individuals complicit in human rights abuses and political oppression in Ukraine. Per E.O. 13661, the U.S. State Department has maintained and will continue to maintain a confidential list of individuals subject to a visa ban on those determined to be responsible for or complicit in the political upheaval in Ukraine.
In connection with E.O. 13660 and E.O. 13661, OFAC blocked eleven individuals, all of whom were added to the Specially Designated Nationals and Blocked Persons List (“SDN List”).
March 20, 2014: The Third Executive Order
On March 20, 2014, President Obama issued Executive Order 13662 (“E.O. 13662”), authorizing the imposition of sanctions against individuals or entities:
- Operating in the financial services, energy, metals and mining, engineering, and defense and related materiel sectors of the economy of the Russian Federation;
- Materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to a designated person under E.O. 13662; or
- Owned or controlled by or acting of behalf of a person or entity designated under E.O. 13662.
E.O. 13662 also authorized sanctions against individuals believed to support the Russian government. Accordingly, OFAC designated 20 individuals as SDNs: 16 officials of the Russian government, and 4 individuals OFAC determined were controlled by, acting for or on behalf, or providing material or other support to a senior official of the Russian government. OFAC also named Bank Rossiya as an SDN on the basis that it is frequently used by senior officials of the Russian Federation.
The situation in Ukraine is changing rapidly. As the crisis continues to unfold, the U.S. has made clear that it is prepared to take further action. Such action may include the imposition of additional grounds for sanctions and new OFAC designations. While E.O. 13662 named certain important sectors of the Russian economy, OFAC may designate individuals or entities operating in any sector that OFAC determines pose a threat. These new sanctions have significant implications not only for individuals and companies engaged in business activities with blocked persons under the Orders, but potentially anyone involved in business activities within the Russian economy.
Individuals and companies conducting business in Russia and Ukraine, as well as Europe generally, should closely monitor the situation to ensure their compliance with the Orders, as well as any future sanctions, regulations or designations. Given the rapidly escalating nature of the sanctions applicable to individuals and entities in Russia and Ukraine, it is advisable for all individuals and companies operating in the region to implement an effective compliance system pursuant to which U.S. persons may scrutinize all business relationships and operations, review the assets they hold, the contracts and transactions in which they are engaged, and conduct due diligence into any possible connection with designated parties, to the extent no such system is yet in place. Such screening is crucial for mitigating the potential for having assets seized or frozen under the Orders, or any other penalties which may be imposed for violations of the Orders.
We will continue to follow the situation closely and report on any developments in this area. If you have any questions or concerns about the Orders as they relate to your business activities, please contact Bruce G. Paulsen (212-574-1533) or Michael W. Broz (212-574-1272) at Seward & Kissel.
1 The Office of Foreign Assets Control (“OFAC”) has interpreted this to mean direct or indirect ownership of 50% or more of a blocked entity. As it relates to accounts, debits from frozen accounts are prohibited but credits are authorized and “payments, transfers, withdrawals or other dealings may not be made except as licensed by OFAC or otherwise authorized by the Treasury Department.” OFAC Regulations for the Financial Community (January 24, 2012).
2 E.O. 13661 defines “Government of the Russian Federation” as “the Government of the Russian Federation, any political subdivision, agency, or instrumentality thereof, including the Central Bank of the Government of the Russian Federation, and any person owned, or controlled by, or acting for or on behalf of, the Government of the Russian Federation.”