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US imposes new sanctions on Russia
By Clare Hatcher (Partner, London) and Owen Williams (Associate, London)
On 6 April 2018 the US Office of Foreign Assets Control (OFAC) added 24 Russian individuals and 14 companies to its list of specially designated nationals (SDNs). The US- based assets and property of these SDNs are now frozen and US-persons are prohibited from having any dealings with them. Non-US persons could also face enforcement action if they engage in “significant” transactions with any sanctioned Russian entity, under enhanced secondary sanctions.
Who has been designated? The new designations cover 17 Russian government officials, two state-owned companies, seven oligarchs and 12 of the companies they own. The list is not exhaustive. Under OFAC’s “50% rule”, any company owned 50% or more (whether directly or indirectly) by an SDN or combination of SDNs, is itself designated. Therefore firms engaged in Russian business should conduct sufficient due diligence to determine the ultimate ownership of their counterparties in order to be certain that they are not dealing with a counterparty which is indirectly covered by US sanctions. Of particular note amongst the new SDNs is the inclusion of the heads of three of Russia’s largest state-owned companies, Gazprom, Gazprombank and VTB Bank. However the companies themselves have not been added to the SDN list. “... firms engaged in Russian business should conduct sufficient due diligence to determine the ultimate ownership of their counterparties in order to be certain that they are not dealing with a counterparty which is indirectly covered by US sanctions.”
How do the sanctions apply to non-US persons? The Countering America’s Adversaries Through Sanctions Act (CAATSA) contains secondary sanctions aimed at discouraging non-US persons from dealing with certain Russian entities. Non-US persons who knowingly facilitate “significant” transactions for or on behalf of such entities risk having their US-property and assets frozen. When determining whether someone has “facilitated” a transaction, OFAC will take a wide view, with official FAQs stating that: facilitating a significant transaction for or on behalf of a person will be interpreted to mean providing assistance for a transaction from which the person in question derives a particular benefit of any kind (as opposed to a generalized benefit conferred upon undifferentiated persons in aggregate). Assistance may include the provision or transmission of currency, financial instruments, securities, or any other value; purchasing, selling, transporting, swapping, brokering, financing, approving, or guaranteeing; the provision of other services of any kind; the provision of personnel; or the provision of software, technology, or goods of any kind. The legislation itself does not spell out what is meant by a “significant” transaction. However OFAC has provided a list of seven factors it will take into account in determining whether a transaction is “significant”: 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;
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