OFAC Hits Russia with New Sanctions
On April 6, 2018, OFAC announced a new round of sanctions against Russian individuals and companies. (For Press Release Here; new FAQs Here; and new General Licenses 12 Here and 13 Here). Relying on its authority under existing executive orders, OFAC designated seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials and a state-owned weapons trading company, and its subsidiary, a Russian bank. In announcing the new sanctions, the US government cited Russia’s continue occupation of Crimea, its instigation of violence in eastern Ukraine, supplying the Assad regime with materials and weapons, attempting to subvert Western democracies, and malicious cyber-attacks.
The seven oligarchs include:
Vladimir Bogdanov, the Director General and Vice Chairman of the Board of Directors of Surgutneftegaz, a vertically integrated oil company operating in Russia.
Oleg Deripaska has been investigated for money laundering, and has been accused of threatening the lives of business rivals, illegally wiretapping a government official, and taking part in extortion and racketeering.
Suleiman Kerimov is a member of the Russian Federation Council. On November 20, 2017, Kerimov was detained in France and held for two days. He is alleged to have brought hundreds of millions of euros into France – transporting as much as 20 million euros at a time in suitcases, in addition to conducting more conventional funds transfers – without reporting the money to French tax authorities.
Igor Rotenberg acquired significant assets including Russian oil and gas drilling company Gaqzprom Burenie from his father, Arkady Rotenberg, after OFAC designated Arkady in March 2014.
Kirill Shamalov married Vladimir Putin’s daughter Katerina Tikhonova in February 2013 and shortly thereafter, he acquired a large portion of shares of Sibur, a Russia-based company involved in oil and gas exploration, production, processing, and refining. A year later, he was able to borrow more than one $1 billion through a loan from Gazprombank.
Andrei Skoch is being designated for being an official of the Government of the Russian Federation. Skoch is a deputy of the Russian Federation’s State Duma. Skoch has longstanding ties to Russian organized criminal groups, including time spent leading one such enterprise.
Viktor Vekselberg is the founder and Chairman of the Board of Directors of the Renova Group, an asset management and investment company. Vekesberg has been accused of bribing top government officials in Russia.
OFAC also issued new General Licenses 12 and 13.
General License 12 authorizes US persons and company to conduct transactions, until June 5, 2018, which are ordinarily incident to continuity of operations or to facilitate wind-down of a business relationship, including salary payments, pension payments or other benefits by the blocked entities listed in General License 12. US persons are prohibited from continuing employment with any designated company or sitting on the board of any blocked entity.
General License 13 authorizes certain divestment transactions and transfer activities related to debt, equity or other holdings in the blocked entities for a period of time ending May 7, 2018.
The new sanctions raise compliance issues relating to application of OFAC’s 50 percent rule. For example, if a blocked person/oligarch holds less than a 50 percent interest in a U.S. company, the U.S. company is not itself blocked but the U.S. company has to block all property and interests in property in which the blocked person has an interest. In such a scenario, the company may be able to continue operating, but the company may not be able to pay the blocked person/oligarch any required payments, dividends or disbursements of profits.
As always, companies have to be vigilant in reviewing proposed transactions involving Russian business interests, and in particular, identify beneficial owners of companies that may be owned, directly or indirectly, by a Russian blocked government official or oligarch.
Foreign companies may be subject to OFAC’s Russia sanctions depending on the nature of the transaction, their knowledge relating the transaction itself and the participants. General Licenses 12 and 13, coupled with prior OFAC Guidance, may permit certain transactions otherwise prohibited so long as the transactions are not structured in a deceptive manner.