OFAC Relaxes Russia Sanctions After Oligarch Ownership Changes
The Treasury Department’s Office of Foreign Asset Control (OFAC) rarely backs down. Recently, in response to significant ownership and governance changes, OFAC removed three Russian companies, EN+ Group (EN+), UC Rusal plc (Rusal), and JSC EuroSibEnergo (ESE) from the sectoral sanctions list. (Here).
OFAC’s decision to remove the three companies capped the efforts of Russian oligarch, Oleg Daripaska, to modify his ownership and control of these companies to satisfy OFAC regulators that he no longer exercised ownership or management control of the companies.
To secure removal of these entities, the companies agreed:
- To reduce Daripaska’s ownership interest below fifty (50) percent;
- To change the composition of the boards of directors’ of each of the three entities;
- To a robust schedule of auditing, certifying and reporting requirements.
As part of the agreement, half of EN+’s board will be comprised of US and UK citizens, and Rusal’s Chairman of the Board will resign.
Deripaska will remain sanctioned, and companies or individuals that conduct business with Deripaska or any company he owns 50 percent or more will be subject to secondary sanctions.
OFAC’s original Oligarch Sanctions were announced on April 6, 2018. Rusal is the second largest aluminum manufacturer in the world, and OFAC’s sanctions had a significant impact on aluminum prices and supplies.
Shortly after the April 6, 2018 designation, Deripaska and the three companies petitioned OFAC to delist the designations. After extensive negotiations, OFAC and Deripaska reached an agreement. Deripaska’s ownership interests are conducted through EN+. Originally Deripaska owned 70 percent of EN+. He agreed to reduce his ownership interest to 44.95 percent. In addition, Deripaska agreed not to earn any money from the corporate restructuring and reduction of his assets and control. EN+ will retain control and ownership of two subsidiaries, Rusal and ESE.
As part of the restructuring agreement, Deripaska agreed to vote no more than 35 percent of his shares in EN+. The balance of his shares will be voted by an independent third party with no ties to Deripaska.
EN+ agreed to create a new board of directors, consisting of 12 directors, over half of whom are designated independent directors. OFAC vetted the entire board, and half of the board will consist of US and UK nationals. Deripaska will have the right to nominate no more than 4 directors.
Deripaska agreed to a comprehensive letter to restrict his ability to exercise or influence control of EN+. Deripaska explicitly agreed not to directly or indirectly exercise controlling influence over management or policies of EN+.
EN+ also agreed to a comprehensive auditing, certifying and reporting regime, including: auditing EN+’s and Rusal’s engagements with Deripaska; providing monthly certifications of compliance with OFAC terms of the agreement; providing quarterly reports to OFAC from EN+ and Rusal; and notifying OFAC of any changes to board composition, ownership or compliance with terms of the settlement.