What is the status of the evolving international sanctions against Ukraine and Russia?
- Since the recent escalation of the Ukraine crisis in March, there have been almost daily developments regarding economic sanctions – ranging from details of implementation to proposals for new or tougher measures.
- This update is part of a series of snapshots of the current sanctions, how they apply to financial institutions doing business in or with Ukraine and Russia and their customers and counterparties, compliance requirements in different scenarios, and where sanctions might be headed in the near future.
What are the current US and EU sanctions measures?
- In March 2014, the US issued three Executive Orders pursuant to which the Obama administration has since imposed sanctions in announcements made in March and April on 45 individuals and 19 entities.1 These Executive Orders also set the stage for more sweeping sanctions that potentially may be imposed against individuals and entities in various sectors of the Russian economy.
- In addition, on April 3, 2014, the US also enacted legislation that supplements the Executive Orders and authorizes potential sanctions against additional categories of Ukrainian and Russian persons.3
- In particular, the US sanctions issued to date require US persons (including US citizens, banks incorporated in the US, including foreign branches, and any individual or entity located in the United States including US branches of non-US banks) to block (freeze) all property or interests in property of designated parties, where such property or interests in property are or come within the United States or the possession or control of US persons anywhere in the world. The US sanctions also prohibit US persons from engaging, directly or indirectly, in any dealings with, or for the benefit of, designated parties. Non-US financial institutions also may be subject to these restrictions if they act in the United States or their transactions have some other US nexus. Designated individuals also are subject to a visa ban.
- The Executive Orders also target entities that are owned or controlled by designated parties.
– As a general rule, entities with 50% or greater ownership interest held by a designated party, directly or indirectly, are deemed blocked by operation of law (together with designated parties, referred to as “blocked persons”) even in the absence of a specific designation.
– Absent a license, US persons likewise must block (freeze) the property of such blocked parties and are restricted from dealing with them, directly or indirectly. With respect to entities in which a designated party has a significant ownership interest that is less than 50%, or which a designated party may control by means other than a majority ownership interest, US persons are advised to act with caution as these parties may be designated in the future.
- In parallel with the US sanctions, the EU has imposed sanctions on 48 individuals from Russia and Crimea.
– These sanctions include an asset freeze, be prohibited. Possible examples include as well as an entry and transit ban.6 The EU has further imposed a separate asset freeze on 22 individuals in relation to alleged misappropriation of Ukrainian state funds and human rights violations in Ukraine.7
– There are a few matches between the names featured on the US sanctions list and on the EU sanctions lists, but the EU sanctions are so far relatively narrow; the main difference compared to US sanctions is that the EU has not yet designated any entities and the currently designated persons mostly consist of politicians and military officers.
- As a result of the asset freeze, all funds and economic resources belonging to, or controlled by, these EU-designated persons must be frozen. Furthermore, no funds or economic resources may be made available – either directly or indirectly – to or for the benefit of these persons. This means, for example, that funds or economic resources cannot be made available through persons or entities owned or controlled by designated parties. In other words, if there is EU jurisdiction, one cannot as a general rule do business with these individuals, or legal persons, entities or bodies associated with them.
- The concepts “funds” and “economic resources” are interpreted very broadly in the EU to include anything that can be used to obtain funds, goods or services.
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