Treasury Department Designates Russian Oligarchs, Officials and Entities
- The Treasury Department has placed several prominent Russian individuals and companies on the Specially Designated Nationals and Blocked Persons lists (SDN list). Several of these parties are Russian billionaires previously identified in the Treasury Department’s so-called “Oligarch List” reported to Congress on January 29, 2018.
- Under the general licenses issued with the new listings, U.S. persons have until June 5, 2018 to wind down operations with specified listed companies and their subsidiaries, and until May 7, 2018 to divest debt, equity, or holdings owned by EN+ Group PLC, GAZ Group and United Company RUSAL PLC.
- General License 12, which allows wind down operations with several newly designated SDN companies, instructs that payments to the SDNs must be made into blocked accounts with U.S. banks. This deviates from previous general licenses which did not place conditions on how SDNs must be paid.
On April 6, 2018, the Treasury Department’s Office of Foreign Assets Control (OFAC), in consultation with the State Department, designated 7 Russian oligarchs, 12 companies that they own or control, 17 senior Russian government officials, and 1 state-owned Russian weapons trading company and its subsidiary, a Russian bank. (The list may be found here.)
OFAC reported that the individuals were designated under Executive Order 13662 for operating in the energy sector of the Russian Federation or Executive Order 13661 for “having acted or purported to act for or on behalf of, directly or indirectly, a senior official of the Government of the Russian Federation.” The 12 companies were designated by virtue of being “the most prominent among the entities that are owned or control” by the designated individuals.
The latest round of designations appear to target a subset of the 96 Russian oligarchs and select Russian officials identified in a Treasury Department report to Congress on January 29, 2018. Section 241 of the Countering America’s Adversaries Through Sanctions Act (CAATSA) had required that the U.S. President issue a report identifying “senior foreign political figures and oligarchs in the Russian Federation.” Appendix 2 of the report included a list of 96 Russian oligarchs, defined as individuals with an estimated net worth of $1 billion or more. The Treasury Department has made clear that parties named in this report are not subject to sanctions unless specifically designated. (The unclassified version of the report may be found here.)
The newly listed SDNs include prominent billionaires who own major companies and have investments around the world. Several companies are individually listed as SDNs. OFAC warns that the list of companies should not be viewed as exhaustive, and that transactions and activities with other companies owned 50 percent or more, either individually or in the aggregate, by the designated entities, are also blocked where U.S. jurisdiction applies.
Further, non-U.S. banks and businesses that engage in or facilitate significant transactions with these SDN can be exposed to U.S. secondary sanctions. OFAC updated FAQ 542, which provides guidance on what constitutes a “significant transaction” and “significant financial transaction.”
Thus, the April 6 listings announcement promises to be more commercially disruptive for western companies than most past SDN listings.
To help U.S. and other companies adapt to the impact of the new sanctions listing, OFAC issued two general licenses:
General License 12 authorizes certain activities with the twelve newly blocked entities and their subsidiaries owned 50 percent or more, directly or indirectly, through June 5, 2018. This includes transactions and activities that are ordinarily incident and necessary to the “maintenance or wind down of operations, contracts, or other agreements, including the importation of goods, services, or technology into the United States.”
- Any payment authorized by General License 12 to or for the direct or indirect benefit of a blocked person should be made into a blocked account located in the United States. In practice, those payments would not be available for distribution to the SDNs unless OFAC lifts the sanctions or grants a specific license. Given the current geopolitical climate with Russia, it is unlikely that OFAC would grant such a license.
- U.S. persons are permitted to receive payments from SDNs during the wind down period relating to pre-existing arrangements. OFAC guidance does not appear to require deposit of these funds into blocked accounts. After June 5, 2018, U.S. persons will have to seek specific licenses from OFAC.
General License 13 provides authorization through May 7, 2018, for parties subject to U.S. jurisdiction to divest or transfer debt, equity, or other holdings impacted by the sanctions listings of EN+ Group PLC, GAZ Group and United Company RUSAL PLC. OFAC FAQs clarify that this authorization applies to divestment or transfer to (a) non-U.S. persons, who (b) are not SDNs or blocked persons.
Both general licenses require a report to OFAC by U.S. persons which comprehensively describe transactions undertaken pursuant to the general license and parties involved. This report must be filed within 10 business days after expiration of the applicable general license.
OFAC also issued 8 new FAQs and one updated FAQ related to CAATSA. The general licenses and FAQs are available here.