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<p>On August 6, the U.S. Department of Commerce (the “Commerce Department”) issued new regulations, implementing additional sanctions against Russia and introducing new restrictions on exports for its energy sector. These new regulations closely follow recently-imposed sanctions promulgated by the Treasury Department’s Office of Foreign Assets Control (“OFAC”), which prohibit the issuance of new medium- and long-term debt and, in some cases, new equity by U.S. Persons to designated Russia-related persons in the energy and financial sectors. Further, OFAC has continued to expand the Ukraine-related sanctions by adding various persons and entities to its Specially Designated Nationals (“SDN”) List. As a result of these sanctions, Russia is now taking certain retaliatory trade actions against the United States.</p>  <h5>New Energy Sector Export License Requirements/Presumption of Denial</h5>  <p>The new Commerce Department regulations: (i) add another Russian company (United Shipbuilding Corporation) to the Entity List; (ii) remove Russia’s favorable license review treatment under national security reasons for control; and (iii) institute a new license requirement for exports, reexports or in-country transfers of certain items subject to U.S. export controls for use in certain segments of Russia’s energy sector, with a presumption of denial for applications for such licenses. The license application requirements apply to the specified items where the (re)exporter knows or is informed by the Commerce Department that they will be used, directly or indirectly, in exploration or production of oil or gas from deepwater (greater than 500 feet) or Arctic offshore locations, or shale formations in Russia, or where the (re)exporter is unable to determine whether the item will be used in such projects.<span style="font-size:10px"><a href="#[1]">1</a></span></p>  <p>These specified items include a broad variety of oil/gas exploration or production equipment (identified by specific Schedule B Nos.) and the items identified in new ECCNs 0A998 and 8D999, and in previously-existing ECCNs 1C992, 3A229, 3A232, 6A991, and 8A992. Covered items include:</p>  <ul> 	<li>Drilling rigs, parts for horizontal drilling, drilling and completion equipment, subsea processing equipment, Arctic-capable marine equipment, wireline and down hole motors and equipment, drill pipe and casing, software for hydraulic fracturing, high pressure pumps, seismic acquisition equipment, remotely operated vehicles, compressors, expanders, valves, and risers;</li> 	<li>Oil and gas exploration software and data;</li> 	<li>Software specifically designed for the operation of unmanned submersible vessels used in the Russian oil and gas industry;</li> 	<li>Commercial charges and devices containing energetic materials and nitrogen trifluoride in a gaseous state;</li> 	<li>Firing sets and equivalent high-current pulse generators;</li> 	<li>Certain neutron generator systems, including tubes;</li> 	<li>Detonators and multipoint initiation systems;</li> 	<li>Marine or terrestrial acoustic equipment capable of detecting underwater objects or positioning surface/underwater vessels, and specially designed parts and components; and</li> 	<li>Certain vessels, marine systems or equipment, and specially designed parts and components.</li> </ul>  <h5>New Entity List Designations by Commerce Department</h5>  <p>The addition of United Shipbuilding Corporation (a defense technology company) to the Entity List follows the addition of 11 other Russia-related entities to that List in July. Those entities included Joint-Stock Company Concern Almaz-Antey, state-owned enterprise Bazalt, Kalashnikov Concern, Joint-Stock Company Concern Radio-Electronic Technologies, and Feodosiya Enterprise.</p>  <p>These Entity List designations impose a license requirement for the export, reexport or foreign transfer of items subject to the Export Administration Regulations to the designated entities, with a presumption of denial.</p>  <h5>OFAC Prohibitions on Issuance of New Debt and Equity to Identified Persons</h5>  <p>On July 16, 2014, OFAC issued Directives 1 and 2 pursuant to Executive Order 13662 (“E.O. 13662”). The Directives apply to the persons identified on the new Sectoral Sanctions Identifications List (“SSI List”).</p>  <p>Directive 1 of E.O. 13662 prohibits U.S. persons from transacting in, providing financing for, or otherwise dealing in new debt with a maturity of longer than 90 days or new equity (“new debt” or “new equity”) for persons operating in Russia’s financial sector identified on the SSI List, their property, or their interests in property. Entities designated under Directive 1 encompass several Russian banks, including Bank for Development and Foreign Economic Affairs (Vnesheconombank), VTB Bank, Bank of Moscow, Gazprombank, and Russian Agricultural Bank.</p>  <p>Directive 2 of E.O. 13662 separately prohibits U.S. Persons from transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity for persons operating in Russia’s energy sector identified on the SSI List, their property, or their interests in property. Russian oil giant Rosneft and financial investment company Novatek have been designated under Directive 2. Neither entity appears on OFAC’s SDN List. However, Rosneft’s CEO, Igor Sechin, has been designated as an SDN. As such, U.S. Persons should be careful not to engage in any discussions or transactions with him (or any other SDN) when engaging in permitted transactions with an SSI entity.</p>  <p>While Directives 1 and 2 prohibit issuing new debt/new equity to the entities on the SSI List, other transactions with such entities by U.S. Persons are allowed, provided they do not involve SDNs.</p>  <h5>New SDN OFAC Designations</h5>  <p>In addition to publishing the SSI List and implementing Directives 1 and 2, OFAC has recently also added numerous individuals and entities to its SDN List, including Joint-Stock Company Concern Almaz-Antey, state-owned enterprise Bazalt, Kalashnikov Concern, Joint-Stock Company Concern Radio-Electronic Technologies, Feodosiya Enterprise, and United Shipbuilding Corporation, consistent with sanctions imposed by the Commerce Department. U.S. Persons are prohibited from engaging in any transactions with them or with any entity in which they hold a 50 percent, or more, ownership interest.</p>  <h5>Putin Imposes Retaliatory Trade Sanctions</h5>  <p>On August 6, Russia’s President Vladimir Putin issued a Presidential decree, ordering retaliatory sanctions on countries that have imposed restrictions on Russia. The Russian sanctions will implement a one-year ban on certain food, agricultural products, and raw materials. While the decree did not specify precisely which items will be restricted, additional sources indicate that these items may include cheese, fish, beef, pork, chicken, fruit, vegetables and dairy products from the U.S., the E.U., and other countries that have imposed sanctions against Russia. A final list is expected to be released shortly.</p>  <h5>Best Practices</h5>  <p>In light of the above, at this time, it is vital that, to the extent applicable, all companies impacted by the Russian sanctions:</p>  <ul> 	<li>Abstain from engaging in any transactions with entities designated as SDNs by OFAC;</li> 	<li>Abstain from issuing covered new debt or equity to relevant entities identified on OFAC’s SSI List;</li> 	<li>Abstain from (re)exporting to Russia those goods which are set forth in the newest Commerce Department regulations for problematic end uses, unless they obtain proper licenses (which will almost always be denied);</li> 	<li>Ensure that all transactions are screened to identify whether an SDN, Entity List, or SSI List company is involved in the transaction; and</li> 	<li>Institute and maintain adequate procedures to prevent all potential violations.</li> </ul>  <p>If you have any questions, please contact Melvin Schwechter at <a href="mailto:mschwechter@bakerlaw.com">mschwechter@bakerlaw.com</a> or 202.861.1559; John Burke at <a href="mailto:jburke@bakerlaw.com">jburke@bakerlaw.com</a> or 202.861.1625; Mark Joye at <a href="mailto:mjoye@bakerlaw.com">mjoye@bakerlaw.com</a> or 713.646.1313; Garrett Cornelison at <a href="mailto:gcornelison@bakerlaw.com">gcornelison@bakerlaw.com</a> or 713.646.1361; or any member of BakerHostetler&#39;s <a href="http://www.bakerlaw.com/InternationalTradeCompliance">International Trade – Compliance</a> team.</p>  <p>Authorship Credit: <a href="http://www.bakerlaw.com/MelvinSSchwechter">Melvin S. Schwechter</a> and <a href="http://www.bakerlaw.com/YuliaMFradkin">Yulia M. Fradkin</a></p>  <hr /> <p><span style="font-size:10px"><a name="[1]"></a>[1] The E.U. has recently imposed similar energy sector export restrictions on Russia.</span></p>  <hr /> <p><span style="font-size:10px">Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.</span></p>




Department of Commerce and OFAC Continue Imposing Hefty Sanctions on Russia, While Russia Retaliates with Own Sanctions

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