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Written By: Alan M. Dunn and Jennifer M. Smith
Stewart and Stewart
Washington, DC

Russia and Ukraine Sanctions and Trade Measures Update

In the recent days and weeks, the United States, Canada, the European Union (EU), other countries, and international organizations have taken significant trade-related measures in response to response to the developments in Ukraine and Russia’s actions with respect to Crimea.

The United States has adopted three Executive Orders and enacted a law authorizing sanctions, and has actually imposed sanctions on several individual and entities. Two of the primary U.S. export licensing agencies have also put a hold on issuing licenses for export and reexport to Russia.  In addition to those restrictions, however, the United States has signed a $1 billion loan guarantee to Ukraine, which may provide opportunities for U.S. businesses to engage in legal transactions with Ukraine.

The EU, Canada, and Australia also have imposed sanctions on certain persons in response to these developments.  A detailed chart comparing of the persons sanctioned by the United States, the EU, Canada, and Australia appears here.

The EU has also adopted tariff preferences waiving customs duties on imports from Ukraine on a large number of products on an interim basis.

Various countries and international organizations have also imposed diplomatic (non-economic sanctions against Russia.

These measures are reviewed below.

I.     U.S. MEASURES

1.     U.S. Executive Orders

U.S. President Barack Obama has issued three Executive Orders authorizing economic sanctions related to the ongoing situation in Ukraine.  These Orders authorize sanctions on specific persons — including certain former Ukrainian officials and their associates, Ukrainian and Russian officials, individuals, and businesses — but not against any country or government as a whole.  The effect of U.S. sanctions is to:

a.  Block the assets of designated individuals and entities (and any entities in which designated individuals or entities hold a 50% or more ownership interest),

b.  Prohibit U.S. persons from engaging in transactions with them,

c.  Block donations by, to, or for the benefit of such persons, and

  • d.  Make such persons ineligible for visas to enter the U.S.

A.    First Executive Order

The first Order, E.O. 13660 of March 6, 2014, authorized sanctions against persons determined to undermine democratic processes and institutions in Ukraine; threaten its peace, security, stability, sovereignty, and territorial integrity; and have misappropriated assets from Ukraine, among others.  This first Order did not designate anyone for sanctions at the time it was issued.[1]

B.    Second Executive Order

The second Order, E.O. 13661 of March 16, 2014, expanded upon the first and authorized sanctions against any persons determined to be an official of the Government of the Russian Federation; to operate in the arms or related materiel sector in the Russian Federation; or to be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, or have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of a senior official of the Government of the Russian Federation or blocked person.[2]  These sanctions are intended to cover the “cronies” of Russian senior Russian officials.[3]

C.    Third Executive Order

The third Order, E.O. 13661 of March 20, 2014, authorized sanctions against sectors of the Russian Federation economy such as financial services, energy, metals and mining, engineering, and defense and related materiel.[4]

As of April 16, 2014, the United States has blocked the assets of, prohibited transactions with, and imposed travel bans on:

  • 10 Crimean leaders;
  • One Crimean entity, gas company Chernomorneftegaz (a.k.a. Chornomornaftogaz, NJSC Chornomornaftogaz)[5];
  • One former Ukrainian official (former President Yanukovich);
  • 27 Russian individuals, including top officials and prominent businessmen; and
  • One Russian entity, Bank Rossiya (a.k.a. AKTSIONERNY BANK RUSSIAN FEDERATION).

The United States is also reportedly drawing up a list of additional targets for sanctions in the near future, which may include Igor Sechin, the president of Rosneft, which is the largest state-owned Russian oil company, and at least one institution considered to be part of Putin’s “crony” network.[6]

2.     Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014

On April 3, President Obama signed into law the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014.  This Act authorizes sanctions on persons responsible for violence or undermining the peace, security, stability, sovereignty, or territorial integrity of Ukraine, including Russian Government officials.  The Act also authorizes sanctions on persons in the Russian Federation complicit in or responsible for “significant corruption,” including Russian Government officials, their associates and family members, and individuals who have “materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services in support of” acts of “significant corruption.”[7]  These sanctions are similar to the sanctions already authorized under three Executive Orders issued in March.

The new Act also requires U.S. Government agencies to assist the Ukrainian Government in recovering assets linked to corruption by Yanukovych, members of his family, or other former or current officials of the Government of Ukraine or their accomplices.[8]  This follows reports that as much as $37 billion disappeared from Ukraine’s state coffers — and as much as $70 billion was paid out of Ukraine's financial system into offshore accounts — during Yanukovych’s rule.[9]

The Act also authorizes loan guarantees to Ukraine, among other things.[10]  On April 14, the U.S. Government signed a $1 billion loan guarantee to Ukraine.[11]

3.     Suspension of Issuance of Export Licenses to Russia

In late March, the U.S Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. State Department’s Directorate of Defense Trade Controls (DDTC) announced that they have each placed a hold on issuing licenses for exports and re-exports of controlled items, defense articles, and defense services to Russia until further notice.[12]  These holds apply only to new license applications and do not affect any licenses that have already been issued.  BIS indicates that its hold has been in place as of March 1, 2014.

It is unclear if this will lead to license denials or export bans in the future.

BIS administers export controls relating to certain arms items, “dual-use” items (which potentially have both civilian and military applications), and certain other items, as well as certain related software and technology, listed on the Commerce Control List (CCL) under the Export Administration Regulations (EAR).  DDTC administers export controls relating to certain defense articles, services, and technical data listed on the U.S. Munitions List (USML) under the International Traffic in Arms Regulations (ITAR).

Export licenses generally are not required for exports of most commercial items to Russia.  However, according to BIS’s 2013 Annual Report, BIS approved 1,832 license applications for exports to Russia last year, accounting for $1.5 billion in exports, 14.4% of the value of total U.S. exports to Russia in 2013 ($10.4 billion).

The export license holds may significantly affect the oil and gas and chemical processing industries in particular, as much of the equipment required for such industries involved particularly sensitive materials and technology that require a license for export or re-export.

Moreover, even if a license is not required, U.S. persons cannot export to any persons designated by the United States for sanctions.

II.   ECONOMIC SANCTIONS BY THE EU, CANADA, AND AUSTRALIA (AND HOW THEY COMPARE TO THE U.S. ECONOMIC SANCTIONS)

The EU, Canada, and Australia have also imposed sanctions.  While the United States is coordinating with the EU, the U.S. list of sanctioned persons overlaps with, but does not match, the lists of persons sanctioned by the EU and Canada.  Further sanctions and/or additions to the lists of sanctioned persons may come in the near future from the U.S. and these other countries.

As of April 16, 2014:

The EU has blocked the assets of, prohibited transactions with, and imposed travel bans on:

  • 10 Crimean leaders,
  • 22 former Ukrainian officials and their associates, and
  • 23 Russian individuals, including top officials, military leaders, and the head of the Russia Today news agency.

Canada has blocked the assets of, prohibited transactions with, and imposed travel bans on:

  • 11 Crimean leaders,
  • 18 former Ukrainian officials and their associates,
  • 32 Russian individuals, including top officials, military leaders, and one prominent businessman, and
  • One Russian entity (Bank Rossiya, the same entity targeted by the United States).

Australia has also announced sanctions in the form of asset freezes and travel bans against 12 individuals.  These individuals have not yet been named.[13]

The U.S., EU, and Canadian sanctions on Crimean leaders are almost fully harmonized — only one individual appears on the U.S. list who is not on the EU list, and vice versa, and the Canadian list includes all individuals appearing on either the U.S. or EU lists.  Only the United States has designated Chernomorneftegaz.

The sanctions on former Ukrainian officials vary.  The United States has only sanctioned one such person.  The Canadian and EU lists had been harmonized until yesterday, when the EU designated an additional four individuals.

The Russia sanctions also vary.  It appears that the United States has most aggressively targeted Russian businessmen but has chosen to refrain from imposing sanctions on the Russian military leaders that the EU and Canada have designated as subject to sanctions.

Overall, Canada’s list is the longest.  It appears that Canada has been trying to follow most designations by both the United States and the EU.

The United States has indicated that it may expand its sanctions list to further harmonize it with the EU, Canadian, and Australian lists in the future.

III.  EU TARIFF PREFERENCES FOR IMPORTS FROM UKRAINE

On April 14, the EU’s Foreign Affairs Council adopted a regulation for autonomous trade measures providing tariff preferences for Ukraine, which will remove 94.7% of current EU customs duties on imports of industrial goods from Ukraine and all EU tariffs on Ukraine’s agricultural produce exports to the EU, until November 1, 2014 at the latest.  The EU is pursuing a free trade agreement with Ukraine in the meantime.[14]

IV.   DIPLOMATIC/NON-ECONOMIC SANCTIONS ON RUSSIA

Additionally, throughout March and early April, various countries and international organizations imposed diplomatic (non-economic) sanctions against Russia.  Specifically:

  • In early March, the United States suspended military cooperation with Russia.[15]
  • NATO also suspended cooperation with Russia.[16]
  • On March 24, the G-7 countries (the United States, United Kingdom, Germany, France, Canada, Japan, and Italy) decided to effectively drop Russia from the G-8 sessions by suspending participation in the G-8 with Russia and agreed to begin to impose punitive sanctions on Russia’s energy, banking, finance, and arms industries until Russia changes course with respect to Crimea.[17]
  • Japan has stopped talks with Russia on visa facilitation, investment agreements, and an agreement on the use of outer space.[18]
  • New Zealand has announced travel bans on selected (but as yet unnamed) Russian and Ukrainian individuals and suspended negotiations with Russia on a free trade deal.[19]

For more information about Stewart and Stewart, please visit the International Society of Primerus La w Firms.

For more information, please see Stewart and Stewart’s Trade Flow articles of March 10, March 17, March 21, March 25, March 28, April 3, and April 16.

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Disclaimer:  This material is for the reader’s information only. It is not to be construed as legal advice.

Terms and Conditions: http://www.stewartlaw.com/Static/TermsandConditions

[1] See Exec. Order No. 13,660, 79 Fed. Reg. 13,493 (Mar. 10, 2014), available at http://www.gpo.gov/fdsys/pkg/FR-2014-03-10/pdf/2014-05323.pdf.

[2] Exec. Order No. 13,661, 79 Fed. Reg. 15,535 (Mar. 19, 2014), available at http://www.gpo.gov/fdsys/pkg/FR-2014-03-19/pdf/2014-06141.pdf.

[3] Peter Baker, U.S. and Europe Step Up Sanctions on Russian Officials, N.Y. Times, Mar. 17, 2014, available at http://www.nytimes.com/2014/03/18/world/europe/us-imposes-new-sanctions-on-russian-officials.html?hp&_r=0.

[4] Exec. Order No. 13,662, 79 Fed. Reg. 16,169 (Mar. 24, 2014), available at http://www.treasury.gov/resource-center/sanctions/Programs/Documents/ukraine_eo3.pdf.

[5] The U.S. Department of Commerce also added Chernomorneftegaz to its Entity List, in response to Russian expropriation of the company, which imposes a license requirement for the export, reexport, or in-country transfer of items subject to the Export Administration Regulations, with the presumption of denial.  U.S. Department of Commerce Bureau of Industry and Security, Commerce Department Announces Move Against Russian Expropriation of Ukrainian Company, available at http://www.bis.doc.gov/index.php/component/content/article/9-bis/carousel/661-commerce-department-announces-move-against-russian-expropriation-of-ukrainian-company.

[6] Peter Baker, With Ukraine Tensions Mounting, U.S. Weighs New Sanctions Against Russia, N.Y. Times, Apr. 14, 2014, available at http://www.nytimes.com/2014/04/15/world/with-ukraine-tensions-mounting-us-weighs-new-sanctions-against-russia.html?_r=0.

[7] Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, H.R.4152, available at http://beta.congress.gov/113/bills/hr4152/BILLS-113hr4152enr.pdf.

[8] Id.

[9] E.g., Natalia Zinets and Timothy Heritage, Ukraine PM says $37 billion went missing under Yanukovich, Reuters, Feb. 27, 2014, available at http://www.reuters.com/article/2014/02/27/ukraine-crisis-economy-idUSL6N0LW44M20140227.

[10] Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, H.R.4152, available at http://beta.congress.gov/113/bills/hr4152/BILLS-113hr4152enr.pdf.

[11] Kasia Klimasinska and Ian Katz, Lew Says U.S. Prepared to Impose More Sanctions on Russia, Apr. 14, 2014, available at http://www.bloomberg.com/news/2014-04-14/lew-says-u-s-is-prepared-to-impose-more-sanctions-on-russia.html.

[12] The announcements were posted on BIS’s website, http://www.bis.doc.gov/, and DDTC’s website, http://pmddtc.state.gov/index.html.

[13] Brendan Nicholson, Australia imposes sanctions over Crimea crisis, The Australian, Mar. 19, 2014, available at http://www.theaustralian.com.au/national-affairs/policy/australia-imposes-sanctions-over-crimea-crisis/story-fn59nm2j-1226859235201.

[14] Statement by EU Trade Commissioner Karel De Gucht, “European Commission welcomes adoption of temporary tariff cuts for Ukrainian exports to the EU” (Apr. 14, 2014), available at http://europa.eu/rapid/press-release_STATEMENT-14-118_en.htm.

[15] Jim Miklaszewski and Courtney Kube, U.S. Suspends Military Relations With Russia, NBC News, Mar. 3, 2014, available at http://www.nbcnews.com/storyline/ukraine-crisis/u-s-suspends-military-relations-russia-n43631.

[16] Adrian Croft and Sabine Siebold, NATO suspends cooperation with Russia over Ukraine crisis, Reuters, Apr. 1, 2014, available at http://www.reuters.com/article/2014/04/01/us-ukraine-crisis-nato-idUSBREA2U1UF20140401.

[17] Carol E. Lee, G-7 Agrees to Exclude Russia, Increase Sanctions, The Wall Street Journal, Mar. 24, 2014, available at http://online.wsj.com/news/articles/SB10001424052702303949704579458753312382992?mg=reno64-wsj.

[18] G7 sanctions will strike hard on Russia’s economy, finance and armory, Charter ’97, Mar. 25, 2014, available at http://charter97.org/en/news/2014/3/25/91793/.

[19] NZ imposes travel sanctions over Ukraine, 3 News, Mar. 23, 2014, available at http://www.3news.co.nz/NZ-imposes-travel-sanctions-over-Ukraine/tabid/1607/articleID/337042/Default.aspx.