On April 6, 2018, the Trump Administration imposed additional sanctions on seven Russian oligarchs and twelve companies they own and/or control. The Administration also imposed sanctions on senior Russian government officials and a state-owned Russian weapons trading company and a Russian bank, a subsidiary of the weapons company. The sanctions are a response to the alleged Russian interference in the 2016 presidential election and target public officials and some of Russia’s most influential businesspeople. These actions are pursuant to the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA), a bipartisan law enacted last August, which reinforces existing sanctions, limits the President’s ability to lift or waive certain sanctions, and authorizes the Administration to continue to impose sanctions. Now the question becomes, how can Congressional action affect your business?
The April 6th sanctions are significantly harsher than previous ones because they specifically bar any trading of securities of the targeted companies. According to Reuters, after the implementation of the new sanctions “Russia’s rouble suffered its biggest daily fall in over three years and stocks in major Russian companies also slid, as investors reacted to the new sanctions. State-owned Sberbank, often seen as a barometer of the wider economy, fell 17 percent in Moscow and aluminum giant Rusal lost over half its value in Hong Kong after its main owner Oleg Deripaska was named on the sanctions list.”
Although these sanctions are directed at Russian persons, the sanctions nonetheless carry potential implications for US companies engaged in international trade. Under the new sanctions, the assets and property interests—subject to US jurisdiction—of the sanctioned party are frozen, and US persons are also barred from doing business with those on the list. However, while US persons may finish importing goods from the licensed entities, they are prohibited from exporting goods to those entities.
Furthermore, under OFAC’s 50 percent ownership rule, entities that “are owned 50 percent or more (directly or indirectly) in the aggregate by one or more blocked persons” are subject to the sanctions. Therefore, in order to avoid being penalized as a result of these sanctions, US persons need to conduct due diligence into all foreign transactions to ensure that they are not interacting with entities that fall under the 50 percent ownership rule.
Additionally, US companies may risk non-compliance when conducting business with non-sanctioned entities that have sanctioned officers or personnel. Under OFAC’s rules, US persons are not authorized to deal with or benefit from any service that a sanctioned person may provide, including when acting on behalf of a non-sanctioned company. Therefore, US businesses are cautioned to limit official business with sanctioned officers or personnel and to screen the names of the company, personnel, and those signing the documents to ensure they are not on the sanctions list. Given that OFAC’s programs are dynamic and there is often overlap with other sanctions lists, it is imperative for US persons to check OFAC’s website regularly to ensure that sanction lists are current and to have complete information regarding the latest restrictions.
A large number of US persons have significant investments in Russian companies and therefore must remain diligent and aware of the implications of current and potentially forthcoming sanctions. Not only should US companies be aware of compliance issues when dealing with Russian entities, but they must also consider the secondary negative impacts of sanctions on Russia’s economy and Russia’s overall ability to trade.
*This publication does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. www.sequoialegal.com