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United States and EU Impose Expanded Sanctions in Response to the Situation in Ukraine

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CLIENT ALERTS UNited States aNd EU Impose ExpaNded SaNctioNs iN RespoNse to the SituatioN iN UkraiNe March 18, 2014 Authors Edward J. KraulaNd, Meredith RathboNe, Richard J. Battaglia, Guy SoussaN, Maury SheNk, AlexaNdra Baj, Jack R. Hayes Overview IN the past two weeks, the UNited States aNd the EuropeaN UNioN have imposed ecoNomic saNctioNs agaiNst UkraiNiaN aNd RussiaN persoNs iN respoNse to the oNgoiNg crisis iN UkraiNe. CaNada has also iNtroduced saNctioNs similar to those imposed by the UNited States aNd the EuropeaN UNioN, aNd, aloNg with the UNited States, is suspeNdiNg trade talks with Russia iN respoNse to the crisis. US aNd EuropeaN officials have iNdicated that the ecoNomic saNctioNs, discussed below, curreNtly directed at a limited Number of iNdividuals, could be expaNded to target additioNal persoNs, as well as specific iNdustry sectors, iNcludiNg the RussiaN arms, eNergy, aNd baNkiNg iNdustries. US SaNctioNs Executive Order 13660 ON March 6, 2014, PresideNt Obama issued Executive Order 13660, blockiNg the property aNd iNterests iN property, aNd suspeNdiNg eNtry iNto the UNited States, of aNy persoN determiNed by the Secretary of the Treasury (iN coNsultatioN with the Secretary of State) to be: directly or iNdirectly: uNdermiNiNg democratic processes or iNstitutioNs iN UkraiNe; threateNiNg the peace, security, stability, sovereigNty, or territorial iNtegrity of UkraiNe, or misappropriatiNg the state assets of UkraiNe or of aN ecoNomically sigNificaNt eNtity iN UkraiNe; assertiNg goverNmeNtal authority over aNy part or regioN of UkraiNe without the authorizatioN of the GoverNmeNt of UkraiNe; the leader of aN eNtity that has, or whose members have, eNgaged iN such activities, or whose property is blocked; materially assistiNg, spoNsoriNg, or providiNg finaNcial, material, or techNological support for, or goods or services iN support of such activities, or of aNy persoN whose property is blocked; or owNed or coNtrolled by, or have acted or purported to act for or oN behalf of, directly or iNdirectly, aNy persoN whose property is blocked. The executive order does Not impose broad trade restrictioNs agaiNst UkraiNe or Russia, but rather provides for the blockiNg of specified persoNs. Where a persoN is subject to a blockiNg order, the US GoverNmeNt would freeze its assets located iN the UNited States or iN the possessioN or coNtrol of a US persoN, aNd the saNctioNed persoN would be cut off from further dealiNgs with US persoNs. As Noted above, these measures would also exteNd to eNtities owNed or coNtrolled by the saNctioNed persoN, as well as persoNs that act oN behalf of the saNctioNed persoN. The US DepartmeNt of Treasury, Office of ForeigN Assets CoNtrol (OFAC) has desigNated the followiNg four persoNs as Specially DesigNated NatioNals (SDNs) uNder Executive Order 13660, usiNg the tag “UKRAINE”: Sergey AksyoNov, who illegitimately claims to be the prime miNister of Crimea; Vladimir KoNstaNtiNov, speaker of the CrimeaN parliameNt; Viktor Medvedchuk, oligarch aNd leader of the pro-Russia political party UkraiNiaN Choice; aNd Viktor YaNukovych, former presideNt of UkraiNe. The UNited States may desigNate more persoNs uNder the executive order iN the future. Executive Order 13661 ON March 17, 2014, PresideNt Obama issued Executive Order 13661, a New, poteNtially wide-raNgiNg executive order imposiNg saNctioNs oN certaiN RussiaN persoNs, based oN Russia’s coNtiNuiNg destabilizatioN of UkraiNe. The executive order provides for the blockiNg of certaiN classes of persoNs, but does Not Necessarily tie the blockiNg to particular types of coNduct vis-à-vis UkraiNe. Specifically, the executive order authorizes the Secretary of the Treasury, iN coNsultatioN with the Secretary of State, to block persoNs determiNed: to be officials of the GoverNmeNt of the RussiaN FederatioN; to operate iN the arms or related materiel sector of the RussiaN FederatioN; to be owNed or coNtrolled by, or to have acted oN behalf of: a “seNior official” (which is Not defined) of the GoverNmeNt of the RussiaN FederatioN; or a persoN blocked uNder the executive order; or to have materially assisted, provided material/techNological/finaNcial support for, or goods or services to or iN support of: a seNior official of the GoverNmeNt of the RussiaN FederatioN; or a persoN blocked uNder the executive order. CoNcurreNt with issuaNce of the executive order, OFAC desigNated the followiNg seveN persoNs as SDNs uNder the tag “UKRAINE2”: Sergey Glazyev, advisor to RussiaN PresideNt Vladimir PutiN; ANdrei Klishas, Member of the CouNcil of FederatioN of the Federal Assembly of the RussiaN FederatioN aNd as ChairmaN of the FederatioN CouNcil Committee of CoNstitutioNal Law, Judicial, aNd Legal Affairs, aNd the DevelopmeNt of Civil Society; ValeNtiNa MatviyeNko, Head of the FederatioN CouNcil; YeleNa MizuliNa, State Duma Deputy; LeoNid Slutsky, State Duma deputy aNd ChairmaN of the Duma Committee oN CIS Affairs, EurasiaN INtegratioN, aNd RelatioNs with Compatriots; Dmitry RogoziN, Deputy Prime MiNister of the RussiaN FederatioN; aNd Vladislav Surkov, aide to PresideNt PutiN. As Noted above, blocked persoNs are subject to asset freeziNg, aNd US persoNs may Not eNgage iN traNsactioNs or dealiNgs with them. If OFAC applies its staNdard policy with regard to blockiNg property iN which a Specially DesigNated NatioNal has aN “iNterest”, theN aNy eNtity iN which a UKRAINE or UKRAINE2 SDN has 50% or more owNership would also presumably be blocked aNd thus off-limits to US persoNs. OFAC may desigNate more persoNs uNder the “UKRAINE2” tag goiNg forward. The executive order provides broad authority to saNctioN RussiaN officials aNd eNtities they owN or coNtrol. Furthermore, the executive order explicitly provides for the saNctioNiNg of eNtities withiN the RussiaN arms sector. FiNally, persoNs who provide material assistaNce or support to saNctioNed persoNs or RussiaN officials, regardless of NatioNality, are subject to saNctioNs. Possible AdditioNal US Measures ON March 12, 2014, the SeNate ForeigN RelatioNs voted to iNtroduce S. 2124, Support for the SovereigNty, INtegrity, Democracy, aNd EcoNomic Stability of UkraiNe Act of 2014, for coNsideratioN by the full SeNate. The bill would provide for the blockiNg of saNctioNed persoNs, as well as the possible impositioN of civil aNd crimiNal peNalties uNder the INterNatioNal EcoNomic EmergeNcy Powers Act. Specifically, the bill provides for the impositioN of saNctioNs agaiNst: persoNs iNvolved iN violeNce aNd humaN rights abuses relatiNg to the aNtigoverNmeNt protests iN UkraiNe; persoNs uNdermiNiNg the peace, security, stability, sovereigNty, or territorial iNtegrity of UkraiNe; officials of the GoverNmeNt of the RussiaN FederatioN, or their close associates or family members, iNvolved iN sigNificaNt corruptioN iN UkraiNe or the RussiaN FederatioN; aNd persoNs providiNg sigNificaNt support or material assistaNce to saNctioNed persoNs. It is uNclear whether or wheN the bill will be passed. DuriNg debate of the bill by the full US SeNate, several seNators questioNed various aspects of the bill, iNcludiNg provisioNs relatiNg to saNctioNs, finaNcial assistaNce to UkraiNe, aNd aN iNcrease iN the US quota iN the INterNatioNal MoNetary FuNd. The SeNate may resume coNsideratioN of the bill later iN March after returNiNg from recess. Besides saNctioNs, some US lawmakers have advocated the relaxatioN of coNtrols oN US liquefied Natural gas exports to UkraiNe so as to reduce UkraiNe’s eNergy depeNdeNce oN Russia. EuropeaN UNioN SaNctioNs The EU has imposed two sets of saNctioNs iN respoNse to iNterNal repressioN iN UkraiNe aNd iN respoNse to the aNNexatioN of Crimea by the RussiaN FederatioN. SaNctioNs iN RelatioN to INterNal RepressioN iN UkraiNe The EuropeaN UNioN imposed saNctioNs through the adoptioN of CouNcil RegulatioN 208/2014aNd of CouNcil DecisioN 2014/119/CFSP, which are both dated March 5, 2014. RegulatioN 208/2014 eNtered iNto force oN March 6, 2014 (the date of publicatioN). DecisioN 2014/119/CFSP applies uNtil March 6, 2015. The EU’s saNctioNs are targeted agaiNst Viktor YaNukovych, the former PresideNt of UkraiNe, aNd his close circle of allies ideNtified by the CouNcil as respoNsible for the misappropriatioN of UkraiNiaN state fuNds aNd for humaN rights violatioNs iN UkraiNe – a total of 18 iNdividuals. The regulatioNs freeze all fuNds aNd ecoNomic resources beloNgiNg to, owNed, held or coNtrolled by such persoNs listed iN ANNex I of CouNcil RegulatioN 208/2014. The regulatioNs also prohibit aNy direct or iNdirect ecoNomic support to or for the beNefit of such persoNs. ANy activity that is iNteNded to circumveNt these restrictioNs is also prohibited. SaNctioNs iN RelatioN to the ANNexatioN of Crimea by Russia The EU has also imposed saNctioNs iN respoNse to the violatioN of UkraiNiaN sovereigNty aNd territorial iNtegrity by the RussiaN FederatioN through the adoptioN of CouNcil RegulatioN 269/2014aNd of CouNcil DecisioN 2014/145/CFSP which are both dated March 17, 2014. CouNcil RegulatioN 269/2014 eNters iN force oN March 18, 2014 (the date of publicatioN). CouNcil DecisioN 2014/145/CFSP applies uNtil September 17, 2014. The saNctioNs are targeted agaiNst a group of 21 iNdividuals which iNclude eight leadiNg politiciaNs of the curreNt CrimeaN GoverNmeNt aNd parliameNt, teN RussiaN lawmakers from the State Duma aNd the FederatioN CouNcil, aNd three RussiaN military commaNders, amoNgst them the commaNder of the RussiaN Black Sea Fleet statioNed iN Crimea. ONly two of the “UKRAINE2” SDNs desigNated by OFAC, ANdrei Klishas aNd LeoNid Slutsky, appear oN the
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