BULLETIN April 2018 Rusal sanctions: market turmoil and legal fall-out Angharad Parry

April 2018 has seen the metals markets thrown into turmoil by the US imposition of sanctions on United Company Rusal (“Rusal”). Any party in doubt as to whether it is impacted by the sanctions regime should seek prompt legal advice. Appropriate compliance procedures, including due diligence as to ownership structures, should be followed. Parties should also seek legal assistance in the event of contractual disputes arising whether directly or indirectly from the knock-on impact of sanctions.

Background and car production lines may be The sanctions threatened globally, not just in On 6 April 2018, the US Office of . On 19 April 2018, Germany’s The sanctions regime is divided into Foreign Assets Control imposed WirtschaftsVereinigung Metalle (a primary and secondary sanctions. The sanctions on (amongst others) group representing interests of primary sanctions apply to US persons. , and his business metals companies), announced that US persons is broadly defined including enterprises. These include United car production in Europe could be (a) all US-domiciled entities, including Company Rusal (“Rusal”). Rusal disrupted with consequent plant their non-US branches (b) US citizens ranks in the world’s top closures. and US green-card holders globally, and companies based on production. Rusal (c) all persons in the United States. has been designated as a Specially Meanwhile, shipping and logistics Unless licensed by OFAC, the sanctions Designated National (“SDN”) under are also affected. Rusal’s Irish plant, block the property and interests in Executive Order 13661 and 13662, at Aughinish, supplies alumina property of Rusal and any entity owned and the Ukraine-related Sanctions across Europe. Ships are reported 50% or more by Rusal that are in the Regulations. to be sitting at port unable to load USA or in the possession or control of cargo from Aughinish to transport to a US person. Further, the sanctions Market turmoil mainland Europe. On the other side prohibit certain actions to the extent of the world, Japanese trading houses that they involve US persons or the US The imposition of these sanctions has are reported to be putting stops on financial system (referred to as “US resulted in significant disruption to shipments of Rusal-origin cargo to Elements”). The prohibited actions the global metals markets. Prices have Japan. including receiving or making any climbed rapidly for aluminium and contribution or provision of funds, alumina (a raw material needed to Political fall-out has followed. , goods or services to or for/for the make aluminium), as parties rush to India and the EU are all reported benefit of Rusal. Certain limited carve- secure supplies. to have raised objections with the outs are available via an OFAC licence WTO. As of 19 April 2018, Russia is Global supply chains may be scheme. These primary sanctions apply reported as having applied to WTO for threatened, given that aluminium to transactions of non-US persons only compensation. is a pre-requisite in engineering to the extent that they involve US and manufacturing. Aerospace elements. However, as US elements

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encompasses the US financial system, will spin off from this situation. many transactions are likely to be Multiple contracts will be affected. caught by this definition. Parties involved in sale/purchase and supply chain contracts will The secondary sanctions provisions want to consider the relevance of expose non-US persons to a sanctions force majeure clauses, potentially designation by OFAC for facilitating material adverse change clauses, and significant transactions with Rusal, sanctions clauses. It is being reported unless such transactions would be that Rio Tinto has already declared permitted by general licence to Force Majeure on a number of involve US elements. Significantly, a contracts. Similar considerations may Angharad Parry non-US financial institution could face also arise in financing contracts for Angharad specialises in advisory sanctions designation for knowing the relevant trades. Those involved and advocacy work in a wide facilitation of “significant financial in the commodities markets will be range of commercial and private transaction” on behalf of Rusal. reviewing their contracts closely international law disputes International banks are likely to be in light of the market and political concerning litigation and extremely anxious about involvement in developments. financing of transactions related to the arbitration (both domestic and sanctioned entities. Contractual disputes are also likely international), commodities, to arise on the transport and logistics energy and natural resources, There is market concern that the side. If voyage orders are changed off-shore, projects and heavy scope of the General Licences regime as cargo cannot be discharged at industry, sale of goods, and is insufficiently broad to allow wind- intended disport, or if vessels remain carriage of goods and shipping. down of ongoing relationships. A further at port unable to load intended She has particular expertise in source of concern and controversy is cargo, inevitably disputes will follow. cases involving conflict of laws. the applicability of the sanctions to Disputes as to laytime and demurrage metals produced and supplied by Rusal may not be the first thought when Read her online biography prior to 6 April 2018. The London Metal considering the Rusal sanctions, but Exchange (LME) is alive to the anxiety they are an almost certain outcome. and provides its own interpretation and analysis via an official Notice of 10 April 2018. This article does not constitute legal advice. If you require advice on any Legal disputes of the topics discussed in this briefing from Angharad, or any member of Parties need to ensure that they take 20 Essex Street, please contact: appropriate steps for compliance. [email protected] Urgent legal assistance should be sought.

In addition to compliance angles, it is probable that numerous legal disputes

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