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The U.S. and the European Union Launch Economic Sanctions in Response to the Crisis in the Ukraine
Melissa Miller Proctor, Esq., Sandler, Travis & Rosenberg, P.A.
U.S. and European companies currently doing business with Russia and the Ukraine (e.g., purchases, sourcing, imports, sales, online retail, investments, financing, exports or reexports involving these countries) take heed: Economic sanctions that may limit U.S. and European dealings with certain individuals, entities and organizations have been put into motion and are likely to expand quickly. Both the United States and the EU have taken formal steps to sanction Russia for sending military forces into Crimea in the eastern part of the Ukraine as well as target Ukrainian government officials accused of misappropriating state funds.
On March 5th, the European Union Council adopted a decision (Council Decision 2014/119/CFSP) effectively calling upon the EU member states to freeze the assets of persons identified as being responsible for the misappropriation of Ukrainian state funds and the commission of human rights violations. The decision also calls on member states to implement prohibitions against the transfer of funds or economic resources (directly or indirectly) to such persons. The decision identifies 18 Ukrainian officials whose assets are to be frozen - these individuals are identified in Annex I of the EU Council Decision and are currently subject to criminal investigation in the Ukraine for embezzlement and the illegal transfer of state funds outside the country. Specifically, these persons include the former Ukrainian President Victor Yanukovich, his children, a former Prime Minister, and other former senior Ukrainian government officials.
On March 6th, President Obama issued an Executive Order that sets the stage for allowing the U.S. Treasury Department, in consultation with the U.S. State Department, to identify and block the assets of individuals, entities and organizations determined to:
- Be directly or indirectly involved in activities or policies that undermine the democratic processes or institution in the Ukraine
- Threaten the peace, security, stability, sovereignty or territorial integrity of the Ukraine
- Misappropriate state assets of the Ukraine or "economically significant" entities in that country
- Have asserted governmental authority over any part or region of the Ukraine without the authorization of the Government of Ukraine
- Be a leader of an entity that has engaged in any of the foregoing activities
- Have materially assisted, sponsored or provided support (i.e., financial, material or technological support), goods or services to any of the foregoing activities or to any persons whose property has been blocked
- Be owned or controlled by, or acting on behalf of, any persons whose property has been blocked
The term "blocked person" as used in the Executive Order refers to individuals, partnerships, associations, trusts, joint ventures, corporations, groups, subgroups or other organizations so designated by the U.S. Treasury and State Departments. U.S. persons1 will be prohibited from dealing with any blocked person, entity, or organization without prior authorization from the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC"). Such dealings include the provision of funds, goods or services to (or receipt from) blocked persons. Thus, activities such as imports, exports, reexports purchasing, selling (including online retail), transporting, swapping, brokering, approving, financing, facilitating, guaranteeing, financing, and investments involving blocked persons will be prohibited. Further, individuals that will be designated as blocked persons under the Executive Order will be denied immigrant and nonimmigrant entry into the United States. As of the date of the writing of this article, no blocked persons have been so designated. However, the U.S. sanctions could ultimately target Russian companies and financial institutions in addition to Russian officials and Ukrainians identified as being involved in military operations in the Crimea and the misappropriation of Ukrainian state funds.
Beyond the sanctions discussed above, the U.S. Congress and the European Parliament are currently considering legislation for additional sanctions. Russia has vowed to retaliate against the United States and the EU for such actions. The potential impact of any economic retaliatory acts by Russia would likely affect the EU to a much larger degree than the United States, as trade between the U.S. and Russia is more limited in scope.
U.S. and European companies currently doing business with the Ukraine and Russia should closely monitor the situation and stay abreast of new developments as they arise. Companies should take steps now to confirm that their restricted parties list screening processes will be able to identify any and all newly designated blocked persons. They should also assess their current dealings and involvement with the Ukraine and Russia, assess how the possible future expansion of sanctions could impact their operations, brief key personnel in sourcing, procurement, sales, marketing, compliance and the logistics functions of their organizations, and ensure that internal compliance programs are updated to reflect any necessary adjustments or modifications made to internal compliance programs as a result of the recent developments.
 The term U.S. person applies to U.S. citizens, U.S. permanent residents, individuals protected under U.S. immigration laws (i.e., refugees and asylees), U.S. companies and their foreign branches, as well as foreign companies incorporated to do business in the United States
Melissa Miller Proctor is a Partner with Sandler, Travis and Rosenberg, P.A., resident in the firm's Arizona office. With significant experience in export controls, customs laws and regulations, and international trade, Melissa works closely with clients to expand their markets while ensuring their regulatory compliance. She may be reached at (480) 263-2283 or via e-mail at email@example.com.