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  April 2014

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Update: Economic Sanctions by the International Community against Ukrainian and Russian Entities Continue to Grow
Melissa Miller Proctor, Esq., Sandler, Travis and Rosenberg, P.A.

As was reported in the March issue, U.S. and European companies currently doing business with Russia and the Ukraine are urged to continue to stay on top of new developments in the growing list of economic sanctions levied against certain Ukrainian and Russian entities in response to Russia's military incursion into the Ukraine and the annexation of Crimea into the Russian Federation. Since the initial launch of sanctions by the United States and the European Union last month, additional steps have been taken by the U.S., EU, the United Kingdom, Australia, Canada and Switzerland to pressure Russia into retreating from its recent course of action. The following provides a timeline of recent sanctions events:

  • March 5, 2014: The European Union Council adopted Council Decision 2014/119/CFSP which froze the assets of persons identified as being responsible for the misappropriation of Ukrainian state funds and commission of human rights violations as well as implemented prohibitions against transfers of funds or economic resources to those individuals and travel bans.
  • March 6, 2014: President Obama issued Executive Order 13660 that laid the foundation for the freezing of assets of individuals, entities and organizations determined to be undermining democracy in the Ukraine, threatening the sovereignty of the Ukraine, and/or misappropriating Ukrainian assets. Entities found to be providing support to the foregoing or that are owned or controlled by the foregoing are also blocked as well. U.S. persons are prohibited from dealing with blocked individuals and entities (e.g., imports, exports, reexports purchases, sales, transportation, brokering, financing, facilitating, guaranteeing, financing, investing, etc.), and blocked parties will also be denied entry into the United States.
  • March 17, 2014: President Obama issued a second Executive Order (E.O. 13661) which identified seven Russian officials involved in the invasion of Crimea, persons participating in arms dealings in Russia as well as any individuals owned or controlled by the foregoing.
  • March 20, 2014: President Obama issued a third Executive Order (E.O. 13662) which expanded the sanctions target to include individuals and entities that provide material support to Russian official. As a result of the three E.O.'s, the assets of thirty-two senior Ukrainian and Russian government officials and entities including the Russian state-owned Bank Rossiya have been blocked by the U.S. Treasury's Office of Foreign Assets Controls ("OFAC"). It should be noted that Vladimir Putin is not currently designated under any of the E.O.'s.
  • March 27, 2014: Both the U.S. Commerce Department's Bureau of Industry and Security (BIS) and U.S. State Department's Directorate of Defenses Trade Controls (DDTC) announced that they have suspended the processing of license applications for the export and reexport of commercial/dual-use items subject to the Export Administration Regulations (EAR) and defense articles subject to the International Traffic in Arms Regulations (ITAR). However, most commercial/dual-use commodities that are exported or reexported from the United States to Russia do not generally require export licenses.
  • March 27, 2014: The Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014 (P.L. 113-095) was enacted by the U.S. Congress. Sections 8 and 9 of the law essentially mirror the three E.O.'s described above as it calls upon the Obama Administration to impose sanctions (i.e., freeze assets, deny visas for entry into the United States) against persons responsible for violence or undermining the peace, security, stability, sovereignty or territorial integrity of the Ukraine as well as on persons in the Russian Federation involved in significant corruption. However, the law curiously prohibits the Obama Administration from imposing restrictions on the importation of items into the United States from Russia.
  • March 17, 2014: The EU approved a second regulation (Regulation No. 269/2014) which sanctioned 21 persons involved in activities that undermine or threaten the territorial integrity, sovereignty and independence of the Ukraine.
  • March 21, 2014: The EU approved a third regulation (Regulation No. 284/2014) which sanctioned additional Russian and Ukrainian government officials. The EU also announced that it would temporarily refrain from assessing customs duties on imports of Ukrainian goods into the EU, while continuing to move forward with formalizing the proposed Free Trade Area between the EU and the Ukraine. The EU sanctions do not currently identify or target Vladimir Putin.

Other countries have followed suit in the imposition of their own economic sanctions in response to the crisis in the Ukraine. For example, Switzerland, Australia and Canada have frozen the assets and blocked the economic resources of certain Ukrainians and Russians. The United Kingdom has also suspended its processing of all license applications for exports to Russian government and military agencies (as well as for exports of items to third countries where they are likely to be incorporated into end-items for export to Russia) where those items could be used against the interests of the Ukraine.

The economic sanctions levied by the international community against Russia and the Ukraine are expected to increase exponentially in the short-term. Although the current sanctions only prohibit dealings with blocked individuals or entities as well as business entities that are owned or controlled by blocked persons, companies operating in or dealing with entities in the region are urged to continue monitoring the situation closely and perform the requisite level of due diligence to verify whether any current business partners in the region are owned or controlled by a blocked party. Companies that confirm that they have dealings (or have previously dealt) with any currently sanctioned entities should begin taking immediate steps to wind down those activities, which may require prior government authorization. Companies should also continue to assess how the expansion of sanctions may impact their operations and business strategies going forward, keep key personnel within their organizations updated on new developments, and ensure that internal compliance programs can be quickly adjusted or modified to reflect new legislative and regulatory developments as they arise.

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