US Sharpens Russian Sanction Teeth With Complicated Energy & Banking Sectoral Sanctions And Additions To SDN & Entity List

On July 16, 2014, the US Office of Foreign Assets Control (OFAC) escalated Russian sanctions by issuing "Sectoral Sanctions" — prohibitions on certain finance related transactions with certain entities, including two major Russian banks and two oil and natural gas producers. OFAC also designated and blocked the assets of an additional 11 entities (and five individuals), including Kalashnikov, Uralvagonzavod, Bazalt, and various JSC companies. In orchestrated fashion, the US Department of Commerce's Bureau of Industry and Security (BIS) also added these same 11 Russian parties to its Entity List on that same day.

The new OFAC Sectoral Sanctions were issued under the authority of Executive Order (EO) 13662 "Blocking Property of Additional Persons Contributing to the Situation in Ukraine." This move came after US President Barack Obama and German Chancellor Angela Merkel's Tuesday call to coordinate the imposition of this new round of Russian sanctions. The European countries also intend to levy their own next round of Russian sanctions; however, those sanctions are expected to be less hard-hitting as the EU countries are far more dependent on Russia than the United States.

Sectoral Sanction Prohibitions Are Not Blocking Sanctions But Yet Another List to Check

These sanctions prohibit US persons or individuals within the United States from "transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity for these persons (listed below), their property, or their interests in property" with those listed on OFAC new "Sectoral Sanctions Identifications List" (SSI List). The persons named in the SSI List were determined to be operating in the sectors of the Russian economy identified in EO 13662. The complete list is provided below, but the notable additions are Rosneft, the state-owned oil company and largest oil producer; Gazprombank, the financial arm of Gazprom, the giant state-controlled natural gas producer; Novatek, Russian natural gas producer; and Vnesheconombank, the state economic development bank.

This means that the listed Russian companies will be banned from the US financial markets for loans and other forms of debt with a maturity of over 90 days and, in some cases, also equity markets. This is reportedly intended to allow day-to-day business with overnight loans, but penalize medium to long-term financial support founded in debt or equity.

In contrast to other OFAC designated...