U.S. Sanctions on Russia: Overview and Compliance Guidance

Momentum WebinarMay 8, 2014

Agenda2

Regulatory Overview

Ukraine-Related Restrictions

Lessons from Other Sanctions Programs

Questions

Regulatory Overview

Sanctions – The Basics 4

• What• Comprehensive• Selective• Programmatic

• Who • Office of Foreign Assets Control (OFAC)

• How • Specific sanctions regulations codified in 31 C.F.R. Chapter V

Sanctions – KEY POINTS5

U.S. persons wherever located, U.S. companies, any national while in the U.S

SDNs

50% Ownership by SDNs

Exports of Services / Facilitation

Magnitsky Sanctions6

Targets persons involved in human rights violations in Russia

Authorities connected to corruption-related concerns

18 individuals designated in April 2013

Military and Security Exports7

• What• Exports of items or

technical data designed or modified for military use

• Who• Department of State,

Directorate of Defense Trade Controls (DDTC)

• How • International Traffic in Arms Regulations (ITAR)

Dual Use / Commercial Exports8

• What• Exports of nearly all U.S.-origin

items and related technology not designed for military use

• Who • Bureau of Industry and Security (BIS)

• How • Export Administration Regulations (EAR)

Ukraine-Related Restrictions

Recent Developments in Ukraine10

• Nov. 2013

• Under threat of economic penalties from Russia, Ukraine breaks off plans to sign partnership agreement with EU

• Nov. 2013- Feb. 2014

• Large-scale protests in Ukraine, President Yanukovych seeks refuge in Russia, Russia enters Crimea

• March 2014

• Continued Russian occupation of Crimea, U.S. (and allies) impose sanctions

Sanctions - Executive Orders

3 Executive Orders issued in March authorizing economic sanctions against Russia– Not geared toward entire Russian economy, but– Broader scope with each successive EO

11

Executive Order 13660

Issued on March 6, 2014 Allows for designations of individuals involved in

or related to:– Threatening security, democratic processes, of

Ukraine– Misappropriation of Ukrainian assets– Unauthorized assertion of government authority– Material support for any of the above

12

Executive Order 13661

Issued March 16, 2014 Allows for designations of:

– Russian Federation government officials;– Persons operating in Russia’s arms industry; – Persons owned or controlled by a senior official of the

Russian government;– Persons providing material assistance to senior

Russian government officials or blocked parties.

13

Executive Order 13662

Issued March 20, 2014 Allows for designations of:

– Parties operating in sectors of the Russian economy “as may be determined” by Treasury and State• “Such as” financial services, energy, metals and mining,

engineering, and defense and related materiel.– Entities owned or controlled by persons blocked in the

EO, or– Persons providing support to those blocked.

14

Sanctions Designations

March 20, 2014– 1 bank (Bank Rossiya)– 20 individuals (Russian government officials, others)

April 11, 2014– 7 high-profile Crimean separatists– Chernomorneftegaz gas firm, Crimean branch

15

Congressional Action

Support for the Sovereignty, Democracy, and Economic Stability of Ukraine Act of 2014 Requires sanctions – with available waiver - related to:

– Human rights abuses in Ukraine;– Undermining the peace or sovereignty of Ukraine;– Acts of corruption in Ukraine; or– Providing material assistance for the above.

Other sanctions encouraged Allows for aid to Ukraine

16

Export Restrictions

Department of Commerce (BIS): – Announced (on March 26) that, since March 1, 2014

and until further notice, it had not issued and will not issue licenses for exports or re-exports to Russia.

– Does not affect existing licenses, but

– Affects all exports to Russia requiring licenses, not just those to targeted individuals

17

Export Restrictions (cont.)

Department of State (DDTC): – March 27: announced that, until further notice, it will not

issue any authorizations for exports of defense articles or services to Russia.

– Does not affect existing licenses, but

– Amounts to indefinite, absolute arms embargo on Russia

18

Export Restrictions (cont.) State and Commerce Departments Revocations

– Existing export licenses for high technology items that could contribute to Russia’s military capabilities

– Internal discussions continuing on how revocations will be announced, and when they will be implemented

– Unclear what items may be in line for revocation– Not clear if there would be grace period for exporters to comply– There may not be much guidance – the revocations may just

start happening with little notice

Commerce Department added 13 parties on the Entity List– Additional licensing requirement with presumption of denial

19

Export Restrictions (cont.)

Additional OFAC Designations on April 28– 7 individuals, including two in Putin’s “inner circle”– 17 companies in a wide array of industries, including

financial services

20

Summary: Prohibited Transactions

Transactions with designated persons – Includes entities 50% or more owned by those

persons, and their subsidiaries

Transactions involving blocked property

Transactions routed through designated banks

Exports of U.S.-origin items that require a license for Russia

21

Summary: Permissible Transactions

Transactions with persons or entities that are not designated

Shipments of items under existing licenses (maybe)

Financial transactions routed through Russian banks other than Bank Rossiya or other designated banks (for now)

22

Lessons from Other Sanctions Programs

Sanctions and Foreign Policy

Sanctions rapidly track political developments For example: Libya 2011

– Feb. 22: Qaddafi speech vowing to kill protesters “house by house”

– Feb. 25: EO blocks assets of virtually entire government of Libya

– August: Rebels storm Qaddafi’s compound– September: General License authorizing transactions

with virtually entire government of Libya

24

Increasing Jurisdiction

For example: Iran 2010-Present– Increase in scope, breadth of sanctions– Multilateral sanctions– U.S. restrictions against non-U.S. persons

Practical effect: forces major non-U.S. companies, financial institutions to choose between Iranian, U.S. markets

25

Potential Impact of Sanctions

Iranian Economy Russian Economy0

2

4

6

8

10

12

• GDP (in billions)• Source: IMF World

Economic Outlook Oct. 2013

Russia Challenges

Developed economy with close ties to Europe– Natural gas– Banking system– Stock markets

Ownership restrictions for SDNs may be significant– E.g. Hartwall Arena in Helsinki, Finland

27

Compliance Steps

Know your customers– Designated parties and entities they own / control– Regular, up-to-date screening

Know your bank (and that of your customers)

Know your classifications– Plan for license requirements

Follow developments

28

Compliance Steps (cont.)

Inventory exposure to Russia Evaluate future business in accordance with

increased risk Educate LOBs on effect of sanctions, including

licensing requirements– Set-offs, insurance, guarantees

Contingency planning in case of sanctions– License applications that may need to be filed

29

Questions?

30

Thank you!Lorraine LawlorWells FargoLorraine.B.Lawlor@wellsfargo.com

Thad McBrideSheppard Mullintmcbride@smrh.com

Mark JensenSheppard Mullinmjensen@smrh.com