U.S. and Canadian Sanctions Against
Russia
Presentation to the Association of Corporate Counsel –
Paul M. Lalonde & Kenneth J. Nunnenkamp
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US Ukraine- Related Sanctions
US Sanctions: Legal Authority
• Statutory
• Regulatory
• Executive Orders
• Interpretive Guidance
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US Sanctions: Legal Authority -- Statutory
•
General
•
•
International Emergency Economic Powers Act, 50 U.S.C. §1701
et. seq. ("IEEPA")
Trading With the Enemy Act, 50 U.S.C. App. § 1, et. seq.
("TWEA")
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US Sanctions: Legal Authority -- Statutory
•
Numerous specific statutes (examples)
•
•
Acts imposing sanctions against Iran
•
Trade Sanctions Reform and Export Enhancement Act of 2000
("TSRA"), 22 USC 7201-7211
•
Comprehensive Iran Sanctions, Accountability, and
Divestment Act of 2010 ("CISADA"), 22 USC 8501-8551
•
National Defense Authorization Act For Fiscal Year 2012, Public Law
112-81
•
Iran Threat Reduction and Syria Human Rights Act, 22 USC 8701- 95
•
Iran Freedom and Counter-Proliferation Act (part of 2013 NDAA)
Acts imposing sanctions against Cuba
•
Cuban Democracy Act, 22 USC 6001-6010
•
Cuban Liberty and Democratic Solidarity (Libertad) Act, 22 USC 60216091
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US Sanctions: Legal Authority -- Statutory
• Ukraine-Related Sanctions Legislation
• Ukraine Freedom Support Act ("UFSA"), Pub. Law No. 113-272
• Combination of Mandatory and Optional Sanctions
• Mandatory sanctions on Rosoboronexport (Russian defense exporter)
• Mandatory sanctions on entities/persons that transfer or broker defense exports from
Russia to Syria, Ukraine, Georgia, Moldova and other countries "of significant
concern" such as "Poland, Lithuania, Latvia, Estonia and the Central Asia republics."
• Mandatory sanctions on Gaxprom if Gazprom withholds significant natural gas
supplies from a NATO country or other named countries (i.e., uses it as a political
weapon)
• Provides a "menu" of sanctions against persons or entities, similar to Iran program
• Optional sanctions against financial institutions that knowingly engage in or facilitate
transactions prohibited under the sanctions
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US Sanctions: Legal Authority -- Regulations
•
General sanctions regulations
• 31 C.F.R. Part 501: General Regulations Governing All
Sanctions Programs
• Addresses definitions, reporting, TWEA penalties and
licensing procedures
•
Specific program regulations (examples)
• Ukraine Related Sanctions Regulations, 31 C.F.R. Part 589
• Iranian Transactions and Sanctions Regulations, 31 C.F.R.
Parts 535, 560-62
•
Cuban Assets Control Regulations, 31 C.F.R. Part 515
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US Sanctions: Legal Authority -- Executive Orders
•
All sanctions programs implemented initially by Executive Order(s)
• Issued pursuant to either:
• IEEPA or TWEA
• Specific statute (i.e., CISADA)
•
Executive Orders
• Declare the conditions are met for the imposition of sanctions
• Establish the sanctions program
• Provide guideposts for agency action
• May include designation of persons or entities to Specially
Designated Nationals ("SDN") List
• "Block" property and interests in property in the U.S., that enter
the U.S. (tangibly and intangibly), or that are or come within the
possession or control of a U.S. person
• Effect of blocking an asset -- may not be "transferred, paid,
exported, withdrawn, or otherwise dealt in"
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US Sanctions: Legal Authority
•
Statutes, regulations and Executive Orders all prohibit:
•
Any activity that facilitates a blocked transaction
•
Facilitation is a broad concept that captures anything reasonably determined to aid or
abet a violation
•
Often cited as a separate violation
•
Requires an underlying violation or attempt
•
Often cited for indirect activities/support
•
ATP Tour: approving and facilitating payments to tour official "ordinarily resident in Iran"
•
Great Western Malting: fined $1.34M for "performing various back office functions for the sales
by a foreign affiliate of non-U.S origin barley malt to Cuba
•
Any conspiracy formed to violate the sanctions (Life for Relief & Dev)
•
Any transaction that avoids or has the purpose of evading or avoiding the
sanctions (Sea Tel Inc.: export to South Korea with knowledge or reason to
know the products would be reexported to Iran)
•
Any transaction causing a violation or that constitutes an attempt to violate
the sanctions
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US Sanctions: 3 Basic Types
•
Country Based -- prohibits a broad spectrum of activities based on
the country
• Current country based sanctions: Cuba, Iran, North Korea,
Sudan, Syria, Crimea
•
Targeted -- sanctions are imposed on specific individuals, entities or
activities within a country
• Examples: Ukraine related, Belarus, Venezuela, Burma,
Lebanon
•
Activity based -- sanctions people or countries based on certain
activities
• Examples: Cyber-related, Rough Diamond, Magnitsky
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Ukraine Related Sanctions -- People
• Those close to Russian President Vladimir Putin (the "Oligarchs") (and entities
they own/control)
•
Individuals "responsible for or complicit in" actions destabilizing
the Ukraine, EO 13660 (March 6, 2014); Officials of the Russian
government
•
Persons and entities designated over the next several months
•
Persons/Entities
designated
Nationals ("SDN")
became
Specially
Designated
•
Freezes assets in the US
•
Prohibits virtually any unauthorized transaction with the person
designated and with any entity "owned" or "controlled" by an
SDN (OFAC license is required for all transactions covered)
•
Travel Prohibition
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Ukraine Related Sanctions -- Sector Based
•
Sectoral sanctions -- Directives 1 - 4
• Expanded sanctions to designated entities and people involved
in various industries:
• Finance, Energy, Defense, Materiel
• Finance sector: Prohibits new debt or equity only (first > 90
days, then > 30)
• Energy sector: Prohibits new debt > 90 days to Russian
energy sector
• Defense and materiel sectors: Prohibits new debt > 30 days
• Designated people/entities added to Sectoral Sanctions
Identification ("SSI") List
• Different from SDN designation
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Ukraine Related Sanctions -- Other Agency Actions
•
Departments of Commerce and State place "holds" on the processing
of licenses for exports of certain items to Russia (March 26-27, 2014)
•
Commerce Department, Bureau of Industry and Security ("BIS")
•
August 2014, license required for EAR controlled exports to Russian
energy sector (i.e., E&P in deepwater, Arctic offshore)
•
Items include: ECCNs 0A998, 1C992, 3A229, 3A231, 3A232,
6A991, 8A992 8D992
•
Items listed in Supplement No. 2 to Part 746 (List of Schedule B
numbers)
•
Presumption of denial for any license requests
•
Broader impact than SSI list, which focused on debt and was
limited to designated entities
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Ukraine Related Sanctions -- Other Agency Actions
•
State Department
•
•
Presumption of denial for defense exports to Russia and
Crimea
• Case-by-case review to determine Russian military benefit
Revoked existing licenses where possible
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Ukraine Related Sanctions -- Crimea
•
Broad, country-based type sanctions applied to Crimea, EO 13685
(Dec. 19, 2014)
•
Prohibits virtually all transactions in and with Crimean persons and
businesses
•
General Licenses issued to allow "wind-down" of operations in and
with Crimea by 1/31/15
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Ukraine Related Sanctions -- General Licenses
•
9 General Licenses issued so far
•
Define exceptions to the sanctions(i.e., medical supplies, Internet
communications software, etc.)
•
The issuance of General Licenses suggests these sanctions are
settling in for a long period
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Ukraine Related Sanctions -- the 50% rule
•
Sanctions apply to all entities in which designated person owns,
directly or indirectly, 50% or greater interest (These "owned" entities
are sanctioned even if not specifically included on SDN List)
•
Applies if SDNs own 50% interest "individually or in the aggregate"
•
This rule applies under all sanctions programs, but is especially
relevant to the Ukraine related sanctions because certain sanctioned
persons have sought to avoid the impact of these sanctions through
divestitures of small portions of assets -- sometimes to other blocked
persons
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Ukraine Related Sanctions -- Penalties for Violations
•
IEEPA governs. 50 U.S.C. § 1705: Unlawful to violate, attempt to
violate, conspire to violate, or cause a violation of any license, order,
regulation, or prohibition
•
Civil (Strict Liability): $250,000 or 2X the amount of the transaction,
per violation
Criminal (Willful): $1 Million per violation (individuals, imprisonment up
to 20 years)
•
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Ukraine Related Sanctions -- Status
•
Few licenses have been issued from OFAC
•
No known licenses for Crimea
•
No published enforcement actions relating to Russia
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Ukraine Related Sanctions -- Practical
Considerations
• Jurisdiction
•
•
Sanctions programs require an analysis of the nationality and/or location of
the entity engaging in the transaction and origin of the goods or services
•
The US takes a broad view of jurisdiction, and an equally broad view of
items classified as “US goods” or “US services”
•
Sectors that receive special attention include energy, financial services
(including insurance), pharmaceuticals/medical devices, and shipping
Inbound/Outbound
•
Sanctions programs impact imports, exports, and reexports
•
Facilitation raises unique challenging risks
•
Diligence with respect to supply chain and distributors is critical, particularly to
guard against SDNs or diversion
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Ukraine Related Sanctions -- Practical
Considerations(Cont’d)
•
Purpose
•
Even for transactions that involve permissible goods, the purpose of
the transaction should be evaluated separately
•
•
Similarly, providing support to (facilitating) an impermissible
transaction creates liability
•
•
For example, while medical supplies sold to a hospital may be permissible,
government sales (such as to a Health Ministry or a foreign military) may be
sanctioned
For example, providing accounting or actuarial services to a third-country
business that is predominantly engaged in sanctionable transactions could
be subject to sanction
Whether the initial purpose is permissible, commercial activities
designed to evade sanctions, result in diversion of products, or benefit
sanctioned parties, may be subject to sanctions
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The Canadian Sanctions Regime:
Ukraine-related Sanctions
Canada – Sanctions Regime
• United Nations Act
• Canadian implementation of sanctions adopted by UN Security Council
• Special Economic Measures Act
• Other sanctions
• As dictated by foreign policy of the Government of Canada
• Independent of UN
• Criminal Code – Terrorist groups
• Proceeds of Crime (Money Laundering) and Terrorist Financing Act
• Freezing Assets of Corrupt Foreign Officials Act
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Canada – SEMA
• SEMA = framework legislation
• Specific measures adopted by Regulations
• Sanctions can encompass:
• Limitations on official and diplomatic contacts or travel
• Restrictions or prohibitions on trade or other economic activity between Canada
and the target state
• Seizure or freezing of property situated in Canada
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Canada – SEMA
• Offences and punishment
8. Every person who willfully contravenes or fails to comply with an order or
regulation made under section 4
(a) is guilty of an offence punishable on summary conviction and is liable to a
fine not exceeding twenty-five thousand dollars or to imprisonment for a term
not exceeding one year, or to both; or
(b) is guilty of an indictable offence and is liable to imprisonment for a term
not exceeding five years.
• Possibility of a fine with no maximum limit
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Canada – SEMA Russia Sanctions
• March 17, 2014, the Special Economic Measures (Russia) Regulations
• Multiple amendments
• Include 3 Schedules of sanctioned persons
• Schedule 1 – reasonable grounds to believe are senior officials of the
Government of Russia (or their families or entities they control), or
individuals or entities ‘engaged in activities that directly or indirectly
facilitate, support, provide funding for, or contribute to a violation or
attempted violation of the sovereignty or territorial integrity of Ukraine or
that obstruct the work of international organizations in Ukraine’
• Schedules 2 and 3 – “…reasonable grounds to believe is a person
owned or controlled by, or acting on behalf of” a person sanctioned in
Schedule 1.
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Canada – SEMA Russia Sanctions
• Section 3: Prohibits any persons in Canada and Canadians abroad
from:
• dealing in any property held by or on behalf of a person designated
in schedule 1, or facilitating or providing financial or other related
services in respect of such a dealing;
• making any goods available to a person designated in schedule 1;
and
• providing any financial or related services to or for the benefit of a
person designated in schedule 1
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Canada – SEMA Russia Sanctions
• Section 3.1(1): Prohibits any person in Canada and any Canadian
abroad to “…transact in, provide or otherwise deal in a loan, bond or
debenture, of longer than 30 days maturity in relation to:”
• a Schedule 2 person,
• the property of Schedule 2 person, or
• the interests or rights of property of a Schedule 2 person.
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Canada – SEMA Russia Sanctions
• Section 3.1(1.1): Prohibits any person in Canada and any Canadian
abroad to “…transact in, provide or otherwise deal in a loan, bond or
debenture, of longer than 90 days maturity in relation to:”
• a Schedule 3 person,
• the property of Schedule 3 person, or
• the interests or rights of property of a Schedule 3 person.
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Canada – SEMA Russia Sanctions
• Section 3.1(2)
• 3.1(1) and (1.1) Do not apply in respect of a loan issued or bond or debenture
that was issued before the designated person was listed in Schedule 2 or 3.
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Canada – SEMA Russia Sanctions
• Section 3.2: Prohibits any person in Canada and any Canadian abroad
to “…transact in, provide or otherwise deal in a capital funding through
the transaction of shares in exchange for ownership interest in relation
to:”
• a Schedule 2 person,
• the property of a Schedule 2 person, or
• the interests or rights of property of a Schedule 2 person.
• Does not apply to capital funding that occurred before the designated
person was listed in Schedule 2.
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Canada – SEMA Russia Sanctions
• Section 3.3: Oil Exploration or Production
• Prohibits persons in Canada and any Canadian outside Canada from
exporting, selling, supplying or shipping any listed goods, wherever
situated, to Russia or to any person in Russia for use in any of the
following activities:
• offshore oil exploration or production at a depth greater than 500 metres;
• oil exploration or production in the Arctic; or
• Shale oil exploration or production.
• The new measures also prohibit the provision to Russia or to any person
in Russia of any financial, technical or other services related to such
prohibited goods.
Month Day Year
Dentons US LLP
Document reference #
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Canada – SEMA Russia Sanctions
Section 3.3: Oil Exploration and Production
•
Month Day Year
New Schedule 4 identifies goods subject to the new ban along
with their Harmonized System code. Goods include various
codes under Chapters 73, 82, 84, 87 and 89.
Dentons US LLP
Document reference #
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Canada – SEMA Russia Sanctions
Meaning of “Canadian”:
• SEMA Section 2: “Canadian” means a person who is a citizen within
the meaning of the Citizenship Act or a body corporate incorporated or
continued by or under the laws of Canada or of a province
• Application for Removal from Schedule:
• Section 8 SEMA (Russia) Regulations: Review mechanism to
remove names from the schedule on an application by a designated
person
• 90 day process
• Lack of transparency
• To date, 2 removals
-ExpoBank
-RosEnergoBank
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Canada – SEMA Russia Sanctions
Section 4 - Exemptions:
•
Payments pursuant to contracts entered into with persons designated in
schedule 1 before their designation, provided not for their benefit
•
Pension payments to any person in Canada or Canadian abroad
•
Transactions in respect of diplomatic missions
•
Transactions to UN agencies, the International Red Cross and Red
Crescent Movement, and Canadian NGOs in certain circumstances
•
Transactions necessary for a Canadian to transfer to a person designated
in schedule 1 any accounts, funds or investments held by a person
designated in schedule 1 when that person became a designated person
•
Financial services required in order for a designated person to obtain
certain legal services in Canada; and
•
Payments to any person in Canada or any Canadian abroad in respect of
loans entered into by a person before they became a designated person
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Canada – SEMA Russia Sanctions
Section 5 – Causing or assisting:
•
Prohibited for any person in Canada or Canadian abroad to do
anything that causes, assists or promotes, or intended to cause, assist
or promote any act or thing prohibited under sections 3 to 3.2
•
Extremely broad and problematic drafting
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Canada – SEMA Russia Sanctions
Financial Institutions – Continuing obligation to determine
•
Section 6: Listed financial institutions “…must determine on a
continuing basis whether [they] are in possession or control of property
owned or controlled by or on behalf of a designated person listed in
Schedule 1”
•
Includes banks, credit unions, insurance companies, trust and loan
companies, securities dealers, portfolio managers or investment
counselors
•
Compliance requires sophisticated, ongoing KYC programs
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Canada – SEMA Russia Sanctions
Special Economic Measures (Russia) Permit Authorization Order
•
Authorizes the Minister of Foreign Affairs to issue a permit to carry out
a specified activity or transaction, or any class of activity or
transaction, that is restricted or prohibited under the SEMA (Russia)
Regulations
•
Permits and reasons are not publicized
•
No time frame for making the decision
•
Not clear what criteria may be applied
•
Process – letter to DFATD, with supporting information and records
•
Strategic use
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SEMA Ukraine Sanctions
•
Similar to Russia sanctions
•
No Schedule 2 or 3
•
No sections 3.1 and 3.2
•
Targets 49 individuals and 4 entities
•
“for which the Governor in Council considers there are reasonable
grounds to believe that they are engaged in activities that directly or
indirectly facilitate, support, provide funding for, or contribute to the
deployment of Russian armed forces to Crimea or to the seizing of
control of Ukrainian government and military entities inside Crimea.”
•
Which are partners, relations, or entities controlled by such individuals
and entities
•
A senior executive of an entity taking part in such activities
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Other Ukraine Sanctions
•
March 5, 2014, Freezing Assets of Corrupt Foreign Officials (Ukraine)
Regulations
•
Gives effect to requests from Ukraine government to freeze assets of
former leaders and senior officials or their associates and family
members suspected of having misappropriated state funds, or
obtained property inappropriately as a result of their office or family,
business or personal connections
•
These are fairly prominent individuals, and asset freezing tends to be
politically motivated
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Canada – Issues with Sanctions Compliance
Application and interpretation challenges:
•
No jurisprudence
•
No DFATD guidance on compliance issues
•
Little OFSI guidance
•
No advance ruling/interpretations (or even informal decisions)
•
Can request permit or confirmation – occasionally an equivalent
mechanism
•
Reluctance of officials to discuss Russia and Ukraine sanctions, even
informally
•
No transparency in section 8 removal applications
•
No transparency in permit authorization process
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Questions?
Paul Lalonde
Toronto
1 416 361 2372
[email protected]
Kenneth Nunnenkamp
Tysons Corner
1 703 574 4241
[email protected]
Month Day Year
Dentons US LLP
Document reference #
42
Dentons locations
This will be our global footprint
when our combinations with 大成
and MLA are officially launched
下图为Dentons与大成及MLA合并
后的办公室分布图
49 countries
125 locations
11 June 2015
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