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Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the.

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Presentation on theme: "Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the."— Presentation transcript:

1 Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. © 2014 Baker & McKenzie LLP 1 October 2014 Russia / Ukraine Sanctions & Export Controls US and EU Sanctions Update Sylwia Lis, Partner, Washington, D.C Sunny Mann, Partner, London

2 © 2014 Baker & McKenzie LLP Agenda Jurisdictional Issues Designated Parties Energy Sector Controls Export Controls Sectoral / Financial Sanctions Compliance Tips 2

3 © 2014 Baker & McKenzie LLP Sanctions Toolbox Comprehensive Anti-circumvention / Facilitation / Causing violations Individuals / Entities Goods / Technology Services Investment Asset freeze / Blocked property Making available / Dealing Funds transfer Arms / Dual-use Sanctioned country origin Other Finance Insurance Brokering Sectors 3

4 © 2014 Baker & McKenzie LLP Includes: EU, U.S., Japan, Canada, New Zealand, Australia, Iceland, Moldova, Georgia, Norway, Switzerland, Liechtenstein, Albania and Montenegro Sanctions against Russia / Ukraine 4

5 Jurisdictional Issues

6 © 2014 Baker & McKenzie LLP Who Must Comply with EU Sanctions? EU sanctions measures typically apply to: Any entity incorporated in an EU Member State and its EU and non- EU branches Any entity incorporated outside the EU, but only in respect of any business conducted in the EU Any directors, officers, employees, agents, etc. located in the EU (irrespective of nationality) Any directors, officers, employees, agents, etc. that are nationals of an EU Member State (even if located outside the EU) 6

7 © 2014 Baker & McKenzie LLP Who Must Comply with U.S. Sanctions? U.S. Sanctions Apply to “U.S. Persons” Entities organized under U.S. laws and their non-U.S. branches Employees (regardless of nationality) of above entities Individuals and entities in the United State U.S. citizens and permanent resident aliens (“Green Card” holders) wherever located or employed Non-U.S. Persons may be subject to U.S. jurisdiction if they cause prohibited transactions to occur in whole or in part in the United States or anywhere by U.S. Persons Separately incorporated foreign subsidiaries of U.S. companies are NOT U.S. Persons 7

8 © 2014 Baker & McKenzie LLP Consider… 8 EU/US nationals working in Russia for a Russian Corp? Russian transaction requiring authorisation by US/EU national? Russian branch of EU/US Corp? Russian employee working in the EU/US? Transaction denominated in USD?

9 Designated Parties

10 © 2014 Baker & McKenzie LLP DP / SDN Controls EU and U.S. list-based sanctions programmes: EU Designated Parties (“DPs”) and U.S. Specially Designated Nationals (“SDNs”) EU sanctions on DPs: Prohibition on “making available” “funds” or “economic resources”, directly or indirectly, to or for the benefit of DPs Freeze on funds and economic resources belonging to, owned, held or controlled by DPs Administered and enforced by each EU Member State U.S. sanctions on SDNs: Prohibition on U.S.-Person dealings with SDNs, directly or indirectly, and any entity 50% or more owned by one or more SDNs, or “facilitation” of such dealings Requirement to block SDN property and interests in property Administered and enforced by Office of Foreign Assets Control (“OFAC”) Prohibition under EU and U.S. sanctions in relation to acts of circumvention/facilitation Non-U.S. Persons may also have liability for causing a U.S. Person to violate sanctions (e.g., U.S. dollar payments, ordering goods from United States for supply to SDNs) 10

11 © 2014 Baker & McKenzie LLP Customer Company Non-DP Shareholder DP Shareholder EU: Assess whether counterparty is majority owned or controlled by one or more DPs; test is complex and subject to EU Member State interpretation U.S.: Assess whether counterparty is 50% or more owned by SDNs Screening of counterparty’s name only would not address risk of dealing with non-designated entity that is owned/controlled by DP/SDN Other forms of indirect dealings may be caught (e.g., distributor relationship) 60% 40% Dealings with Affiliates of DPs / SDNs 11

12 © 2014 Baker & McKenzie LLP Russia & Ukraine: DPs / SDNs to Date EU: 141 individuals + 23 entities 22 individuals for misappropriation of Ukrainian state funds / human rights violations 119 individuals + 23 entities for actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (incl. 9 entities whose ownership has been transferred contrary to Ukrainian law) US: 57 individuals + 36 entities Executive Order (March 2014) – 23 SDNs Executive Order (March 2014) – 70 SDNs Executive Orders codified into Ukraine-Related Sanctions Regulations, 31 CFR Part 589 H.R (“Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014”) (April 2014) – no SDNs 12

13 © 2014 Baker & McKenzie LLP Designated Parties EU DPs and U.S. SDNs are found on respective EU/U.S. lists or not formally designated but affiliated with EU DPs or U.S. SDNs Different tests for non- designated DPs and SDNs EU: entities owned or controlled by DPsU.S.: entities 50% or more owned by one or more SDNs Sanctions Targets EU: primarily political figures and limited number of entitiesU.S.: political figures, oligarchs, and many entities Administration/ Enforcement EU: Member State GovernmentsU.S.: OFAC Compare & Contrast 13

14 Questions?

15 Energy Sector Controls

16 © 2014 Baker & McKenzie LLP Prior authorisation is required for: Sale, supply, transfer or export listed of equipment and technology used in the oil (and gas) industry to or for use in Russia Providing related technical assistance, brokering services, financing or financial assistance Controlled equipment and technology: Listed in Annex II to the EU Russia Sanctions Focused on drilling equipment and pipelines Authorisation will not be granted if supply relates to projects in Russia regarding: Deep water oil Arctic oil Shale oil Exception: pre-1 Aug. contracts / agreements 16 EU Restrictions on Oil Industry in Russia

17 © 2014 Baker & McKenzie LLP Prohibited: Provision of drilling, well testing, logging and completion services, and supply of specialised floating vessels for deep water oil exploration and production, arctic oil exploration or production or shale oil projects in Russia Carve-outs: Pre-12 Sept. contracts (includes “framework agreements” and “ancillary contracts”) Urgent prevention or mitigation of event where likely serious and significant impact on human health and safety or the environment Note: EU guidance being developed regarding exceptions 17 EU Restrictions on Oil Industry in Russia (cont’d)

18 © 2014 Baker & McKenzie LLP New licensing requirement as of August 6, 2014 For exports, reexports, and transfers (in-country) of any item (i.e., goods, software, technology) subject to the Export Administration Regulations (“EAR”) Listed in Supplement No. 2 to Part 746 (“Russian Oil Industry List”) or Specified in Export Control Classification Numbers (“ECCNs”) 0A998 (new), 1C992, 3A229, 3A231, 3A232, 6A991, 8A992, or 8D999 (new) When it is known that the item will be used directly or indirectly or when it cannot be determined whether the item will be used In exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet); Arctic offshore locations; or Shale projects in Russia (collectively, “Russian Oil Industry End- Uses”) 18 U.S. Russian Oil Industry Sanctions Program

19 © 2014 Baker & McKenzie LLP License applications will be reviewed With a presumption of denial With respect to a Russian Oil Industry End-Use that has the potential to produce oil (End-uses with potential to produce gas will be reviewed on case- by-case basis) Only EAR License Exception GOV is available Russian Oil Industry List – examples: Drilling rig Parts for horizontal drilling Drilling and completion equipment Wireline and down hole motors and equipment Drill pipe and casing 19 U.S. Russian Oil Industry Sanctions Program (cont’d)

20 © 2014 Baker & McKenzie LLP Compare & Contrast License requirements EU oil sectoral measures require authorisation to be obtained irrespective of the use to which the targeted equipment and technology is to be put U.S. licensing requirement triggered when Russian Oil Industry End-Uses implicated or cannot be ruled out Presumption of Denial Both in the EU and U.S. the focus is in both cases on deep water, Arctic or shale oilin Russia Product Scope Annex II and Russian Oil Industry List are similar at a high level, but there are distinctions in specific entries Controls on Services EU controls technical assistance, brokering services, financing or financial assistance, drilling, well testing, logging and completion services and supply of floating vessels Grand-fathering Unlike the U.S., EU controls have limited grand-fathering Extraterritorial application Unlike the EU, U.S. export controls apply extraterritorially to both U.S. and non-U.S. Persons 20

21 Export Controls

22 © 2014 Baker & McKenzie LLP22 Export Controls and Sanctions Key Questions

23 © 2014 Baker & McKenzie LLP Common EU-wide dual-use framework and common control list (“EU Dual-Use List”) Generally licence is required for all exports of EU Dual-Use List items to location outside the EU No re-export or deemed export controls Military items dealt with under separate national regimes National implementation by EU Member States, particularly in respect of licensing and enforcement 23 Recap on Basics of EU Export Controls

24 © 2014 Baker & McKenzie LLP Prohibit: Sale, supply, transfer or export, directly or indirectly, EU Dual-Use List items, to anyone in Russia or for use in Russia, if items are or may be intended, in whole or in part, for military use or for a military end-user Military use is presumed if end-user is Russian military Sale, supply, transfer or export, directly or indirectly, EU Dual-Use List items to Annex IV companies (9 defence and mixed defence companies) Provision of related technical assistance, brokering services, financing or financial assistance Permitted: Pre-1 August / 12 September contracts / agreements (depending on prohibition) Provision of assistance necessary to the maintenance and safety of existing capabilities within the EU Aeronautics and space industry and existing civil nuclear capabilities for non military use and for a non military end-user 24 EU Dual-Use Controls Against Russia

25 © 2014 Baker & McKenzie LLP Prohibits: Sale, supply, transfer or export of arms and other items controlled under EU Member State Military Lists to Russia Provision of technical assistance, brokering services, financing or financial assistance, insurance and reinsurance services related to the above Import, purchase or transport of the same items from Russia Permitted: Pre-1 Aug. contracts / agreements Provision of spare parts and services for maintenance and safety of existing capabilities in the EU Also triggers enhanced UK ‘trafficking and brokering’ controls; licence required for “any act calculated to promote” the supply of UK Military List items to Russia from a third country 25 EU Arms Embargo Against Russia

26 © 2014 Baker & McKenzie LLP Applies to otherwise non-controlled items Where Russia is the purchasing country or country of destination, you must obtain an export licence from the relevant EU Member State authority if has been informed by relevant authority, or is aware, that the items are or may be intended for a “military end-use”: Incorporation into military items listed in the EU Member State military list Use of production, test or analytical equipment and components, for the development, production or maintenance of military items listed in such lists Use of any unfinished products in a plant for the production of military list items in such lists 26 EU Military End-Use Control

27 © 2014 Baker & McKenzie LLP Exports/reexports of certain items subject to U.S. jurisdiction to Russia or occupied Crimea may require a license, whether by U.S. Persons or non-U.S. Persons International Traffic in Arms Regulations (“ITAR”) U.S. or non-U.S. Persons dealing in U.S. defense articles/services Administered and enforced by Directorate of Defense Trade Controls (“DDTC”) Export Administration Regulations (“EAR”) U.S. or non-U.S. Persons exporting/reexporting/transferring U.S. “dual-use” items (having military and civilian applications) Administered and enforced by U.S. Bureau of Industry and Security (“U.S. BIS”) 27 U.S. Export Controls

28 © 2014 Baker & McKenzie LLP Export/reexport of military items (“defense articles” or “defense services”) to Russia or occupied Crimea require a license ITAR claims jurisdiction over non-U.S. items that incorporate a U.S. defense article Policy of denial for “high technology” defense articles or services that contribute to Russia’s military capabilities 28 U.S. International Traffic in Arms Regulations

29 © 2014 Baker & McKenzie LLP29 For Russia, “items subject to the EAR” include: Items of U.S. origin Items exported from the United States Non-U.S. items containing more than 25% controlled U.S. content by value, or Certain foreign direct products of controlled U.S. technology Policy of denial for export/reexport of “high technology” items subject to the EAR that may contribute to Russian military capabilities Separate licensing requirement for certain items subject to the EAR destined for military end uses or end-users in Russia (effective September 17) Supplement No. 2 to Part 744 9x515 and “600-series” ECCNs U.S. Export Administration Regulations

30 © 2014 Baker & McKenzie LLP30 Exports, reexports, or transfers of “items subject to the EAR” to Russian parties on the EAR’s Entity List require a license Applies to controlled and non-controlled (i.e., EAR99) items Policy of denial for Russian parties on Entity List Examples: Chernomorneftegaz, Feodosiya Enterprise, Volga Group, Stroytransgaz, Transoil These Russian parties on Entity List are also SDNs Energy sector designations on Entity List (effective September 17, 2014) Russian parties: Gazprom, Gazprom Neft, Lukoil, Rosneft, Surgutneftegas License requirement when it is known that an item will be used directly or indirectly or when it cannot be determined whether an item will be used for a Russian Oil Industry End-Use Policy of denial when Russian Oil Industry End-Use has potential to produce oil U.S. Export Administration Regulations (cont’d)

31 © 2014 Baker & McKenzie LLP Compare & Contrast Extraterritoriality EU: Not applicable U.S. export controls are extraterritorial for items (i.e., goods, software, technology) subject to the ITAR or EAR Additional controls EU controls on technical assistance, brokering services, financing or financial assistance, trafficking and brokering/military end-use Specific licensing requirements apply to parties on EAR’s Entity List Administration / enforcement EU: Member State GovernmentsU.S.: DDTC or BIS 31

32 Questions?

33 Sectoral / Financial Sanctions

34 © 2014 Baker & McKenzie LLP34 Prohibited to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with, “transferable securities” or “money-market instruments” with a maturity: Exceeding 90 days, issued after 1 Aug Sept., or Exceeding 30 days issued after 12 Sept. by: 1.Listed financial institutions (Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB) and Rosselkhozbank (Russian Agricultural Bank) 2.Non-EU persons/ entities/bodies whose proprietary rights are directly or indirectly owned more than 50% by any of (1), or 3.Persons/entities/bodies acting on behalf or at the direction of the above Excluded are other financial services EU Restrictions on Access to Capital Markets

35 © 2014 Baker & McKenzie LLP35 Prohibited to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with, “transferable securities” or “money- market instruments” with a maturity exceeding 30 days issued after 12 Sept. by: Listed persons, entities or bodies established in Russia and predominantly engaged and with major activities in the conception, production, sales or export of military equipment or services (OPK Oboronprom, United Aircraft Corporation and Uralvagonzavod); Listed persons, entities or bodies established in Russia, which are publicly controlled or with over 50% ownership, have estimated total assets of over 1 trillion Russian Roubles and whose estimated revenues originate for at least 50% from the sale or transportation of crude oil or petroleum products (Rosneft, Transneft and Gazprom Neft); Non-EU persons, entities or bodies whose proprietary rights are directly or indirectly owned more than 50% by any of (1) or (2); or Persons, entities or bodies acting on behalf or at the direction of any of (1), (2) or (3) EU Restrictions on Access to Capital Markets (cont’d)

36 © 2014 Baker & McKenzie LLP36 Prohibited to directly or indirectly make or be part of any arrangement to make new loans or credit with a maturity exceeding 30 days to any legal person, entity or body subject to the capital market access restrictions described above, after 12 Sept. Permitted: Loans or credit that have a specific and documented objective to provide financing for non-prohibited imports or exports of goods and non-financial services between the EU and Russia Loans that have a specific and documented objective to provide emergency funding to meet solvency and liquidity criteria for legal persons established in the EU, whose proprietary rights are more than 50% owned by any Annex III entity (Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB) or Rosselkhozbank (Russian Agricultural Bank)) EU Restrictions on Access to Other Financing

37 © 2014 Baker & McKenzie LLP Prohibited to: Import into the EU “goods originating” in Crimea or Sevastopol Provide financing or financial assistance, insurance or reinsurance related to these goods Exceptions: Where a certificate of origin is obtained from Ukrainian authorities Limited grand-fathering until 26 Sept. Additional prohibitions in respect of targeted sectors in Crimea and Sevastopol: Creation, acquisition, or development of infrastructure in the transport, telecommunications or energy sectors “Exploitation” of oil, gas or “mineral resources” Prohibitions in relation to these sectors target: Investment in entities or formation of JVs in respect of these sectors Sale, supply, transfer, export of key equipment and technology to or for use in Crimea or Sevastopol (note: grand-fathering provision for pre-30 July contracts / agreements until 28 Oct.) Provision of related services 37 EU Restrictions: Crimea and Sevastopol

38 © 2014 Baker & McKenzie LLP38 Target entities on OFAC’s Sectoral Sanctions Identification List (“SSIL”) and entities 50%-or-more owned by SSIL Parties Significantly expanded on September 12, 2014 with immediate effect Directive 2 (energy sector) - new parties as of September 12, 2014 Prohibition on U.S. Persons transacting in, providing financing for, or otherwise dealing in “new debt of longer than 90 days maturity” for Directive 2 parties, their property, or their interests in property Directive 2 parties: AK Transneft; Gazprom Neft; Novatek; and Rosneft Directive 4 (energy sector) - new directive as of September 12, 2014 Prohibition on U.S. Persons providing, exporting, or reexporting any U.S. or non- U.S. goods, services (except for financial services), or technology to Directive 4 parties for Russian Oil Industry End-Uses that have potential to produce oil Directive 4 parties: Gazprom; Gazprom Neft; Lukoil; Rosneft; and Surgutneftegas General License No. 2 to wind down prohibited activities by September 26, 2014 U.S. Sectoral Sanctions: Energy Sector

39 © 2014 Baker & McKenzie LLP39 Directive 1 (financial sector) - expanded as of September 12, 2014 Prohibition on U.S. Persons transacting in, providing financing for, or otherwise dealing in “new debt of longer than 30 days maturity” and/or “new equity” for Directive 1 parties, their property, or their interests in property Credit restrictions applied to new debt of longer than 90 days maturity issued between July 16 or 29 and September 12, 2014 Directive 1 parties: Vnesheconombank; Gazprombank; Bank of Moscow; VTB Bank; Russian Agricultural Bank; and Sberbank Directive 3 (defense sector) - new directive as of September 12, 2014 Prohibition on U.S. Persons transacting in, providing financing for, or otherwise dealing in “new debt of longer than 30 days maturity” for Directive 3 party Directive 3 party: Rostec U.S. Sectoral Sanctions: Financial & Defense Sectors

40 © 2014 Baker & McKenzie LLP40 Sectoral Sanctions Identifications List Directives Entity NameDate SanctionedDirective No. AK Transneft (new)9/12/142 Bank of Moscow7/29/141 Gazprom (new)9/12/144 Gazprom Neft (new)9/12/142 & 4 Gazprombank7/16/141 Lukoil (new)9/12/144 Novatek7/16/142 Rosneft7/16/142 & 4 Rostec (new)9/12/143 Russian Agricultural Bank7/29/141 Sberbank of Russia (new)9/12/141 Surgutneftegas (new)9/12/144 Vnesheconombank7/16/141 VTB Bank7/29/141 An entity 50% or more owned by one or more of the above sanctioned parties is subject to the same directives. U.S. Sectoral Sanctions: Overview Chart

41 © 2014 Baker & McKenzie LLP Compare & Contrast Capital Markets / Loans EU was limited to “transferable securities” and “money-market instruments” but has now been expanded to align to a greater extent with U.S. coverage Financial Sector Significant correlation between EU and U.S. sanctions regarding entities targeted under financial sector measures, but some distinctions Novatek and Lukoil targeted by U.S. sectoral sanctions but not EU Measures against Crimea / Sevastopol EU regime includes additional targeted measuresU.S. measures do not specifically target Crimea / Sevastopol 41

42 Compliance Tips

43 © 2014 Baker & McKenzie LLP Due diligence / screening on counterparties Clearly documented standardized process for screening against sanctions lists At least screen against information in your possession and in public domain Risk-based assessment of counterparties, shareholders and other third parties to screen Determine which future exports/reexports may require licenses How can you comply? 43

44 © 2014 Baker & McKenzie LLP How can you comply? Contractual protections Obtain certifications/representations/warranties from counterparties Require screening by distributors and agents Review option to terminate or suspend contracts Stay up-to-date on sanctions developments 44

45 © 2014 Baker & McKenzie LLP Thank You! 45

46 Questions?

47 © 2014 Baker & McKenzie LLP Sylwia Lis Speaker – Washington, DC T F Sylwia Lis is a partner in our Washington, DC office and has extensive experience advising companies on US laws relating to exports and reexports of commercial goods and technology, defense trade controls and trade sanctions — including licensing, regulatory interpretations, compliance programs and enforcement matters. She also has advised clients on national security reviews of foreign investment administered by the Committee on Foreign Investment in the United States (CFIUS), including CFIUS-related due diligence, risk assessment, and representation before the CFIUS agencies. Sunny Mann Speaker – London T F Sunwinder (Sunny) Mann is a Partner in the compliance and risk management team of Baker & McKenzie London. He joined the London office as a trainee solicitor in 2000 and qualified as a solicitor in March He undertook an 18- month secondment to the Washington, DC and New York offices, where he worked as part of the international trade and antitrust teams. He has also spent some time in the Sydney and Hong Kong offices. He spent nine months on secondment with a major UK mobile network operator and a further four months with a major consumer goods manufacturer. He is a visiting professor at the Bruges and Warsaw campuses of the College of Europe. Sunny's practice focuses on international trade compliance, particularly export controls and trade sanctions. He has successfully resolved numerous UK disclosure and enforcement cases and also advises on UN, EU and UK sanctions., Speakers 47

48 Baker & McKenzie LLP is a member firm of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organisations, reference to a "partner" means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an "office" means an office of any such law firm. © 2014 Baker & McKenzie LLP 1 October 2014 Russia / Ukraine Sanctions & Export Controls US and EU Sanctions Update Sylwia Lis, Partner, Washington, D.C Sunny Mann, Partner, London


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