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LAWYERS

Economic Sanctions against Russia

Tim Hesselink, Partner/Attorney-at-Law

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2007 Outlook

Source: ABN AMRO, Economics Department/Sector Research, September 2007

“International business and foreign investors are striving to increase their market share, strengthen their financial position, broaden their product range, ensure stability and find the best talent. Russia provides a solid basis for this. It may not happen overnight, but surely in the somewhat longer term.”

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2019 Outlook

Source: ABN AMRO, Group Economics, Emerging Markets Research, 13 February 2019

“However, we do expect new rounds of businesses and individuals being targeted under the US sanction regime. This ‘known unknown’ of new sanction rounds is continuing to have an impact on markets as foreign investors and businesses are extremely cautious about doing business with their Russian counterparts.”

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1. EU restrictive measuresagainst Russia

2. U.S. Sanctions Regimes

3. Business cases

4. Key Takeaways

Agenda

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EU RESTRICTIVE MEASURES

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Council Regulation (EU) No. 883/2014 concerning restrictive

measures in view of Russia’s actions destabilizing the situation in

Ukraine. The restrictive measures currently in place focus on:

Arms export and import;

Dual-use goods export if military end-users or military end-use;

Financial measures;

Prohibition to satisfy claims;

Export of certain goods, technology and services related to oil

exploration and production.

EU restrictive measures

against Russia

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• License obligation for certain goods (Annex II) suited to the

following categories :

① Oil exploration and production in waters deeper than 150 metres;

② Oil exploration and production in the offshore area north of theArctic Circle; or

③ Projects that have the potential to produce oil from resourceslocated in shale formations by way of hydraulic fracturing; it does notapply to exploration and production through shale formations tolocate or extract oil from non-shale reservoirs.

• Prohibition to provide associated services (drilling, well testing,

logging and completion services and supply of specialized

floating vessels) related to the above mentioned categories.

• License obligation for technical assistance and brokering

services related to the above mentioned technologies.

Restrictive measures

related to the oil-industry

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As part of the EU’s non-recognition policy of the illegal annexation of

Crimea and Sevastopol, the EU has imposed substantial restrictions

on economic exchanges with the territory. The restrictions are

included in Council Regulation (EU) No 692/2014:

• Prohibition to import goods originating in Crimea or Sevastopol.

• Prohibition to invest in Crimea.

• Prohibition on the export to Crimean companies or for use in

Crimea of goods and technology for the transport,

telecommunications and energy sectors or the exploration of

oil, gas and mineral resources.

• Prohibition to provide technical assistance, brokering,

construction or engineering services related to infrastructure.

• Prohibition to provide services directly related to tourism

activities in Crimea or Sevastopol.

Sanctions for Crimea and

Sevastopol

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U.S. SANCTIONS REGIMES

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• March 2014OFAC began the Ukraine/Russia-related sanctions program.

• April 2018OFAC placed seven prominent Russian businessmen, 12 companies, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary Russian bank on the SDN List (CAATSA 2017).

• August 2018

US State Department issued targeted sanctions against Russia in relation to the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act).

• September 2018

New Executive Order imposing sanctions in the event of foreigninterference in a US election.

• August 2019

Another round of sanctions against Russia in relation to the CBW Act.

U.S. Sanctions Regime

Developments in 2018/19 on sanctions against Russia

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• Directive 4 under executive order 13662 prohibits:– the provision, exportation, or re-exportation, directly or indirectly, of

goods, services (except for financial services), or technology;

– in support of exploration or production for deepwater, Arctic offshore, or shale projects;

– that have the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation and extending from its territory;

– that involve any person identified on the SSI List under Directive 4, including that person’s property, or its interests in property.

• Similar to the EU, but more Russian companies are targeted.

• Due to amendments in 2017, Directive 4 can also apply in projects beyond Russia.

• Extraterritorial reach of the US Sanctions and Export Controls regime.

U.S. Sanctions Regime

Ukraine/Russia-related sanctions program – E.O. 13662

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In 2017, the US adopted the “Countering America’s Adversaries

Through Sanctions Act” (CAATSA) which imposes (amongst

others) sanctions on Russia:

• Countering Russian Influence in Europe and Eurasia Act of

2017.

Little additional impact for the energy sector:

• Directive 4 was amended in such a way that now also projects

beyond the borders of Russia can be prohibited.

• Tightening of restrictions on the financing of, or transactions in,

debt issued by particular entities in the Russian financial

services and energy sectors.

U.S. Sanctions Regime - CAATSA

Countering America’s Adversaries Through Sanctions Act (CAATSA)

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BUSINESS CASES

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WHAT-WHO-WHERE-WHY

Item Characteristics

End Use/ End User

Destination

1515

• Dutch company specialised in technical

knowledge for oil and gas well design and

construction

• Tender Russian oil company for oil and gas well

design & construction services for USD 2m

• EU sanctions legislation against Russia -

prohibitions or restrictions?

• Prohibition investment services

• Export authorisation for technical assistance for

Annex II goods

• Specific end-use declaration criteria by Dutch

Ministry of Foreign Affairs (no deep water oil or

Arctic oil exploration and production, or shale oil

projects)

• Russian oil company withdraws tender

Business case I – Well

Design & Construction

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• EU supplier of offshore supply services

• Providing a seismic supply vessel to ensure

geophysical surveys for oil exploration

conducted by a Russian entity in the Barents

Sea

• EU sanctions legislation against Russia -

prohibitions or restrictions?

• No sanctions parties involved

• Prohibited associated services for oil exploration and

production in waters deeper than 150 meters

• Seismic supply vessels are allowed

• Contracts have been signed

Business case II –

Offshore support vessels

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• EU supplier of conformity assessment

services

• Considers to perform conformity assessment

services related to dual-use goods of

Category 0

• EU sanctions legislation against Russia -

prohibitions or restrictions?

• No sanctioned parties involved

• Conformity assessment services can be considered

technical assistance

• Technical assistance related to dual-use items is

prohibited if provided to sanctioned entities or if

intended for military end-use or a military end-user

• Not prohibited under EU sanctions regime

Business case III – Conformity

assessment services

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• EU supplier of heavy lifting equipment

• Considers to sell equipment to a Russian

shipbuilding yard

• EU sanctions legislation against Russia -

prohibitions or restrictions?

• No sanctioned parties involved

• Due to sanctions risks, company wishes to apply for

a request for classification

• Company wishes to conclude the contract only on

the condition of approval of the request for

classification

• Company includes a suspensive condition of

approval in the contract

Business case IV – Contracts

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KEY TAKEAWAYS

2020

Key Takeaways

• Determine which laws and regulations apply to the company

• Look out for red flags

• Use a risk-based assessment to determine possibleirregularities

• Carry out due diligence togain control over business risks

• If possible use sanctionsclauses for contracting

• Use export control assistance fromgovernmental authorities

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Questions?

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LAWYERS

THANK YOU

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Kneppelhout & Korthals Lawyers

Postbus 546

3000 AM Rotterdam

Gebouw Willemswerf

Boompjes 40

3011 XB Rotterdam

Telefoon 010 - 400 5100

th@kneppelhout.nl