By Richard E. Weiner and Sharon K. Freier
The U.S. federal government has recently imposed sanctions against Russian individuals and companies in response to Russia’s military action in Ukraine. These new sanctions may have adverse consequences for U.S. biofuels companies that wish to transact business in Russia or with Russian companies in various industry sectors. This article will describe these sanctions and will explain how U.S. biofuels companies can determine whether these sanctions affect their business dealings in Russia or with Russian counterparties.
On March 10, 2014, March 19, 2014, and March 24, 2014, President Obama issued three Executive Orders in response to Russia’s military action in Ukraine. In each of these Executive Orders, the President blocked all property and interests in property located in the U.S. or in the possession or control of a U.S. company that are owned by certain Russian individuals and entities. This means that no U.S. company may transfer, export, withdraw or otherwise deal in any such blocked Russian property. The property is frozen from use by the Russian individual or entity. Each Executive Order prohibited any U.S. company from making any contribution or providing any funds, goods or services to or for the benefit of any of the Russian individuals or entities and from directly or indirectly receiving any contribution, funds, goods or services from such Russian individuals or entities. The individuals and entities subject to the Executive Orders are included in the Office of Foreign Assets Control of the US Department of the Treasury (OFAC) Specifically Designated Nationals (SDN) List.
Additional OFAC Directives
On September 12, 2014, OFAC issued the following four Directives in response to the continued military aggression by Russia in Ukraine:
- Directive 1 prohibits any U.S. company from issuing or assisting in the issuance of any new debt with more than 30 days’ maturity or of any equity to certain individuals or entities in the Russian financial industry.
- Directive 2 prohibits any U.S. company from issuing or assisting in the issuance of any new debt with more than 90 days’ maturity to certain individuals or entities in the Russian energy industry.
- Directive 3 prohibits any U.S. company from issuing or assisting in the issuance of any new debt with more than 30 days’ maturity to certain individuals or entities in the Russian defense and related materials industry.
- Directive 4 prohibits any U.S. company from engaging in (and any non-U.S. company from engaging within the U.S. in) any of the following activities: the provision, exportation or re-exportation of any goods, services (except financial services) or technology in support of exploration or production for deep water, Arctic offshore or shale projects that have the potential to produce oil in the Russian Federation or in any maritime area claimed by the Russian Federation and that involve any Russian individual or entity subject to this Directive or involve such person’s interest or property.
All Russian individuals and entities subject to one or more of these Directives are listed on OFAC’s Sectorial Sanctions Identifications (SSI) List.
Application of the Sanctions to U.S. Biofuels Companies
Given the risk to U.S. biofuels companies of violating these new U.S. sanctions, biofuel companies should undertake the following due diligence prior to consummating a transaction in Russia or with Russian individuals or entities:
- Obtain the name and address of each Russian purchaser of any biofuels technology, equipment or plant which might be sold by the U.S. biofuels company as well as the names and addresses of each person or entity with an ownership interest in the Russian purchaser.
- Check the names and addresses of the Russian purchaser and its owners against the SDN List and the SSI List described above.
- If neither the Russian purchaser nor any of its owners appears on either list, then for purposes of the U.S. sanctions, the U.S. biofuels company may proceed with the transaction in Russia without concern.
- If, however, the Russian purchaser or one or more of its owners appears on either list, then the U.S. biofuels company must analyze the risk in proceeding with the transaction in Russia.
The new U.S. sanctions imposed against certain Russian individuals and companies can make doing business in Russia a risky proposition. But by following the guidelines described above, U.S. biofuel companies can minimize the risk that conducting business operations in Russia will put them in violation of U.S. law.