New US, EU and UK Sanctions

I. New US sanctions

On 12 April 2023 the Office of Foreign Assets Control (OFAC) extended the list of persons covered by the US’s blocking sanctions. The UK and the EU have likewise extended their sanctions lists. The key changes are listed below.

New persons on the SDN list

The holding companies USM and Metalloinvest and a number of major metallurgical companies — Mikhailovsky Mining and Processing Plant, Lebedinsky Mining and Processing Plant and Oskol Electrometallurgical Plant (OEMK) — have been added to the SDN list. Blocking sanctions have also been imposed on Megafon PJSC^[1] as a company connected with the holding company USM.

Besides Russian companies, the US has also imposed blocking sanctions on a variety of grounds on companies from Cyprus, the UAE, China and Turkey (see the list below for more details).

New OFAC general licenses

As a rule, US citizens and companies are prohibited from having any dealings with persons included in the SDN list.

However, General License No. 62 issued by OFAC permits American persons, until 11 July 2023, to enter into transactions with Megafon PJSC and the holding company Metalloinvest that are aimed at the wind-down of operations with those entities.

In addition, General Licence No. 63 permits American persons, until 11 July 2023, to enter into transactions with the holding company Metalloinvest that relate to the fulfilment of debt obligations of Metalloinvest and companies owned by it.

Also, General Licence No. 65 permits American persons to enter into transactions with Megafon PJSC that are related to the receipt and transmission of telecommunications involving Megafon PJSC.

Inclusion in the SDN list for advising sanctioned persons

In a press release about the new sanctions^[2], OFAC links the rise in cases of sanctions evasion, inter alia, to the activities of consultants employed by sanctioned persons. OFAC believes that sanctioned persons receive assistance in evading sanctions primarily from legal, financial and wealth management advisors as well from trust and company service providers.

For instance, Sequoia Treuhand Trust and an individual representing Sequoia Treuhand Trust (a citizen of Austria and Switzerland) are included in the SDN list "for having materially assisted, sponsored, or provided financial, material, or technological support to, or goods or services to or in support of", sanctioned persons. Specifically, OFAC believes that the persons concerned provided advisory services and wealth management services to sanctioned members of the Russian elite.

The managing director of Sequoia Treuhand Trust (a citizen of Switzerland and Liechtenstein) and a member of the board of Sequoia Treuhand Trust (a citizen of Switzerland and the UK) have also been included in the SDN list as directors and executives of a sanctioned entity, i.e., Sequoia Treuhand Trust.

Intermediaries of Alisher Usmanov

OFAC has revoked General License No. 15, which previously allowed US persons to enter into transactions with companies directly or indirectly owned by Alisher Usmanov that were not on the SDN list, even though Alisher Usmanov himself has been on the SDN list since 3 March 2022.

The revocation of this license brings many organisations and individuals connected with Alisher Usmanov within the scope of US blocking sanctions:

• Demetrios Serghides (Usmanov's personal advisor — as a person controlled by or acting on behalf of a sanctioned person);
• The Sister Trust (a Cypriot trust settled by Alisher Usmanov and his sister Gulbakhor Ismailova);
• Pomerol Capital SA (a Swiss trustee company of The Sister Trust; Demetrios Serghides is a member of the board of directors of Pomerol Capital SA).

Also added to the SDN list are certain companies owned by The Sister Trust (the Cypriot company Almenor Holdings Limited, the Cayman company Navis Marine, and others), the directors of Almenor Holdings Limited, and other companies owned by Alisher Usmanov (Windfel Properties Limited, Savoler Developments Ltd, Miramonte Investments Ltd) and their directors and corporate secretary^[3].

Commercial ties as a reason for inclusion in the SDN list

By way of secondary sanctions for assisting Russia’s military industrial complex, OFAC has included King-Pai Technology HK Co. (China) and Dexias Türkiye
(Turkey) in the SDN list. The basis for the imposition of secondary sanctions was alleged support in supplying goods to Radioavtomatika LLC, which is on the SDN list.

OFAC has also imposed blocking sanctions on persons connected with the above-mentioned Dexias Türkiye: Dexias LLC and Alim Firov (the general director of Dexias Türkiye
and Dexias LLC). The basis for the inclusion of those persons in the SDN list is their alleged activity in supporting the Russian military industrial complex through the supply of US-made products^[4].

US sanctions against investment banks

The US authorities have imposed blocking sanctions on the Hungarian International Investment Bank, IIB Capital (a subsidiary of the International Investment Bank) and individual executives of the International Investment Bank.

The basis for the inclusion of the above persons in the SDN list is their alleged activity in Russia’s financial services sector and OFAC’s belief that they act on behalf of, or are controlled by, the Government of Russia.

II. New UK and EU sanctions

On 12 April 2023 the UK authorities also imposed blocking sanctions on the holding company USM and certain individuals connected to that holding company^[5].

On 13 April 2023 the European Commission extended the scope of EU blocking sanctions to include the Wagner PMC and the RIA FAN financial news agency^[6].

III. Consequences of the inclusion of persons in US, EU and UK sanctions lists

Legal consequences

(1) US blocking sanctions

The inclusion of sanctioned persons in the SDN list means that US citizens and companies are subject to a ban on any dealings with those persons without the permission of OFAC, including a ban on the conclusion and performance of any transactions with or on behalf of sanctioned persons.

US-located assets of sanctioned persons are subject to a freeze. This also makes it impossible for sanctioned persons to make payments in US dollars, since US banks operating correspondent accounts in that currency are obliged to suspend any payment made by a sanctioned person and freeze that person’s funds.

Non-US persons that assist sanctioned persons in evading US sanctions may also find themselves subject to "secondary sanctions", which include a wide range of measures against non-US persons up to and including the addition of those persons to the SDN list.

(2) EU blocking sanctions

EU blocking sanctions entail the freezing of EU-based assets of sanctioned persons and the imposition of a ban on EU citizens and companies providing funds or other economic resources to sanctioned persons, which makes it difficult to have any economic dealings with sanctioned persons.

EU law provides that EU sanctions may also be extended to citizens and companies (whether registered in the EU or any third country) that deliberately facilitate the circumvention of EU sanctions by sanctioned persons.

(3) UK blocking sanctions

UK blocking sanctions entail a full asset freeze on sanctioned persons and a ban on British citizens or companies transferring any financial assets or other resources to sanctioned persons.

Practical consequences

Besides the above-mentioned legal consequences of blocking sanctions, sanctioned persons may also face other, practical consequences of having sanctions imposed on them by foreign states.
For instance, in dealing with banks and/or new counterparties, sanctioned persons may be forced to go through a wide range of compliance procedures, which may complicate or delay the setup of necessary business processes.

The imposition of blocking sanctions may also make it difficult for sanctioned persons to make international payments, since banks and other financial organisations may take it upon themselves to freeze certain payments made by sanctioned persons, carry out additional checks or request explanations regarding the purpose of particular transactions.

In addition, sanctioned persons may find that some of their counterparties pull out of existing contracts, in most cases because of their reluctance to work with a sanctioned person and run the risk of incurring secondary sanctions and reputational damage.

In view of the above, sanctioned persons may need to check existing contracts with foreign counterparties to check whether they contain special "sanctions clauses" specifying the legal consequences that ensue should one of the parties be included in sanctions lists of foreign states. In particular, such "sanctions clauses" may provide for one of the parties to withdraw from the contract unilaterally under a "simplified procedure".