Today, under its Venezuela sanctions authorities, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated Rosneft Trading S.A. (RTSA), the trading arm of Russian energy company Rosneft Oil Company (Rosneft), and its chairman of the board of directors and president on the Specially Designated Nationals and Blocked Persons (SDN) List. These sanctions also apply to all entities that are 50% or more directly or indirectly owned by RTSA. Today’s sanctions do not apply to the parent, Rosneft Oil Company.
New Rosneft Designations
In what US State Department Special Representative for Venezuela Elliott Abrams called a “very significant step,” OFAC imposed comprehensive blocking sanctions against RTSA worldwide and its president and chairman, Didier Casimiro.
The Impact of the Designations
What is Prohibited?
As of today, US persons may not engage in any transactions with RTSA or any entity owned 50% or more, directly or indirectly, by RTSA (together, the designated RTSA entities).
Under its 50% Rule,1 OFAC considers all property of the designated RTSA entities to be blocked when located in the US or coming under the possession or control of a “US person,” including any US financial institution or its overseas branches.2 As of today, the designated RTSA entities’ US bank accounts are blocked, and any transfers to or from these accounts are generally prohibited.
Furthermore, non-US persons may not cause or facilitate any transactions with designated RTSA entities if there is a US nexus.3 In addition, non-US persons are at risk of becoming designated themselves if they engage in transactions that would amount to “material support” to the designated RTSA entities. Determinations of “materiality” are within the discretion of OFAC in consultation with the US State Department.
While RTSA and its parent company were already designated on the Sectoral Sanctions Identifications (SSI) List under Directives 2 and 4 of the Ukraine/Russia sectoral sanctions, no Rosneft entity was on the SDN List until today. The SSI List imposes trade restrictions relating to prohibitions on debt financing and certain exploration and production activities. The SDN List, on the other hand, generally prohibits all US person dealings with or involving SDN-listed companies.
New General License
General License 36 (GL 36) authorizes US persons to engage in all transactions and activities that are “ordinarily incident and necessary to the wind down of transactions involving” the designated RTSA entities until 12:01 a.m. eastern daylight time on May 20, 2020.
GL 36 only authorizes wind-down activities and does not authorize activities otherwise prohibited under Directives 2 and 4 of the Ukraine/Russia sectoral sanctions.
It also does not authorize any new business, as new business will not be considered wind-down activity.
Note also that GL 36 also does not authorize any debit to an account held by the designated RTSA entities at a US financial institution, including foreign branches.
What Remains Authorized?
US persons are not prohibited from dealing with Rosneft (the parent company), its non-blocked subsidiaries, or its non-blocked affiliates as long as the transaction does not involve blocked persons or activities.4
The wind-down of transactions that were in effect prior to today’s action is authorized as long as these do not involve a debit to a blocked person's account at a US financial institution.
Non-US persons/non-US banks are not directly subject to this prohibition where there is no US nexus (e.g., no US dollars). However, non-US banks will be reluctant to deal with the designated RTSA entities due to the risk of secondary sanctions for providing “material support” to RTSA, which, like Petróleos de Venezuela, S.A., was designated under the authorities of Executive Order 13850. In this regard, OFAC’s FAQ states:
“Non-U.S. persons may wind down transactions with Rosneft Trading S.A. without exposure to sanctions under E.O. 13850, provided that such wind-down activity is: (i) consistent with General License 36; and (ii) completed prior to 12:01 a.m. eastern daylight time, May 20, 2020. Entering into new business involving Rosneft Trading S.A. will not be considered wind-down activity. Non-U.S. persons unable to wind down activities with Rosneft Trading S.A. before 12:01 a.m. eastern daylight time, May 20, 2020, may seek guidance from OFAC.”5
Recommendations and Looking Ahead
All companies should conduct an assessment of their dealings with RTSA and its subsidiaries. US companies are advised to act immediately to identify, stop/hold, and begin the process of winding down all pre-existing operations and transactions involving the designated RTSA entities, or else seek an OFAC license.
OFAC is advising non-US companies who are unable to wind down their operations with Rosneft Trading by May 20, 2020 to seek guidance from OFAC.6 Finally, non-US companies and financial institutions should also assess their risks related to further sanctions against Venezuela, as Special Representative Abrams has signaled that further Venezuela sanctions are on the near-term horizon.
___________
1Under OFAC’s “50% Rule,” entities that are directly or indirectly owned 50% or more in the aggregate by SDNs are also considered blocked.
2“US person” means “any United States citizen, permanent resident alien, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.” 31 CFR § 591.312.
3US nexus will be presumed to exist if a transaction involves a US person, US currency, or a US financial institution (including its foreign branches).
4OFAC FAQ #817.
5OFAC FAQ #818.
6Id.
[View source.]
