July 21, 2015 RUSSIA AND UKRAINE SANCTIONS - THE WAY FORWARD ONE YEAR ON Richard Tauwhare, Jo Dimmock and Roger Matthews of Dechert LLP 2015 Dechert LLP
Dechert International Trade Team Richard Tauwhare Senior Director Richard.Tauwhare@dechert.com / 020 7184 7350 Jo Dimmock Senior Associate Joanna.Dimmock@dechert.com / 020 7184 7321 Roger Matthews Senior Director Roger.Matthews@dechert.com / 020 7184 7418 Russia and Ukraine Sanctions The Way Forward One Year On 2
This Presentation OVERVIEW RUSSIA IRAN COMPLIANCE QUESTIONS Russia and Ukraine Sanctions The Way Forward One Year On 3
OVERVIEW
Why we have sanctions UN, EU, US and other national sanctions and embargoes apply to specific countries, organisations and individuals part of a comprehensive approach to bring about a change in policy by the target, restricting and imposing costs on their actions short of military intervention but more than just words Dynamic: frequent, rapid changes Calibrated: adjustable; bargaining chip in negotiations Legally-binding on organisations and individuals Russia and Ukraine Sanctions The Way Forward One Year On 5
General Sanctions Framework Some sanctions programmes are mandated by United Nations, but sometimes US and/or EU restrictions go beyond UN requirements. In other cases US and/or EU impose autonomous sanctions without any UN mandate (eg Russia, Ukraine). Certain sanctions programmes are comprehensive (eg Iran) and preclude a wide range of transactions and activity with both the relevant country and individuals and entities within the country. Other sanctions programmes target specific sectors, individuals and entities (e.g. Russia). Russia and Ukraine Sanctions The Way Forward One Year On 6
Key Elements of Sanctions Arms and internal repression equipment Ban on export of military equipment to target country Ban on export of equipment which might be used for internal repression Ban on provision of related technical and financial assistance Asset freeze of named persons/entities Listed Persons funds and economic resources to be frozen Applies also to all funds/resources (inc companies) owned, held or controlled by listed persons (inc 50% + subsidiaries and poss others) Ban on making funds or resources available to either of the above Sectoral import/export controls Restrictions on export of oil/gas equipment (Iran, Syria, Russia) Telecommunications monitoring equipment (Syria) Transport, tourism (Ukraine) Luxury goods (North Korea) Bespoke financial restrictions (various) Transfers of any funds to/from Iran (US restriction; EU authorisation reqd) Debt/equity for named Russian banks Further investment in real estate (Ukraine) Insurance provision (Iran/Syria) Russia and Ukraine Sanctions The Way Forward One Year On 7
Sanction Target Companies (examples) Afghanistan Belarus Cuba (USA only) DR Congo Egypt Eritrea Guinea Guinea Bissau Iran Iraq Cote d Ivoire Lebanon Liberia Libya Moldova Myanmar/ Burma DPR Korea Russia Somalia Syria Sudan Tunisia Ukraine (primarily Crimea) Yemen Zimbabwe Russia and Ukraine Sanctions The Way Forward One Year On 8
Scope of EU Sanctions EU citizens, and EU-incorporated companies, wherever located (including non-eu branches but not non-eu subsidiaries) Business done (wholly or partially) in the EU Do not apply to transactions whose only EU connection is currency (i.e. use of or will not bring a transaction within scope) UK extends EU sanctions to its overseas territories (including Bermuda, British Virgin Islands and Cayman Islands). Jersey, Guernsey, Isle of Man tend to adopt substantively identical laws No extraterritorial application to non-eu citizens or companies outside the EU Russia and Ukraine Sanctions The Way Forward One Year On 9
Scope of US Sanctions US persons, wherever located US companies and their non-us branches, wherever located In certain instances, also to their non-us subsidiaries (Cuba, Iran) Any persons located in the US Transactions conducted in US dollars, due to the required involvement of US correspondent banks Re-export of US-origin goods US secondary sanctions can apply to activities of non-us companies even if no US nexus (primarily regarding Iran and Syria). Applies to those who engage in significant transactions with designated entities Russia and Ukraine Sanctions The Way Forward One Year On 10
Who Enforces Sanctions? (EU) European Commission monitors enforcement and assists with interpretation Financial Sanctions: Member State Competent Authorities (HM Treasury for UK) Member State financial regulators (for UK, FCA requires that regulated firms must have adequate systems and controls) Trade Sanctions: Member State Competent Authorities (in UK, Department for Business, Innovation and Skills) Russia and Ukraine Sanctions The Way Forward One Year On 11
Who Enforces Sanctions? (US) Financial Sanctions: Office of Foreign Assets Control (OFAC part of the Dept of the Treasury) Dept of Justice; Federal and State banking regulators Trade Sanctions Dept of Commerce (Bureau of Industry and Security) Dept of State (Bureau of International Security and Non-Proliferation) Russia and Ukraine Sanctions The Way Forward One Year On 12
Breaching Sanctions is a Criminal Offence A breach may lead to any of: substantial fine; risk of criminal penalties for directors; an obligation to suspend relevant activities; reputational consequences; loss of listing on London Stock Exchange. A breach of US secondary sanctions may lead to: restrictions on ability to do business in or with US; restrictions on ability to use US Dollars; denial of entry to USA (for directors) asset freeze of US assets (company and directors) Insert title of presentation here 13
EU Penalties Penalties set by each Member State In the UK: Maximum of 7 years in jail Unlimited fine Less aggressive enforcement approach than USA...... but 2015 Budget states intention to increase enforcement, learning lessons from OFAC, with establishment of OFSI Russia and Ukraine Sanctions The Way Forward One Year On 14
US Sanctions Penalties for Non-US Companies Schlumberger Oilfield Holdings Ltd (2015) $232m (Iran, Sudan) Suspended from operating in Iran or Sudan and continuing cooperation with DoJ Paypal (2015) $7.6m (Cuba, Sudan, Iran) BNP Paribas (2014) $9.6bn (Iran, Sudan, Cuba, Burma) Clearstream (2014) $151m (Iran) HSBC (2012) $1.9bn (sanctions and money laundering) Standard Chartered (2012) $667m (Burma, Iran, Libya, Sudan) Russia and Ukraine Sanctions The Way Forward One Year On 15
RUSSIA
The introduction of Russian and Ukraine Sanctions In 2014 US and EU imposed sanctions relating to Ukraine and Russia due to political developments in the region; EU recently extended sanctions to January 31, 2016; Unlikely sanctions removed in the near future. Russia and Ukraine Sanctions The Way Forward One Year On 17
Overview of EU and US measures Introduced March 2014; EU and US measures amended and expanded since March 2014; In the EU, actions include; Asset freezes misappropriating Ukrainian State funds or human rights abuses (5 March 2014); Undermining territorial integrity and independence of Ukraine (17 March 2014); Restrictive measures against Russia relating to equipment for use in the oil sector (31 July 2014); In the US, actions include ; Asset freezes - undermining Ukrainian democratic process (6 and 16 March 2014); Newly-created SSI list targeting access to capital for companies in Russia s financial services and energy sectors (16 July 2014): Broad trade embargo on the Crimean peninsula (19 December 2014). Russia and Ukraine Sanctions The Way Forward One Year On 18
Challenges posed to the business community Measures posed significant challenges for companies doing business in the region due to: Opaque corporate information in Russia; Practical difficulties in implementing measures aimed at isolating Crimea; Measures not designed to close off commercial relations with Russia. Initial frustration by companies that the measures broadly and ambiguously framed as to be unworkable: December 2014, amending regulation refined the formulation of EU sanctions measures followed by European Commission guidance; However, practical obstacles for businesses remain. Russia and Ukraine Sanctions The Way Forward One Year On 19
Russian reaction and countermeasures In retaliation Russia has imposed restrictions: August 2014, Russia banned the import of all beef, pork, fruit, vegetables, and dairy products from the European Union, the United States and others; 2014, a travel ban prohibiting certain EU persons and US persons from entering Russia. Russia and Ukraine Sanctions The Way Forward One Year On 20
The Way Forward: the next 12 months February 2015 ceasefire part of Minsk Agreement- cooled tensions; EU measures extended to 2016; Longer term picture unclear Russia showing no sign of reversing course with Crimea; and Tensions rising again. Current measures likely to be maintained long into 2016; Some pushing for further measures - Donald Tusk, the EU President noted after the recent G7 meeting; if anyone wants to start a debate about changing the sanctions regime, the discussion could only be about strengthening it. Russia and Ukraine Sanctions The Way Forward One Year On 21
IRAN
Specific element of key programmes Key points: UN has imposed mandatory sanctions on Iran which all countries should apply; USA, European Union and others have imposed significant additional sanctions on Iran; 3 separate motivations advanced for sanctions on Iran: human rights violations; support for terrorism; nuclear weapons proliferation. Some elements of the US and EU sanctions were suspended in January 2014 as current negotiations began. Russia and Ukraine Sanctions The Way Forward One Year On 23
Current sanctions: EU Extensive import and export restrictions (some prohibitions, some licensing regimes) Extensive list of asset-freeze targets (inc. banks) Investment bans (sectoral) Transfers of funds to/from Iran or Iranian persons Financial messaging (SWIFT) Correspondent banking Insurance Transport (esp shipping) Russia and Ukraine Sanctions The Way Forward One Year On 24
Current sanctions: USA (1) US primary sanctions US persons prohibited from trading with Iran (with a few specific exceptions); All transactions in US Dollars prohibited; Non-US subsidiaries of US companies are also within scope of US sanctions; The re-export of US-origin goods remains subject to US export restrictions Russia and Ukraine Sanctions The Way Forward One Year On 25
Current Sanctions: USA (2) US Secondary Sanctions Apply to non-us persons, where there is no US nexus. Apply to those who engage in significant transactions with designated entities Consequences of breach include: restrictions on ability to do business in or with US; restrictions on ability to use US Dollars; denial of entry to USA (for directors) asset freeze of US assets (company and directors) Russia and Ukraine Sanctions The Way Forward One Year On 26
Recent Developments Russia and Ukraine Sanctions The Way Forward One Year On 27
Iran Agreement key points P5+1 agreement with Iran (called the Joint Comprehensive Plan of Action or JCPOA) finalised on 14 July 2015; Agreement has yet to be adopted by the parties or endorsed by EU or UN; In the meantime, the current sanctions remain in place (the suspensions made in Jan 2014 are extended to Jan 2016); There are other countries with significant sanctions against Iran, which are not in the P5+1 or in the EU (eg Canada, Switzerland, Australia, Japan) what will they do? Russia and Ukraine Sanctions The Way Forward One Year On 28
Iran Agreement - timing Parties now need to adopt/endorse the JCPOA. In particular, US Congress has 60 days from 14 July to review it. UN Endorsement: It is understood that UN Security Council will not endorse the JCPOA and amend its Resolution until Congress has approved it. Adoption day, 90 days after UN endorsement, is when JCPOA formally comes into effect. IAEA inspectors will be invited to inspect when Iran has taken certain measures. The date when IAEA verifies that Iran has taken these steps is Implementation Day. This triggers certain obligations. On Transition Day, certain residual sanctions are to be lifted. Russia and Ukraine Sanctions The Way Forward One Year On 29
Iran Agreement what will be lifted? (1) European Union: Most restrictions under Regulation 267/2012 will be lifted; but some measures closely related to arms and nuclear activity will remain; Human Rights sanctions (Reg 359/2011) will remain. August 13, 2015 Insert title of presentation here 30
Iran Agreement what will be lifted? (2) USA Secondary sanctions (ie those applying to non-us persons) to be lifted; Certain SDNs and all FSEs will be de-listed; A permissive licensing regime will enable exports to Iran of civil aircraft parts and imports of Iranian foods and carpets; Non-US subsidiaries of US companies will be able to engage in certain activities involving Iran (but only those consistent with the JCPOA and subject to a licence); but The US trade embargo on Iran will remain. US persons and banks will still be generally prohibited from all dealings with Iranian companies, including investing in Iran, facilitating cleared country trade with Iran. Russia and Ukraine Sanctions The Way Forward One Year On 31
Iran Agreement final points We don t know if we will ever get to implementation day approval, especially in Washington and Tehran is not guaranteed (but seems likely in both cases; There is much external opposition, eg from Israel and Saudi Arabia; Not clear how soon Implementation Day might arise, but early 2016 seems the earliest likely time. IAEA must state that Iran is implementing the Agreement. (there s considerable scope for argument within the IAEA over this); Snap-back is possible if a party considers that Iran is in significant nonperformance Russia and Ukraine Sanctions The Way Forward One Year On 32
COMPLIANCE
Policy Implement robust compliance policy Compliance culture must be endorsed and demonstrated from the top Risk-based approach to minimise exposure and allocate limited resources Keep up-dated Audit regularly Insert title of presentation here 34
Due Diligence For Financial Sanctions: understand all applicable restrictions regular screening of customers, partners, suppliers, agents and other counterparties against EU, US and other applicable lists of sanctioned entities and individuals check ownership (and, for EU-listed parties, control) For Trade Sanctions: understand all restrictions applicable to each country with which you do business identify all affected goods, equipment or services take account of the parties involved including any intermediaries; the origin of the goods and their destination (including any intermediate destinations); and their intended use Russia and Ukraine Sanctions The Way Forward One Year On 35
Training and Awareness Ensure that all staff understand: how sanctions apply to your organisation the compliance procedures How to identify risky transactions How to escalate concerns about potentially risky transactions How to report potential breaches Training should be regular, formal and recorded Reinforced by intranet feeds and email alerts with updates Insert title of presentation here 36
Contracts Ensure that contracts/terms & Conditions include robust provisions to protect your interests in the event of: a breach of sanctions by one of your partners sanctions measures preventing you from fulfilling the contract Include customers, suppliers, other third parties Russia and Ukraine Sanctions The Way Forward One Year On 37
Breaches Whistleblower policy requiring staff to report non-compliance If breaches are discovered, investigate urgently and comprehensively under legal privilege Implement mitigations and tightened procedures Make voluntary self-disclosures of breaches as soon as details are known Russia and Ukraine Sanctions The Way Forward One Year On 38
QUESTIONS
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