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March 14, 2014

Written By: Alan M. Dunn and Jennifer M. Smith

Stewart and Stewart

Washington, DC

On March 6, President Barack Obama signed Executive Order No. 13660 authorizing economic sanctions related to the ongoing situation in Ukraine.  Certain aspects of this Order are notable and different when compared with both typical U.S. sanctions orders and the Ukraine-related sanctions that the EU and Canada have recently imposed.  The U.S. Congress is also considering a bill that would impose sanctions on Russia.

Below are five things U.S. businesses and other persons and entities subject to U.S. jurisdiction should know about the new U.S. Executive Order before doing business with Ukraine, Russia, or potentially affected persons, as of March 14, 2014.

1.   Executive Order No. 13660 only authorizes sanctions to be taken against specific persons (as yet, unnamed), not against any country or government as a whole. 

2.  The Order potentially authorizes sanctions both on former Ukrainian officials and their associates and on Ukrainian and Russian individuals and entities found to threaten the stability and territorial integrity of Ukraine. 

The Order targets persons who undermine democratic processes and institutions in Ukraine; threaten its peace, security, stability, sovereignty, and territorial integrity; and have misappropriated assets from Ukraine, among others.

The Order follows U.S. Secretary of State John Kerry’s trip to Kyiv on March 4 and a March 5 U.S. State Department fact sheet discrediting certain “false claims” by Russian President Vladimir Putin regarding the situation in Ukraine.  The fact sheet states, among other things, that “strong evidence suggests that members of Russian security services are at the heart of the highly organized anti-Ukraine forces in Crimea,” and Russian military actions in Crimea “are in clear violation of Ukraine’s territorial integrity and sovereignty.”  (emphasis added)

There also have been reports that as much as $37 billion disappeared from Ukraine’s state coffers — and as much as $70 billion was paid out of Ukraine's financial system into offshore accounts — during former Ukrainian President Viktor Yanukovych’s rule.

Based on the statements by the U.S. government and mounting evidence of substantial corruption, it is reasonable to expect that a number of persons may be named by the U.S. as subject to the sanctions approved under the Order.

3.  The March 6th Order is somewhat unusual because it authorizes sanctions against persons engaged in certain acts, but it did not actually designate anyone as subject to sanctions yet. 

The March 6th Order was issued under the authority of the International Emergency Economic Powers Act (IEEPA) and other statutes.  Typically, when the United States imposes economic sanctions via an Executive Order such as this one, the Executive Order will include an annex listing the names of persons who are subject to the sanctions.  The March 6th Order did not list any individuals or companies as being subject to the Ukraine-related sanctions.  Instead, senior administration officials noted that the Order gives them “flexibility” to take action in the future.  U.S. businesses and others who may engage in affected transactions will need to watch any developments under this Order carefully.

4.  Unlike the United States, the EU and Canada have already designated 18 individuals as subject to economic sanctions. The U.S. Treasury Department has issued an advisory on transactions involving these individuals. 

The EU and Canada have blocked the assets of, and prohibited transactions with Yanukovych and his sons, former Prime Minister Mykola Yanovych Azarov, other former Ukrainian officials, and certain Ukrainian businessmen.  The United States may follow their lead and impose sanctions on those individuals soon.

As a result of the EU and Canadian sanctions, the U.S. Treasury Department has already issued an advisory on transactions involving these individuals.  This advisory reminds U.S. financial institutions that they must “apply enhanced scrutiny” to private accounts held by or on behalf of senior foreign political figures and detect and report transactions that may involve the proceeds of foreign corruption or other illicit activity, and in particular “potentially suspicious transactions involving senior members of the former Yanukovych administration or those acting for or on their behalf.”  The advisory further notes that financial institutions must have “a written due diligence program for private banking accounts held for non-U.S. persons designed to detect and report any known or suspected money laundering or other suspicious activity” under the USA PATRIOT Act.

5.  When specific persons are designated under the Order, the sanctions would:

a.     Block the assets of those designated individuals,
b.    Prohibit U.S. persons from engaging in transactions with them,
c.     Block donations by, to, or for the benefit of such persons, and
d.    Make such persons ineligible for visas to enter the U.S. 

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Disclaimer:  This material is for the reader’s information only. It is not to be construed as legal advice.

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