On March 12, 2020, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) sanctioned TNK Trading International S.A. (“TTI”), a subsidiary of the Russian energy company Rosneft, based on Executive Order (“E.O.”) 13850 authorizing sanctions on persons operating in certain sectors of the Venezuelan economy, including the oil sector. Specifically, OFAC sanctioned TTI for trading, processing, and transporting unrefined petroleum and petroleum products from Venezuela. OFAC also sanctioned TTI because following February 18, 2020 sanctions on Rosneft Trading S.A. (“RTSA”), another subsidiary of Rosneft, certain cargoes of Venezuelan oil allocated to RTSA were changed to TTI in order to evade OFAC Sanctions.
In addition, OFAC issued three Venezuela-related General Licenses: General License 15C “Authorizing Transactions Involving Certain Banks for Certain Entities,” General License 16C “Authorizing Maintenance of U.S. Person Accounts and Noncommercial, Personal Remittances involving Certain Banks,” and General License 36A “Authorizing Certain Activities Necessary to the Wind Down of Transactions Involving Rosneft Trading S.A. or TNK Trading International S.A.” Notably, General License 36A authorizes U.S. persons to engage in transactions and activities that are ordinarily incident and necessary to the wind down of transactions involving TTI or RTSA, through 12:01 a.m. eastern daylight time, May 20, 2020.
Lastly, OFAC issued new guidance clarifying that (i) non-U.S. persons may wind down transactions with TTI or RTSA without exposure to sanctions under E.O. 13850, provided that such wind-down activity is consistent with General License 36A; (ii) non-U.S. persons unable to wind down their activities with TTI or RTSA before 12:01 a.m. eastern daylight time, May 20, 2020, may seek OFAC’s additional guidance; (iii) entering into new business involving TTI or RTSA is not wind-down activity under General License 36A; (iv) E.O. 13850 sanctions do not apply to Rosneft Oil Company or subsidiaries or affiliates different from TTI and RTSA.
Consequences of These Additional Sanctions
OFAC added TTI to the List of Specially Designated Nationals and Blocked Persons (“SDN List”). Accordingly, all of TTI’s property within or transiting U.S. jurisdiction is blocked. In addition, if they are not authorized by a license issued by OFAC such as General License 36A, U.S. persons or foreigners that conduct business in or with the U.S., U.S. persons, or using U.S.-origin goods or services are prohibited from engaging in transactions with TTI or with entities in which TTI has, directly or indirectly, 50% or greater ownership interest.
OFAC also added TTI to the Sectoral Sanctions Identifications (“SSI”) List to make any transaction with TTI that remains authorized under General License 36A subject to Ukraine-/Russia-related Directives 2 and 4. Under these directives, OFAC prohibits U.S. persons from engaging in all transactions in, provision of financing for, and other dealings in new debt of longer than 60 days maturity for designated Russian companies as well as any entities 50% or more owned by those entities. OFAC also prohibits U.S. persons from providing goods, services (except financial services), or technology in support of projects for exploration or production of oil from deepwater, Arctic offshore, or shale that are (i) located in Russia and involve designated Russian companies; (ii) located elsewhere if designated Russian entities or their subsidiaries own a 33% or greater ownership interest, or a majority of the voting interests.
U.S. and foreign persons violating OFAC Sanctions on Venezuela and Russia may face significant civil and criminal penalties. OFAC may also add them to its SDN List (secondary sanctions).
Preventing Violations of OFAC Sanctions on Venezuela and Russia
Conduct an OFAC review of any transaction involving Venezuela or Russia to confirm whether you need OFAC’s authorization to proceed. If necessary, request OFAC’s specific license or interpretative guidance. In addition, organizations can prevent, detect, and react appropriately to violations of OFAC Sanctions by designing and implementing Sanctions Compliance Programs (“SCP”). Having an effective SCP in place is also a significant mitigating factor that OFAC will consider when deciding whether to impose sanctions based on an apparent violation of its regulations, or for calculating the appropriate penalty.
Legal Options for Sanctioned Individuals and Entities
Anyone placed on the SDN or the SSI List by OFAC has the right to seek removal under an administrative process known as “De-Listing.” To be removed, listed individuals and entities can file a written request for reconsideration with OFAC. If OFAC denies this request for De-Listing, administrative remedies are deemed exhausted and listed individuals and entities can subsequently file a civil action with a U.S. District Court seeking judicial review of OFAC’s actions under the Administrative Procedure Act.
Individuals and entities penalized by OFAC for engaging in apparent violations of its sanctions, after exhausting administrative remedies, may also request a U.S. District Court to set these civil penalties aside as arbitrary or capricious.