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Sanctions Newsletter (Issue 2, 2015)

 

Sanctions against the Russian Federation extended into 2015

European Union

On 13 March 2015, the E.U. Council officially extended sanctions against 150 individuals and 37 entities through 15 September 2015. This decision formally legalizes the decision of the Ministers of Foreign Affairs of the European countries on 29 January 2015 to extend the sanctions previously imposed in March 2014.

United States

On 11 March 2015 the U.S. Treasury Department expanded the list of individuals and entities against which the sanctions are applied. The list added 14 individuals, including: the former Prime Minister of Ukraine, Azarov  Mykola; the leader of the International Eurasian Movement, Alexander Dugin; the former Minister of Health of Ukraine, Raisa Bohatyriova; the Ukrainian businessman and politician, Arbuzov Serhiy; and the head of the Federal Migration Service of Russia in Sevastopol, Kozyura Oleg. Sanctions also were imposed on the Eurasian Youth Union and the Russian National Commercial Bank.

Previously, on 3 March 2015, U.S. President Barack Obama signed the Notice “Continuation of the National Emergency with Respect to Ukraine.” It extends the sanctions against the Russian Federation for one year starting from 6 March 2015, and applies to:

  • Executive Order 13660 (6 March 2014), blocking assets and property of individuals and entities, which were included in Specially Designated Nationals List, which prohibited the entry into the territory of the United States by listed individuals and entities, and banned the provision of the financial resources, goods, and services by U.S. residents to them
  • Executive Order 13661 (16 March 2014), which extended the sanctions list and authorized the Secretary of the Treasury to expand the list of individuals and entities in coordination with the Secretary of the State
  • Executive Order 13662 (20 March 2014), which expanded the sanctions list, and authorized the U.S. Treasury Department (in coordination with the U.S. State Department) to impose "targeted" sanctions on companies operating in the fields of metallurgy, energy, mining, and engineering, as well as in the Russian military complex
  • Executive Order 13685 (19 December 2014), which: imposed a ban on new investments in the Crimean region by legal entities and individuals of the United States; banned the importation of goods, services, and technologies of Crimean origin into the U.S.; banned the export, re-export, sale, and delivery of goods, services, and technologies in the Crimean region by the United States or by persons from the United States; and authorized the Secretary of the Treasury to impose restrictions on individuals and legal entities operating in Crimea.

For further analysis of the 2014 round of sanctions, refer to the ART DE LEX Sanctions Newsletter of 10 September 2014.

Switzerland

On 6 March 2015 Switzerland also extended the sanctions. The Decree of 6 March 2015, Preventive measures of the evasion of the international sanctions, which were imposed due to the situation in Ukraine (Instituant des mesures visant à empêcher le contournement de sanctions internationales en lien avec la situation en Ukraine), which was adopted by the Federal Government, prolongs the previously imposed sanctions and introduces new restrictive measures similar to those adopted by European Union and the United States.

In particular, the Decree:

  • Imposes a total ban on investments in Crimea and Sevastopol by the residents of Switzerland;
  • Bans the acquisition or increase of the share capital of Crimean and Sevastopol companies by the residents of Switzerland; and
  • Prohibits the establishment of joint ventures on the territory of Crimea and Sevastopol.

The Decree extends the restriction to the tourism sector, and adds 19 individuals and 9 entities to the Swiss sanctions list.

Economic impact to continue into 2015

According to the Federal Customs Service of Russia, the 2014 sanctions against Russia resulted in a 9.2% decrease in the value of imports, from US$ 315 billion in 2013 to US$ 286 billion in 2014.  The E.U. share of Russia’s trade turnover declined from 49.6% in 2013 to 48.2% in 2014.

Not the least important factor in the reduction of the value of imports was the fall of the value of the Russian currency in the last quarter of 2014. This contributed to a decline in import volumes from 17 out of 20 major countries into Russia.

The most notable declines in imports were:

  • food products ( - 44%)
  • construction equipment (- more than 25%)
  • machinery and technical equipment, vehicles, trucks, and farm equipment  (-20%)
  • pharmaceutical products (- 20%)

Import reductions stimulated the development of Russian domestic manufacturing, including local production by foreign companies. According to the Rosstat, the most significant growth was registered in:

  • manufacturing of plastic plates and sheets (+ 33%)
  • powdered milk and cream (+26.8%)
  • synthetic and organic dyes (+25%)
  • sunflower oil (+ 21.5%)
  • low-sided cars (wagons with an open roof) (+19%)
  • domestic beef and pork (+ 13.3%)
  •  poultry meat (+ 7.8%)

At the same time, some sectors showed a reverse trend. For example, the significant decline in manufacturing was observed in:

  • steel wire ropes, cables, cords made of ferrous metals (-30.1%)
  • pumps and compressors (-25.7%)
  • bearings (-23.4 %)
  • buses (-22.7%)
  • trucks (-22.5%)

According to the Minister of Foreign Affairs of Spain, José García-Margallo y Marfil, in 2014 the European Union lost around 21 billion euros. These losses included, for example:

  • Spain: approximately 1 billion euros
  • Germany: 1.3 billion euros
  • Italy: 2 billion euros

Norway, which is not an EU member, lost 1 billion euros.

These estimates, which are based on a formal comparison of turnover data for 2013 and 2014, do not include other significant losses of private companies, such as those caused by the refusal to participate in various projects, caused by the "sanctions war" between the Western countries and Russia.

These other losses include, for example:

  • The Ministry of Economy of Germany in March 2014 revoked the permits for Rheinmetall to construct a Russian military center in Mulino, Nizhny Novgorod, at a cost of 100 million euros.
  • The British-Dutch oil company Shell refused to develop the Lenzitskiy subsurface area in the Yamalo-Nenetskiy Autonomous District (YNAD). The Lenzitskiy subsurface area is one of the biggest in Yamal. Its total extractable reserves are estimated at 11.79 million tons. Previously, Shell had refused two other licenses in Russia (Barun-Yustinskiy in Kalmykia and Arkatoyskiy in YNAD).
  • In November 2014 the closing of the purchase of the share in the Norwegian drilling company North Atlantic Drilling  by the Russian company Rosneft from the parent Norwegian drilling company Seadrill was postponed until the end of May 2015. A representative of the Norwegian company explained: "Because of the recent events, it will be very difficult to close the deal on the same conditions or terms, which were stipulated in the concluded contract. Consequently, there are significant risks for the implementation of the drilling operations for US$ 4.1 billion.”
  • Due to E.U. and U.S. sanctions, the French company Total stopped working with LUKOIL, halting the development of shale oil reserves in Western Siberia. The parties had intended to spend approximately US$ 150 million on the exploration of the oil reserves alone.
  • The American company Halliburton has suspended its cooperation with the Russian company Gazprom Drilling, which is owned by A. Rottenberg.
  • The French government’s refusal to deliver two MISTRAL-class helicopter carriers to Russia could bring losses up to 5 billion euros to French companies.
  • As a result of the suspension of joint projects with Russian company Rosneft on the Arctic shelf and in Western Siberia, the Exxon-Mobil Company has lost about 883 million euros.

These examples are only a small part of the projects that have become impossible to realize due to the imposed mutual limitations. Meanwhile, they vividly demonstrate that officially claimed damages to the countries concerned present an incomplete picture. They do not show all the additional economic losses, both potential and real, that private companies have been required to manage.

ART DE LEX International Sanctions Group

Analysts of the ART DE LEX International Sanctions Group monitor systematically the recent and pending legislation to identify the risks that might result for companies, private organizations, individuals, and other legal entities.

For more information please contact one of the ART DE LEX sanctions specialists listed in the left sidebar.