United States and EU Establish Sanctions Arrangements to Address Ukraine Developments


The United States and the European Union have issued sanctions measures in response to actions by Ukrainian and Russian officials.  Both measures are designed to impose sanctions against individuals and entities rather than to impose broad trade embargoes.  While the EU has already designated 18 former Ukrainian officials as being sanctioned, initial U.S. designations of sanctioned persons remain forthcoming.

U.S. Executive Order

On March 6, 2014, President Obama issued an executive order authorizing the U.S. Treasury Department to sanction persons found to, among other things, "threaten the peace, security, stability, sovereignty, or territorial integrity or Ukraine," contribute to the "misappropriation of state assets of Ukraine or of an economically significant entity in Ukraine," or "have asserted governmental authority over any part or region of Ukraine without authorization of the Government of Ukraine."

The executive order provides for two types of sanctions.  First, the U.S. government will "block" designated persons.  Blocking will freeze designated persons' assets in the United States or otherwise held by U.S. persons and generally forbid U.S. persons to engage in transactions in which any blocked person has a direct or indirect interest.  This is a standard blacklisting action, which will cut designees off from U.S. business and financial activity.  Second, the U.S. government will subject designated persons to visa bans and generally not permit them to enter the United States.

Again, the U.S. government has not yet designated any persons as being sanctioned under the executive order.  Initial designations could emerge at any time.

EU Regulation

On March 5, 2014, the EU promulgated Council Regulation No. 208/2014.  Also a blocking measure, the regulation freezes the assets of designated individuals linked to or responsible for "the misappropriation of Ukrainian State funds and persons responsible for human rights violations in Ukraine."  EU designees include former Ukrainian President Viktor Yanukovych, former Prime Minister Mykola Azarov, and 16 other senior Ukrainian officials suspected of misusing state funds and violating human rights.  The EU regulation generally forbids dealings with these designated individuals by EU persons.  Unlike the U.S. executive order, the EU regulation does not impose a visa ban.

Key Considerations

U.S. Designations:  There will be no U.S. sanctions until the U.S. government designates persons who are blocked under the executive order.  It seems likely that, unlike the EU, the United States will designate some Russian persons.

Grandfathering:  As usual with U.S. sanctions, sanctions under the executive order will not exempt existing business arrangements.  Rather, to the extent that blocking of designees implicates U.S. persons, those U.S. persons will be forbidden to continue performance of existing arrangements.  By contrast, the EU regulation provides that where payment is due under contracts entered into by designated persons before such persons were included in Annex I of the EU regulation, EU Member States may authorize release of certain frozen funds in specified circumstances.

Other Possible Sanctions:  U.S. and EU authorities continue to engage in vigorous discussions – internally and bilaterally – about expanded sanctions.  Possibilities include, for example, bans on exports to Ukraine and Russia of military-related and intelligence-related items, sanctions against Russian banks, and limits on government procurement from Russian sources.