US and EU Temporarily Suspend Certain Sanctions on Belarus
By Glen Kelley, Doug Jacobson and Michael Burton, Jacobson Burton Kelley PLLC
The United States and European Union last week announced that the targeted sanctions against Belarus that were first imposed in 2004 will be relaxed effective October 30, 2015.
Although the sanctions relief at this point is of limited duration and scope, it will allow new transactions with Belneftekhim State Concern for Oil and Chemistry, one of Belarus' largest groups of companies.
For
several months EU officials had been signaling that the EU might suspend certain sanctions targeting Belarusian companies
and individuals, if the Belarusian government took steps to better respect
political and social rights. With the Belarusian government’s release of
political prisoners in August, and elections in October that
were perceived to involve less government intimidation of the opposition than
in recent years, the EU is taking the view that this condition has been met.
On October 29, 2015 the
EU announced the suspension of most, but not all, of its sanctions against Belarus. The EU sanctions suspensions are
effective as of October 31, 2015, the date each year when the EU sanctions targeting
Belarusian companies and individuals either expire or are renewed.
In
a less widely expected move, on October 29 the US also suspended
many of its sanctions targeting certain Belarusian companies on the US list of Specially Designated Nationals and Blocked Persons ("SDN list"), effective October 30. In
announcing the suspension, a US State Department spokesperson commented that
“this limited reprieve from sanctions opens the door to expanded commercial
ties for the Belarusian economy”.
The
key documents on the EU side include an implementing regulation, available here. On the US side, the US Treasury Department's Office of Foreign Assets Control (“OFAC”) issued Belarus General License No. 2 that can be found here.
Subject to a number of caveats mentioned below, OFAC Belarus General License 2 provides that "All transactions otherwise prohibited by Executive Order 13405 involving the following named entities, or any entities that are owned, individually or in the aggregate, directly or indirectly, 50 percent or more by one or more of the following named entities, are authorized":
Subject to a number of caveats mentioned below, OFAC Belarus General License 2 provides that "All transactions otherwise prohibited by Executive Order 13405 involving the following named entities, or any entities that are owned, individually or in the aggregate, directly or indirectly, 50 percent or more by one or more of the following named entities, are authorized":
- Belarusian Oil Trade House
- Belneftekhim (formally known as Belneftekhim State Concern for Oil and Chemistry)
- Belneftekhim USA, Inc.
- Belshina OAO
- Grodno Azot OAO
- Grodno Khimvolokno OAO
- Lakokraska OAO
- Naftan OAO
- Polotsk Steklovolokno OAO
The OFAC and EU measures are particularly significant for US and EU
petroleum and petrochemical companies, which had largely been prohibited
from engaging in many transactions in Belarus due to the pervasive and
non-transparent roles these entities play. In particular, the
Belneftekhim Concern has numerous affiliates that are widely involved in
Belarus' oil and gas sector.
At the same time, OFAC's general license does not authorize transactions, directly or indirectly, with any other person whose property and interests in property are blocked pursuant to the Belarus sanctions program. Also, the US sanctions relief only applies to prospective transactions with the named entities, meaning the blocked (frozen) assets of the named entities must remain blocked.
Please note that the Belarusian entities covered by the OFAC general license remain on the SDN list even through sanctions against them have been suspended, so automated sanctions screening systems may continue to pick up any references to these entities.
While the US and EU actions clearly were coordinated and intended to
complement each other, there are some important practical differences in
the US and EU sanctions and the sanctions relief, including the
following.
First, the EU sanctions suspensions have effect only for four months, through February 29, 2016, while the US suspensions will remain in place for six months, unless modified by OFAC, until April 30, 2016. Whether the sanctions will remain suspended will be evaluated early next year by the EU and US governments.
At the same time, OFAC's general license does not authorize transactions, directly or indirectly, with any other person whose property and interests in property are blocked pursuant to the Belarus sanctions program. Also, the US sanctions relief only applies to prospective transactions with the named entities, meaning the blocked (frozen) assets of the named entities must remain blocked.
Please note that the Belarusian entities covered by the OFAC general license remain on the SDN list even through sanctions against them have been suspended, so automated sanctions screening systems may continue to pick up any references to these entities.
First, the EU sanctions suspensions have effect only for four months, through February 29, 2016, while the US suspensions will remain in place for six months, unless modified by OFAC, until April 30, 2016. Whether the sanctions will remain suspended will be evaluated early next year by the EU and US governments.
Second, the EU suspended its sanctions on many Belarusian individuals and government officials,
including President Lukashenko. By contrast, the US did not suspend any sanctions
targeting Lukashenko or any other individuals.
Third, the impact of sanctions designations on the subsidiaries and other
affiliates of designated persons is different under EU and US sanctions, and
arguably broader on the US side:
- Under EU sanctions it is prohibited to indirectly make available funds or other economic resources to a designated person, and this could for example impact some transactions with a non-designated subsidiary of a designated person.
- On the US side, under OFAC's "50% rule", an entity is considered “blocked by operation of law" (subject to asset freezing), even if it is not on the SDN list, if one or more persons on the SDN list have a 50% or greater ownership interest in that entity. The Belarus sanctions program was the initial context for OFAC to release the 50% rule.
OFAC's 50% rule was particularly challenging to apply under the Belarus sanctions
because Belneftekhim is widely understood to be effectively a
holding company for the government’s extensive interests in companies across
the Belarusian economy, in many cases through non-transparent
structures. The suspension of US sanctions on Belneftekhim and other entities
should mitigate this compliance challenge, though certain
transactions may still be prohibited if they involve President Lukashenko or
any other person who remains on the SDN list. We expect that OFAC would approach the degree of
involvement by an individual blocked person similar to the manner its approach
under the Russia/Ukraine sanctions program.
Fourth, the US has imposed a reporting requirement on US persons that engage in
transactions with any of the Belarusian entities for which sanctions are
suspended. The EU has not imposed such a special reporting requirement. US
persons must submit reports must to the US Department of State within 15 days
of any transaction or series of transactions that have an aggregate value
exceeding US $10,000.
Labels: Belarus, OFAC, Sanctions; Sanctions; Syria
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