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Yulia Timofeeva

Program Assistant at the Russian International Affairs Council

The US Office of Foreign Assets Control of the US Department of the Treasury (OFAC) imposed sanctions on a Rosneft subsidiary. On February 18, 2020, US Treasury Secretary Steven Mnuchin announced the designation of the Swiss-based company Rosneft Trading S.A. and its president Didier Kasimiro as Specially Designated Nationals (SDN). The reason was the company's activity in the oil sector of the Venezuelan economy. More specifically, Rosneft Trading S.A. and its president, according to US authorities, facilitated the sale and transportation of Venezuelan oil.

Designating Swiss Rosneft Trading as an SDN is unfavourable news for Russia, but not fatal for its oil exports and its ties with Venezuela. In the international arena, Rosneft can act through other intermediaries. In addition, Rosneft is unlikely to give up cooperation with Venezuelan energy companies. Rosneft Trading withdrawal from sanctions in the COSCO Shipping Tanker scenario is not predetermined. In any case, sanctions against Rosneft Trading are Washington's political signal not only to individual companies, but to Russian policy and relations with Venezuela in general. More fundamental political factors will determine sanctions against individual companies.

The US Office of Foreign Assets Control of the US Department of the Treasury (OFAC) imposed sanctions on a Rosneft subsidiary. On February 18, 2020, US Treasury Secretary Steven Mnuchin announced the designation of the Swiss-based company Rosneft Trading S.A. and its president Didier Kasimiro as Specially Designated Nationals (SDN). The reason was the company's activity in the oil sector of the Venezuelan economy. More specifically, Rosneft Trading S.A. and its president, according to US authorities, facilitated the sale and transportation of Venezuelan oil.

Sanctions were introduced in accordance with Executive Order 13850 from November 1, 2018. It prescribes the imposition of sanctions against those who contribute to “destabilizing the situation in Venezuela”. Potential objects of sanctions, according to the executive order, are involved in corruption, “degrade Venezuela’s infrastructure and natural environment through economic mismanagement and confiscatory mining and industrial practices, catalyze the regional migration crisis”. This executive order targets individuals and legal entities that support the “regime” of the Venezuelan President, Nicolas Maduro. Earlier, this executive order hit the Venezuelan state oil and gas company Petróleos de Venezuela (PdVSA) and several other companies with blocking sanctions.

On the whole, the US issued seven executive orders on Venezuela's sanctions program. E.O. 13692 from March 8, 2015, signed by Barack Obama, aims to combat violations of human rights and freedoms during anti-government protests in Venezuela. The E.O. imposes sanctions on seven individuals. They represent military and intelligence service officials, the National police and prosecutor’s office. Donald Trump's Executive Order 13808 from August 24, 2017 contains several restrictions – dealing with new debt of PdVSA, the purchase of bonds issued by the Government of Venezuela, and others. E.O. 13827 from March 18, 2018, was a response to "an attempt by N. Maduro’s regime to circumvent US sanctions by creating a digital currency.” Executive Order 13835 from May 21, 2018, added to the existing orders. It introduced a ban on financing the public debt of the Venezuelan government (purchase of any debt). E.O. 13857 from January 25, 2019, addressed issues of human rights violations by the “regime”. The Executive Order 13884 authorizes the blocking of the assets of the Venezuelan government (including the Central Bank and PdVSA) in the United States. In addition, the assets of individuals who supported those designated previously under the Venezuelan program are frozen as well.

According to the US Treasury, Rosneft Trading collaborated with PdVSA, thereby violating the existing regulations. In particular, it is noted that Rosneft Trading facilitated the transportation of oil from Venezuela to Western Africa (January 2020) and Asia (September 2019). Now, the company’s counterparties must complete all operations with it by May 20, 2020.

At the time of the new designations, the Russian Rosneft Oil Company and the Swiss Rosneft Trading S.A. were already the subjects of the US sectoral sanctions under Executive Order 13662 and Directives 2 (September 2017) and 4 (October 2017) of the Treasury adopted in the framework of the E.O. The Directives aim to limit the development of the Russian energy sector. Directive 2 from September 29, 2017 restricts lending to companies, but does not prohibit other transactions. Directive 4 from October 31, 2017 restricts the supply of goods, services (except financial) or technology that can be used for the exploration or production of deepwater, Arctic offshore or shale projects.

However, unlike sectoral sanctions, the SDN status causes much more significant damage to companies. Designation as an SDN equals to the so-called blocking sanctions. Consequently, all assets of Rosneft Trading S.A. and Didier Kasimiro will be blocked, and any transactions with them will be prohibited in the US jurisdiction. The problem is that the concept of American jurisdiction is widely interpreted by regulators. It is a common practice to penalize foreign companies if, for example, they use US dollars in transactions or make payments through American banks. Therefore, blocking sanctions affect not only US citizens and companies, but also any company that carries out dollar transactions with designated individuals and entities.

Blocking sanctions against Rosneft Trading does not automatically entail similar sanctions against the parent company Rosneft. At the moment, Rosneft is under sectoral sanctions only. Nevertheless, the introduction of restrictive measures against its subsidiary can be seen as a signal from the US that sanctions against the Russian entity may be tightened. In this case, sanctions are likely to cause more serious damage to the Russian company.

Similarly, the Americans acted against the Chinese COSCO Shipping Group. In September 2019, the United States imposed sanctions against its subsidiary (Cosco Shipping Tanker) and several other companies due to suspicions transportation of Iranian oil. Cosco Shipping Tanker, apparently, has limited its activity toward Iran. In January 2020, the US Treasury Department removed this company from the SDN-list although a number of other companies were not excluded from it. Among them are Pegasus 88 Limited, Kunlun Shipping, Kunlun Holding Company, Concord Petroleum, as well as Cosco Shipping Tanker Seaman SHP MGMT. The imposition of sanctions against parent companies is fraught with the destabilization of the market situation. Therefore, in the early stages, Americans put pressure on subsidiaries.

There are precedents for the use of fines against companies cooperating with Rosneft. For example, in 2017, the US Treasury fined Exxon Mobil for $2 million for violating Russia/Ukraine sanctions. In 2014, Exxon Mobil was involved in a series of contracts with Rosneft. As the documents were signed by Igor Sechin, Сhief Executive Officer of the company, the US Treasury Department regarded those contracts as a violation of the sanctions regime. Mr. Sechin was added to the SDN-list back in 2014, according to E.O. 13661. Exxon Mobil filed a lawsuit against the Treasury and the court's decision was in favour of the company, therefore abolishing the fine. In essence, Igor Sechin did not own Rosneft’s controlling interest, the company itself wasn’t an SDN, and there were no clear instructions to comply with sanctions regulations on Russia.

In April 2019, the U.S. Treasury Department fined the American software company Haverly Systems for failing to comply with the sanctions against the energy sector of the Russian economy. Rosneft’s payment of bills for Haverly Systems software licenses was delayed, and the US Treasury established that the delay was as a violation of OFAC Directive 2, which prohibited operations with a new debt with a maturity of more than 90 days.

Designating Swiss Rosneft Trading as an SDN is unfavourable news for Russia, but not fatal for its oil exports and its ties with Venezuela. In the international arena, Rosneft can act through other intermediaries. In addition, Rosneft is unlikely to give up cooperation with Venezuelan energy companies. Rosneft Trading withdrawal from sanctions in the COSCO Shipping Tanker scenario is not predetermined. In any case, sanctions against Rosneft Trading are Washington's political signal not only to individual companies, but to Russian policy and relations with Venezuela in general. More fundamental political factors will determine sanctions against individual companies.


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