The American Government, pursuant to its Executive Order(E.O.) 13660, imposed sanctions against a company, established by the CrimeanParliament for the purpose of seizure of Ukraine’s oil and gas offshore assets,owned by the subsidiary of Ukrainian National Joint-Stock Company “Naftogaz” -“Chornomornaftogaz” (the “Ukrainian company”).

The Ukrainian company used to hold licences to a numberof oil and gas blocks on the Crimea’s coast. In 2013 its production accountedfor 7.9% of Ukraine’s gas and 2.4% of its oil production. It also operateddrilling rigs, gas transportation networks and Crimean underground storagefacilities. However, on 17 March 2014, the Crimean Parliament nationalisedassets of the Ukrainian company and transferred them to a newly establishedcompany – the Crimean Republican Enterprise “Chernomorneftegaz” (the “Crimeancompany”), which has a slightly different (Russian) spelling, but the samelegal address as the Ukrainian company.

According to the information published by the AmericanOffice of Foreign Assets Control (OFAC), which administers and enforceseconomic sanctions against countries and groups of individuals, the Crimeancompany has been added to their list of the “Specially Designated Nationals”(SDNs).

This means that the assets of the SDNs are blocked andU.S. persons are prohibited from dealing with them, in particular:

-                    American companies may not enter into jointventures with the Crimean company; 

-                    American companies willing to supply goods tothe Crimean company (including export, re-export or transportation of suchgoods) are required to obtain licences – with a presumption of denial;

-                    any assets of the Crimean company within U.S.jurisdiction shall be “frozen” (meaning title to the property remains with theCrimean company, but the exercise of powers and privileges normally associatedwith ownership is prohibited without express authorization from the OFAC); and

-                    transactions with American persons involvingthe Crimean company are prohibited.

The list also contains the Crimean company’s aliases –“Chornomornaftogaz” and “NJSC Chornomornaftogaz” and its legal address(Kirova/per. Sovnarkomovskaya, 52/1, Simferopol, Crimea 95000, Ukraine). Thesedetails coincide with the name and address of the Ukrainian company. As aresult, it is quite difficult to distinguish between the two companies and tounderstand if a particular transaction involving one of the companies isprohibited by the OFAC. If there is any doubt, the OFAC recommends: (i) takingthe established “due diligence” steps to determine the company’s identity and(ii) contacting the OFAC, via their hotline.

Authors:

VitaliyRadchenko, Partner, vitaliy.radchenko@cms-cmck.com

InnaAntipova, Associate, inna.antipova@cms-cmck.com