Crimea sanctions: Blocked or Frozen Assets
The international response to Russia’s annexation of Crimea in 2014 has been marked by a series of stringent sanctions aimed at pressuring Russia to respect Ukraine’s sovereignty and territorial integrity. These sanctions, implemented by the United States and other countries, focus on isolating the Crimea region economically and politically. The economic sanctions against Russian federation for annexing Crimea include blocking or freezing assets associated with individuals and entities involved in undermining Ukraine’s sovereignty.
What Crimea sanctions of Ukraine are targeting?
Section 2 of Executive Order 13685 establishes a framework for blocking and freezing assets and designating individuals and entities as SDNs. This means that the property and interests in property of those designated are blocked, prohibiting U.S. persons from engaging in transactions with them. The SDN List includes nationals and entities specifically identified by the U.S. government whose assets are subject to these restrictions.
Being designated as an SDN under these sanctions means that an individual’s or entity’s assets are blocked, and they are prohibited from conducting transactions with U.S. persons. The criteria for being placed on the SDN List include:
- Operating in the Crimea region of Ukraine;
- Being a leader of an entity operating in Crimea;
- Being owned or controlled by, or acting on behalf of, any person whose property is blocked;
- Providing support or services to any person whose property is blocked.
The criteria for designation are broad, encompassing anyone involved in activities that undermine Ukraine’s sovereignty. However, being placed on the SDN List is not automatic for those operating in Crimea. The Secretary of the Treasury, through OFAC, must actively designate individuals or entities based on U.S. foreign policy and national security objectives. This ensures that only those directly contributing to the situation are targeted, while others operating in the region may not be automatically affected.
Person present in Crimea vs person who is designated as an SDN from Crimea
The economic sanctions imposed on Russian federation and Russian banks create distinct legal implications for individuals and entities based on their status. U.S. persons are prohibited from engaging in transactions with anyone located in Crimea, which means any attempted transaction must be rejected. However, the legal obligations intensify when dealing with individuals or entities designated as Specially Designated Nationals (SDNs) under these sanctions.
U.S. persons cannot transact with individuals or entities simply because they are present in Crimea. This includes rejecting any business dealings or financial transactions with such persons. For example, if a U.S. company attempts to ship goods to a non-listed person in Crimea, the transaction must be rejected and the goods returned to the sender.
If a person is designated as an SDN under Section 2 of Executive Order 13685, U.S. persons must freeze any property or interests in property that are in the United States or come under U.S. jurisdiction. This includes assets that are within the possession or control of any U.S. person. Transactions involving SDNs must be blocked, and a report detailing the circumstances of the blocked property must be filed with the Office of Foreign Assets Control (OFAC). The blocking provisions apply even if the SDN is no longer located in Crimea. This means that the designation follows the individual or entity regardless of their current location.
What activities are prohibited concerning blocked or frozen assets?
The term “property and interests in property” is broadly defined to encompass almost any form of financial or tangible asset. This includes:
- money, checks, drafts, and bank deposits;
- financial instruments such as stocks, bonds, and debentures;
- real estate, mortgages, and deeds of trust;
- goods, wares, merchandise, and chattels;
- intellectual property such as patents, trademarks, and copyrights;
- insurance policies, annuities, and safe deposit boxes;
- any other tangible or intangible assets or interests therein.
Under the sanctions related to the Crimea region, a comprehensive range of activities involving blocked or frozen assets is prohibited. Once property or interests in property are blocked, they cannot be transferred, paid, exported, withdrawn, or otherwise dealt with by U.S. persons or entities.
What are the consequences of transferring blocked or frozen assets
The consequences of transferring blocked or frozen assets under OFAC sanctions can be severe and multifaceted. When an asset is blocked, it means that the property and interests in the property are effectively frozen, rendering them inaccessible to the sanctioned individual or entity. This blocking action is a key enforcement mechanism used by OFAC to prevent sanctioned parties from utilizing their financial resources, thereby hindering their ability to carry out prohibited activities.
Engaging in a prohibited transfer of blocked or frozen assets can lead to severe legal consequences, including:
- Civil Penalties: Significant fines can be imposed for violations, which may amount to millions of dollars;
- Criminal Charges: Willful violations can result in criminal prosecution, leading to substantial fines and imprisonment;
- Asset Seizure: The assets involved in the prohibited transfer will remain blocked, and additional enforcement actions may be taken.
How Sanctions Lawyers can help?
Dealing with the complexities of sanctions, particularly those involving blocked or frozen assets in the Crimea region, requires specialized legal expertise. Our team of experienced sanctions lawyers is equipped to provide comprehensive support and guidance to businesses and individuals who deal with these OFAC regulations. Reach out to us to schedule a consultation and take the first step towards resolving your sanctions-related challenges.
