27 August, 2014
New sanctions targeting Russia have been implemented in the US, EU and Japan. Although the consequences of breaching the sanctions are severe, navigating the rules is not straightforward. Transactions and business lines will need to be reconsidered in light of the complex rules to which they may be subject. This client publication highlights the key issues and differences in the US, EU and Japanese rules that companies should understand.
A. What You Need To Know:
- New “sectoral” sanctions have been implemented in the US and the EU, which restrict a range of transactions in Russia’s finance, energy, and defence sectors. The Japanese rules are non-sectoral, targeting specific activities with certain individuals and entities. The US and EU sectoral restrictions are not exclusive to and apply in addition to pre-existing non-sectoral sanctions in both jurisdictions. As a result, there is now a complex framework of potentially applicable sanctions which needs to be carefully considered on a transaction-by-transaction basis. Individuals and entities may find that the laws of more than one jurisdiction apply to them, depending on their activities
- The US, EU, and Japanese sanctions lists do not mirror each other. More than one sanctions regime may apply (a bank based in the EU which operates through US entities would be subject to US and EU rules), in which case all relevant lists will need to be scrutinised. For example, the EU has sanctioned Sberbank, which is not sanctioned in the US, and the US has sanctioned the Bank of Moscow, which is not sanctioned in the EU. The lists may expand further.
- The EU sectoral rules apply not only to designated banks and their subsidiaries (which can be easily identified) but also to any legal person, entity or body acting “on behalf or at the direction of” designated banks and their subsidiaries. Japanese rules target designated individuals and entities only (and not subsidiaries) and are therefore simpler to apply.
- Permissible activities differ between jurisdictions. For example, loans to sanctioned entities are prohibited under the US and Japanese rules, but are permitted under the EU sectoral rules.
- The rules have carve-outs and exemptions. For example, in the EU, a carve-out was agreed to permit the sale of high-value military goods and technology to the Russian military pursuant to contracts entered into before August 1, 2014. Japanese rules have relatively few licence or authorisation exemptions.
- Japanese sanctions may be expanded further in line with political developments.
B. Key Features of Recent Sanctions
Japan: The Ministry of Foreign Affairs in Japan issued a public notice on August 5, 2014 (the “Public Notice”) targeting 40 individuals and two entities which are directly involved in Russia’s annexation of Crimea and in the instability of eastern Ukraine. Unlike the US and EU’s recent sanctions, the Japanese rules do not target sectors of Russia’s economy but generally focus on targeting transactions with specific entities and individuals. In summary, the Public Notice requires: (i) approval by the Ministry of Foreign Affairs for any payments made to individuals and entities designated in the Public Notice; (ii) approval for any capital transactions (deposit agreements, trust agreements and loan agreements) with individuals and organizations designated in the Public Notice; and (iii) approval for the import of products originating in Crimea and Sevastopol. These measures supplement restrictive measures implemented by Japan in March and April 2014 which: (i) suspended talks for easing visa issuance conditions and investment accord-related discussions; and (ii) banned the travel of 23 Russian nationals. The list of targeted individuals and companies under the Public Notice is broadly similar to the US and EU lists of designated individuals and entities.
The following table details the key features of recent Japanese non-sectoral sanctions:
| Relevant Rules | Japan |
| Persons/Entities/Bodies Subject to Sanctions | Any “residents” of Japan.
The term “residents” means natural persons having their domicile or residence in Japan and judicial persons having their principal office in Japan. The branch offices, local offices or other offices in Japan of non-residents, irrespective of whether they have legal authority of representation, shall be deemed to be residents even if their principal office is located in a foreign state. Foreign Exchange and Foreign Trade Act of Japan Article 6
|
| Authorization/Key Legislation | Public Notice by the Ministry of Foreign Affairs issued on August 5, 2014, in which the restrictions are based on Article 21-1 of the Japanese Foreign Exchange and Foreign Trade Act. |
| Key Restrictions | Requires approvals for any payments made by a resident in Japan to the individuals and organizations designated in the Public Notice (See Section C of this Publication), or any capital transactions (deposit agreements, trust agreements and loan agreements) between residents in Japan and individuals and organizations designated in the Public Notice. Requires approvals for imports of goods made in the Crimea region and the city of Sevastopol. |
| Key Definitions | “Goods” means movables other than precious metal, means of payment, securities or other certificates embodying claims.
“Deposit agreements” include installment savings contracts, installment deposit contracts, deposit contracts and other contracts specified by the Cabinet Order. |
| Licenses/Exceptions | N/A |
| Effective Dates | Sanctions apply to capital transactions (deposit agreements, trust agreements and loan agreements), and imports of products made in the Crimea region and the city of Sevastopol from August 5, 2014. |
| Apply to Subsidiaries | No |
| Penalties | Imprisonment with work for not more than three years or a fine of not more than one million yen, or both; provided, however, that three times the price of the subject matter of the violation exceeds one million yen, a fine shall be not more than three times the price. Foreign Exchange and Foreign Trade Act of Japan Article 70-1. |
| Defences | Generally, no defences are available in Japan. |
| Target Sectors | Japan |
| Financial Services | No. |
| Energy | (i) PJSC Chernomorneftegaz; and
(ii) Feodosia. |
| Metals and Mining | N/A |
| Engineering | N/A |
| Defense & Related Materiel | N/A |
| Features Of Targeted Entities | Japan |
| State-owned Entities | N/A |
| Publicly-traded entity | N/A |
| Targeted/Prohibited Activities | Japan |
| Blocking of Assets | Yes |
| Visa or Travel Bans | No |
| Required to report rejected transactions | Yes |
| Rollover of existing debt, if such rollover results in the creation of new debt with a maturity of longer than 90 days | N/A |
| Relevant Rules | Japan |
| Repurchase Agreements | N/A |
| Issuance of debt to non-SSIL/non-Sanctioned Entity to purchase from an SSIL/Sanctioned Entity | No |
| Dealing with SSILs/Sanctioned Entities as counterparties | Need permission |
| Replacement of participant in an existing long-term loan facility with an SSIL/Sanctioned Entity | N/A |
| Default of payment of loan by an SSIL/Sanctioned Entity of less than 90 days | N/A |
| SSIL/Sanctioned Entity as underwriter of non-SSIL entity/Sanctioned Entity | N/A |
C. Consolidated Sanctions List: US, EU(UK)1, and Japan
As of August 21, 2014, the following entities are sanctioned in the US,2 EU, and Japan, as indicated by the marker “●”.
(Click to enlarge)
End Notes:
1 As of August 21, 2014, the UK HM Treasury lists correspond identically to the EU lists. However, the UK lists could develop to include individuals/entities additional to individuals/entities identified under EU lists in the future.
2 This list includes all entities sanctioned by the United States, including those sanctioned by the US Department of the Treasury as a specially designated national and blocked person (SDN) under EO 13660 or EO 13661 and those designated under the US sectoral sanctions identification list (SSIL).
For further information, please contact:
Masahida Ikeda, Partner, Shearman & Sterling
Homegrown International Trade Law Firms in Japan