American Club Circular No. 27/14 1 SEPTEMBER 17, 2014 CIRCULAR NO. 26/14 TO MEMBERS OF THE ASSOCIATION Dear Member: US ECONOMIC SANCTIONS UPDATE: ADDITIONAL US SANCTIONS – RUSSIAN ENTITIES On September 12, 2014, the United States intensified economic sanctions against certain Russian entities. As notified to Members in Circular No. 22/14 of July 30, 2014, the United States, under two Directives issued pursuant to Executive Order 13662, imposed “sectoral sanctions,” targeting Russian entities in Russia’s financial and energy sectors. Directive 1 prohibited US persons from providing new financing for, or otherwise dealing in, new debt of longer than 90 days maturity, or from providing new equity to Russian financial entities included in the Sectoral Sanctions Identification List (SSI List) published by the US Treasury Department’s Office of Foreign Assets Control (OFAC). This prohibition extended to entities 50% or more owned by a Russian financial entity on the SSI List. Directive 2 prohibited US persons from providing new financing for, or otherwise dealing in, new debt of longer than 90 days maturity for any Russian energy entities on the SSI List. On September 12, the scope of the foregoing Sectoral Sanctions was expanded. OFAC amended Directives 1 and 2 and published two new Directives: 3 and 4. Summary Previous Directives Directive 1 was amended only to shorten the relevant debt maturity period from 90 days to 30 days. Otherwise Directive 1 is unaltered. The new shortened period applies only to debt issued on or after September 12, 2014. Dealing in an SSI entity’s debt with a maturity of 90 days or less is permissible if it was issued before September 12, 2014. OFAC also has added Sberbank to the list of Directive 1 entities. Directive 2’s amendments were not substantive. OFAC added Transneft and Gazprom Neft to the list of Directive 2 entities. New Directives Directive 3 targets Russia’s defense industry. It prohibits US persons from engaging in transactions involving debt of longer than 30 days maturity of identified entities. Rostec – a major Russian defense contractor - and its subsidiaries were identified under this Directive. American Club Circular No. 27/14 2 Directive 4, also aimed at Russia’s energy sector, prohibits US persons from the provision, exportation, or reexportation, directly or indirectly, of goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation, or in the maritime area claimed by the Russian Federation and extending from its territory, and that involve any person determined to be subject to Directive 4, including entities owned by entities identified under Directive 4. Under Directive 4 significant Russian energy companies have been added to the SSI List: Gazprom Neft, Gazprom OAO, Lukoil, Rosneft and Surgutneftegas. Directive 4 complements restrictions placed on US exports to Russia by the US Commerce Department which prohibits the exportation and reexportation of US-origin items to be used directly or indirectly in Russia's energy sector for exploration or production from deep-water (greater than 500 feet), Arctic offshore, or shale projects in Russia that have the potential to produce oil or gas or with respect to items where the exporter is unable to determine whether the items will be used in such projects in Russia. Under Directive 4, which is