Ukraine, Russia and the impacts of sanctions on IFCs

Transcription

1 11 March 2014 Ukraine, Russia and the impacts of sanctions on IFCs Susannah Cogman, Herbert Smith Freehills (London) Zachary S. Brez, Ropes & Gray (New York) Aki Corsoni-Husain, Harneys (Cyprus & BVI) Moderator: Peter Tarn, Harneys (London) HARNEYS Russia, CIS & CEE

2 Today s speakers Peter Tarn Harneys Chairman Executive Committee London Susannah Cogman Herbert Smith Freehills LLP Partner London Zachary S. Brez Ropes & Gray LLP Partner New York Aki Corsoni-Husain Harneys Senior Associate Cyprus & BVI

3 Today s agenda 1. The current position concerning sanctions against Ukraine and Russia 2. Analysis of the law of sanctions in US, EU, UK, Cyprus and in UK Overseas Territories including BVI and the Cayman Islands 3. The impacts of sanctions on investors

4 Current position in a nutshell Ukraine: US, EU and UK sanctions legislation has been issued which catch former President Yanukovych, close family and acquaintances. Russian Federation: No EU legislation (yet) but US legislation has been issued.

5 Brief timeline 3 March: EU Council condemns Russian decision authorising use of force in Ukraine, threatens sanctions on Russia and reaffirms proposed Association Agreement. 5 March: EU Council issues CFSP decision 119 calling for sanctions on Yanukovych and close allies. Follows up with Regulation 208 imposing sanctions. 6 March: UK passes Ukraine (European Union Financial Sanctions) Regulations and Ukraine (Sanctions) (Overseas Territories) Order 2014 into force to give effect to CFSP 119 in the UK and Overseas Territories.

6 The US position

7 Sanctions in US context OFAC is an office within the Department of Treasury responsible for administrating economic sanctions Country-Based Sanctions List-Based Sanctions OFAC s economic sanctions apply to U.S. Persons U.S. entities and foreign branches U.S. citizens, wherever located Any person physically located in the U.S.

8 In depth: US sanctions legislation March 6 Executive Order Blocks the property of persons involved in: Actions or policies undermining the democratic process in Ukraine; Actions or policies threatening the security, stability, sovereignty, or territorial integrity of Ukraine; Misappropriation of state assets of Ukraine or any economically significant entity in Ukraine; Asserting government authority over Ukraine without the authorization of the Government of Ukraine; Enters a travel ban on anyone engaging in such conduct;

9 In depth: US sanctions legislation, cont. March 6 Executive Order does not actually list any entity or individual subject to the order; List likely being developed; framework needed first Does not list anyone subject to travel ban List exists, but is secret Approximately 20 names placed on list Those already in the US will have visa revoked Others will learn they are on the list when/if they apply for a visa

10 The EU and UK positions

11 In depth: EU sanctions legislation EU sanctions instruments are first adopted as CFSP Council Decisions: Binding on States but not directly applicable to individuals Council acts by unanimity Decisions binding on Member States at international law level EU implements all UN sanctions measures but also adopts autonomous regimes Policy of targeted smart sanctions, justified against objective criteria High Rep and Commission have joint right to propose implementing measures: Directly applicable implementing Regulations are most common Qualified majority voting Proposals for implementing regulations often presented simultaneously with draft Decision, to allow for parallel discussion in Council and often simultaneous adoption

12 In depth: EU sanctions legislation EU Regulations are directly applicable without further implementing measures But competent authorities of Member States are responsible for: Determining penalties for violations of sanctions Granting exemptions Receiving information from, and cooperating with, companies in their jurisdictions Reporting on implementation to the Commission For UN sanctions, liaison with Security Council sanctions committees, if required, in respect of specific exemption and delisting requests Member states may interpret Regulations and exemptions differently

13 In depth: EU sanctions legislation Typical EU measures Arms embargoes May also cover internal repression equipment Technical assistance and financing List-based regimes Freezing of funds and economic resources Prohibited to make funds / economic resources available to listed persons Supposedly smart, but may have significant commercial impacts depending on identity of persons listed (eg key banks involved in international trade, SOEs) Visa restrictions Less commonly, other restrictions on goods or services Eg Iran: Iran-origin oil/natural gas; key equipment for the energy sector Investment or financing eg lending to particular sectors, correspondent banking relationships, authorisation requirements for transfers of funds

14 CFSP 119 & Regulation 208 on Ukraine: Overview Purpose: to address human rights abuses and misappropriation of state funds. Funds and economic resources belonging to, owned, held or controlled by any natural or legal person listed in the Regulation Annex ( listed person ) are frozen: Article 2(1) Prohibition on making funds or economic resources available to a listed person: Article 2(2) Derogations are permissible on limited grounds where licensed by the competent authorities: Articles 4 to 8.

15 Regulation 208: funds definition What is included in funds? Cash, cheques, etc. Deposits Securities: shares, bonds warrants Income on dividends, interest Guarantees, letters of credit, set off arrangements Evidence of an interest in funds or economic resources

16 Regulation 208: Economic resources definition What is included in economic resources? Definition refers to: assets of every kind, tangible or intangible, moveable or immoveable. Will include real estate Will include economic benefits derived from derivatives, swaps, futures, CFDs, tracker certificates.

17 Regulation 208: Freezing of funds Means: Preventing any move, transfer, alteration, use of or access to funds that would result in any change, including portfolio management Freezing of economic resources is similarly cast.

18 Regulation 208: Derogations Competent authorities may authorise release for: Basic needs payments Reasonable legal expenses Pre-existing contracts/obligations IF funds/resources not made available to the DP But an application is required unless a general licence has been issued.

19 Regulation 208: Other key provisions Listed persons set out in Annex I Requirement to disclose information Compliance with Regulation 208 provides for a shield from liability for breach of contract, confidentiality, etc.

20 EU sanctions on Russia None at present, but Council Conclusions of 3 March 2014: In the absence of de-escalating steps by Russia, the EU shall decide about consequences for bilateral relations between the EU and Russia, for instance suspending bilateral talks with Russia on visa matters as well as on the New Agreement, and will consider further targeted measures. The Council decides to remain permanently seized, in order to be in a position to take rapidly all necessary measures.

21 UK sanctions Routinely passes legislation criminalising breach of EU Regulation The Ukraine (European Union Financial Sanctions) Regulations 2014 SI 2014/507 Asset freeze/making available prohibition HM Treasury licensing power Circumvention offence Credit/financial institution obligation to report to HMT HMT advisory notice, 6 March 2014

22 The position in Cyprus, BVI & Cayman

23 Cyprus - overview Gained independence from the UK in 1960 (except Akrotiri and Dhekelia) De facto partition of the island in 1974 Non-Aligned Movement Member until 2004 Joined European Union in 2004 Not presently a member of NATO Historically very close links with Russia and Ukraine Double taxation treaty with Ukraine Double taxation treaty with Russia

24 Cyprus sanctions regime Determined entirely by European Union legislation Acquis communautaire applies to Cyprus, suspended with respect to North Cyprus EU Common Foreign and Security Policy, established by Maastrict Treaty as second pillar of EU, applies to Cyprus Direct applicability of EU law in Cyprus

25 Cyprus sanctions implementation Constitution guarantees primacy of EU law: No provision of the Constitution is considered to cancel laws enacted, acts performed, or measures taken by the Republic which become necessary under its obligations as a member state of the European Union, nor does it prevent Regulations, Directives or other actions or binding measures of a legislative nature enacted by the European Union or the European Communities or by their institutional instruments or their responsible bodies on the basis of the treaties founding the European Communities or the European Union from having legal effect in the Republic. Article 1A, added in 2004 on accession. EU sanctions are accorded status in Cypriot criminal law through operation of sections 136 and 137 of the Criminal Code Law. Due to the provisions above Cyprus does not need to further implement each EU sanctions legislation individually (as in UK).

26 Cyprus competent authority Ministry of Foreign Affairs Applications for licences and delisting are submitted to the Ministry Ministry liaises with European External Action Services, Sanctions Unit (Brussels) for European-origin sanctions regimes Other sanctions regimes, will liaise with United Nations Security Council (New York)

27 BVI overview BVI under English (then UK) control from about 1672, presently an Overseas Territory of the UK Jurisdictionally distinct from the UK and the European Union, Technically an Overseas Country and Territory (OCT) of the EU English common law applies directly, but not UK legislation Very large direct investment from BVI into both Russia and Ukraine

28 BVI sanctions regime As a UK dependency BVI is not generally competent to determine its foreign policy Virgin Islands Constitution Order provides Crown with residual legislative authority on any matter, including criminal law British Settlement Acts 1887 and 1945 codify Queen s prerogative powers = Orders in Council Non-EU sanctions, United Nations Act 1946 also provides UK with legislative authority

29 BVI sanctions implementation CFSP 119 and Regulation 208 would not automatically apply in BVI without interplay of UK/BVI legislation Ukraine (Sanctions) (Overseas Territory) Order 2014 Replicates effect of Regulation 208 in the BVI

30 BVI The Ukraine (Sanctions) (Overseas Territories) Order 2014 Imposes prohibitions on all BVI persons, including BVI companies, financial institutions and fiduciary services providers based anywhere in the world Offence of dealing with funds and economic resources of designated person Offence of making funds or economic resources available to a designated person Almost identical definitions as Regulation 208 and equivalent UK legislation.

31 BVI competent authority Governor of the Virgin Islands In practice Governor defers all decision-making to the Foreign and Commonwealth Office in UK FCO will liaise with EEAS (Brussels) for Eurosanctions and UN SC for UN-sanctions Very close cooperation with HM Treasury (UK competent authority) Licences issued with assistance of Attorney General

32 Cayman overview Cayman under English (then UK) control from 1670 as part of Jamaica, presently an Overseas Territory of the UK Jurisdictionally distinct from the UK and the European Union English common law applies directly, but not UK legislation Important vehicle for private equity investment in Russia and Ukraine

33 Cayman sanctions regime Not competent to determine its foreign policy Cayman Islands Constitution Order provides Crown with residual legislative authority on any matter, including criminal law British Settlement Acts 1887 and 1945 codify Queen s prerogative powers = Orders in Council Non-EU sanctions, United Nations Act 1946 also provides UK with legislative authority

34 Cayman sanctions implementation CFSP 119 and Regulation 208 would not automatically apply in Cayman without interplay of UK/Cayman legislation Ukraine (Sanctions) (Overseas Territory) Order 2014 Replicates effect of Regulation 208 in the Cayman Islands

35 Cayman competent authority Governor of the Cayman Islands. Delegation to Financial Secretary in some cases (e.g. Libya) In practice Governor defers all decision-making to the Foreign and Commonwealth Office in UK FCO will liaise with EEAS (Brussels) for Eurosanctions and UN SC for UN-sanctions Very close cooperation with HM Treasury (UK competent authority) Licences issued with assistance of Attorney General

36 Discussion: The impact on investors

37 Contact today s speakers Peter Tarn Harneys London peter.tarn@harneys.com Susannah Cogman Herbert Smith Freehills London susannah.cogman@hsf.com Zachary S. Brez Ropes & Gray LLP New York zachary.brez@ropesgray.com Aki Corsoni-Husain Harneys Cyprus aki.corsoni-husain@harneys.com (Cyprus) (BVI)

38 About Today s Speakers

39 Susannah Cogman, Herbert Smith Freehills LLP Susannah Cogman specialises in financial crime compliance and investigations and related regulatory work. She advises financial institutions, corporates and professional services firms in connection with anti-corruption, financial sanctions, anti-money laundering, and fraud issues, both contentious and noncontentious. She has considerable experience of conducting internal investigations for clients, as well as advising on external investigations by the SFO, FCA and others, and related disputes Susannah's sanctions compliance work includes advising on the impact of new sanctions regimes, dealing with designated persons, reporting to and obtaining licences from HMT, and the impact of sanctions on transactional activity. Susannah is a consultant editor of the Lloyds Law Reports: Financial Crime series. She is a regular speaker at the BBA's MLRO induction workshop and other industry events. She is ranked as a band 1 leading individual in financial crime in Chambers UK 2012 and She acts as the independent compliance monitor of a World Bank and SFO sanctioned company.

40 Herbert Smith Freehills LLP Herbert Smith Freehills is one of the world s leading law firms, advising organisations across all major regions of the globe. With 2,800 lawyers in offices spanning Asia, Australia, Europe, the Middle East and the US, clients trust the firm with their most important transactions, disputes and projects Herbert Smith Freehills' corporate crime and investigations practice advises clients on all aspects of corporate criminal law. The team has a market-leading reputation, with particular expertise in corruption, fraud, money laundering and sanctions, advising on both non-contentious (compliance) and contentious (investigations, disputes and prosecution) matters. The team has acted for governments/regulators, worked with and acted as compliance monitors, conducts internal investigations, sets up and advises on all aspects of financial crime compliance programmes and acts for financial institutions and corporate clients in respect of actions by investigative agencies across multiple jurisdictions The specialist team is based across the firm's offices in Europe, Asia Pacific and the Middle East.

41 Zachary S. Brez, Ropes & Gray LLP Zach is co-chair of the firm s securities and futures enforcement practice and is resident in the New York office. He works with clients to investigate, mitigate, and advise about their most pressing enforcement, regulatory, and litigation matters. He represents international and domestic public and private corporations, financial services firms, and private equity and hedge funds in a variety of settings, from the boardroom to the courtroom. Zach s enforcement and regulatory work focuses on two primary areas: (1) international trade - primarily before OFAC, BIS, and CFIUS and (2) securities and futures before the DOJ, SEC, and CFTC, as well as FINRA, the CME, ICE, the CFE, and others. Zach also routinely advises clients on issues concerning the Foreign Corrupt Practices Act and the anti-money laundering and antiboycott regulations. Before going into private practice in 2002, Zach was a staff attorney in the New York Office of the SEC s Division of Enforcement.

42 Ropes & Gray LLP Ropes & Gray is a leading global law firm with offices in New York, Washington D.C., Boston, Chicago, San Francisco, Silicon Valley, London, Hong Kong, Shanghai, Tokyo and Seoul. Ropes & Gray offers a top-tier team of government enforcement and securities attorneys who have extensive experience handling regulatory and enforcement initiatives. Ropes & Gray attorneys guide clients, including international conglomerates, freight forwarders, private equity firms, and financial institutions, as well as their officers and boards of directors, in meeting their obligations under an ever-growing list of related statutes and regulations governing economic sanctions and export control. Ropes & Gray regularly advises and assists clients with respect to: Internal investigations involving suspected violations of OFAC and BIS regulations; Counselling and due diligence regarding the OFAC, BIS, and AML risks involved in multinational transactions; and Designing and implementing OFAC, BIS, and AML compliance programs.

43 Aki Corsoni-Husain, Harneys Based in Cyprus, Aki Corsoni-Husain specialises in all aspects of contentious and non-contentious financial services law and regulation, including advice on the anti-money laundering regime, anti-bribery legislation, information exchange in tax matters and economic sanctions in the UK Overseas Territories including the BVI and the Cayman Islands. Aki advises international and domestic businesses on the regimes governing banks, trust companies, fiduciary services providers, investment businesses, foreign-exchange businesses, money services firms and the insurance industry and counts numerous blue chip institutions and world class law firms among his clients.

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