ILMA Compoundings July 2018 - 17

The indirect reach of these designations, though, expands
the potential impact exponentially. Just as the 12 companies
received named designation based on their status as "owned
or controlled" by one or more of the seven named oligarchs,
the entities or operations owned or controlled by these 12
companies are also indirectly designated. Relationships and
activities with these downstream entities or operations are
equally off limits to any U.S. person, owned or controlled
entity (including non-U.S. subsidiaries), technology or
product. For example, if GAZ Group is contracted to produce commercial vehicles for Company B, a U.S. company,
then Company B is prohibited from continuing with the
purchase agreement.
As difficult a problem as that might be, it is at least
reasonably discoverable by Company B, affording it the
opportunity to avoid penalties under the sanction. But
imagine if Company B contracted to purchase the vehicles
from Company A in Canada, which is privately owned or
controlled by GAZ Group. In that case, Company B would
have the same penalty exposure and legal obligation, but it
would also have considerably more difficulty identifying the
connection with the sanction - and the related risk.
Far more difficult still are scenarios that might involve
indirect commercial relationships with one or more of the
designated companies through owned or controlled subsidiaries (or a series of them), including those outside the U.S.
From a U.S. corporate operating perspective, this could occur
even through sales to or purchases from a second- or thirdlevel subsidiary owned by one of the designated companies.
The ownership or control might not be public knowledge, so
the sanctions violation could be difficult to find. Deepening
the plight, the same scenario could involve a non-U.S. owned
or controlled subsidiary of the U.S. company. Either way, the
situation is just as prohibited as if the U.S. company directly
engaged with the designated company under the sanction.
But U.S. companies and individuals can also be affected
outside overt commercial operations, such as through
participation in investments (directly or through trusts,
401(k) plans and other indirect means) in stocks, bonds or
other securities issued by a company that is owned or controlled by one of the designated companies. For instance, a
401(k) plan might offer to its participants a corporate bond
investment product whose portfolio includes bonds issued
by Company Z, a European corporation that is owned or
controlled by GAZ Group through one or a series of owned
or controlled subsidiaries (such as GAZ Group privately
owning Company Y, which in turn controls the board of
Company X, which in turn controls the investment group

that owns 52 percent of Company Z). This hypothetical
investment product, and others with similar connections
to any of the designated companies or individuals, must be
divested and avoided.
IMMEDIATE DIVESTITURE REQUIRED
The most difficult part of the new sanctions is the immediacy of their application and the almost nonexistent
time afforded for corrective action. OFAC issued General
License 12C to allow a wind down of business operations,
contracts or other agreements (including importation of
goods, services or technology into the U.S.) with one of the
designated individuals or companies prior to June 5, 2018.
OFAC issued General License 13C to permit divestiture
or transfer of debt, equity or other holdings (including
necessary facilitation, clearing and settlement transactions)
in any of the following designated companies (or others they
own or control) by a non-U.S. person to another non-U.S.
person, prior to August 5, 2018: En+ Group PLC; GAZ
Group; and United Company RUSAL PLC.
If you or your company have any of the above wind-down
items (business operations, contracts or other agreements,
debt, equity or other holdings) and did not divest during the
corresponding window, you should consult counsel immediately to discuss your options, including potential voluntary
self-disclosure.
ALL COMMERCIAL DEALINGS REQUIRE DENIED
PARTY SCREENING AND EXTRA CAUTION
If comprehensive denied party screening is not part of your
company's diligence routine, that must change. But beyond
ordinary screening, additional precautions should be taken
to search out hidden prohibited ties that are not yet identified in screening lists and databases. Unfortunately, their
absence from the lists does not absolve anyone from penalty.
Investigations (external and internal) and formal reviews by
authorities are very expensive, and so are subsequent penalties if levied. Adding to the injury are the internal drain
on resources caused by the internal investigation, the review
process and the reputational impact that the publicity resulting from the scrutiny and potential legal action/penalty
assessment can cause. Measures like those announced April
6 substantially increase the exposure of U.S. companies and
their directors, officers and subsidiaries - including nonU.S. entities, no matter the ownership or control method.
Eggenschwiler, an ILMA consultant, is an international
trade attorney and director of Global Trade for the
Redstone Group LLC. He can be reached at
614-923-7472 or jeggenschwiler@redstonegrp.com.

ILMA Compoundings July 2018

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