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Law Journal
Russian Ties Complicate U.S. Blacklist
From the Wall Street Journal of Mon, 08 Dec 2014 09:30:03 EST
Arctech Helsinki Shipyard, which built this icebreaker sitting in Helsinki, Finland, is 50%-owned by Russia’s United Shipbuilding, which means Americans can’t have dealings with the Finland-based joint venture
Arctech Helsinki Shipyard, which built this icebreaker sitting in Helsinki, Finland, is 50%-owned by Russia’s United Shipbuilding, which means Americans can’t have dealings with the Finland-based joint venture Bloomberg News

U.S. companies trying to avoid running afoul of the recent sanctions against Russia face a monumental challenge: Figuring out which companies are owned by those blacklisted.

Some of the people and entities on the new lists of sanctions, part of the U.S. government’s effort to pressure Russia over the conflict in Ukraine, have extensive connections to other companies in countries throughout the world. That poses hurdles for American companies, which are restricted in doing business with some companies owned by those that are blacklisted.

The U.S. has put 50 entities and 57 individuals on the new Russia and Ukraine sanctions lists since March, according to the U.S. Treasury Department. But those 107 parties hold ownership stakes or potentially exercise control of thousands of other companies around the globe, sometimes indirectly, according to data compiled by Dow Jones Risk & Compliance.

Some of those companies have blacklisted individuals among their executives or directors, where they could exert influence or control.

Companies with ownership or management ties to those lists can be found in more than 70 countries around the world, including the U.S., according to the Risk & Compliance database. News Corp ’s Dow Jones & Co., which owns the Risk & Compliance database, is the publisher of The Wall Street Journal.

The number of countries is a testament to the wide net U.S. companies must cast when trying to comply with the new sanctions.

The targets of the recent sanctions own companies “all over the world,” said Judith Lee, a partner at Gibson Dunn & Crutcher LLP. That is a change from the other sanctions regimes, which have generally focused on targets that are more isolated from the global business community, she said.

“It’s really hard to comply with the Russian sanctions,” said Ms. Lee. Among the challenges is finding accurate information on who owns what.

Among the businesses with ties to people and entities on Russia and Ukraine sanctions lists are a Finland-based shipbuilder and a Pennsylvania titanium company.

Arctech Helsinki Shipyard Inc., a Finland-based builder of Arctic icebreaking ships, is 50%-owned by Russia’s United Shipbuilding Corp., which works with partner STX Finland Oy, according to its website and the Dow Jones data. Americans and American companies were barred in July from doing business with the Russian state company and, because of the size of the Russian stake, would also be barred from dealings with Arctech Helsinki.

Arctech didn’t respond to a request for comment.

Further complicating matters: U.S. authorities don’t provide any list of these subsidiaries, leaving companies to do their own research on the ties a business partner might have to the sanctions list. Meanwhile, many global companies have to scrutinize sanctions lists from the European Union and other countries, which contain some different names than the U.S. lists.

That means companies are left with the difficult task of figuring out if their business partners are connected to sanctions. To do this, they are turning to technology, beefing up their compliance departments and hiring specialized investigators.

Companies face strict liability if they violate the sanctions laws, meaning they can be penalized with civil fines even if they didn’t know about the violation. The Treasury Department does, however, often lighten penalties for sanctions violations if a company has a good compliance program or wasn’t aware of the violation.

Doing business with these subsidiaries is prohibited in some cases and allowed in others, and sometimes falls in a gray area. For example, the U.S. put large Russian firms including Bank of Moscow and Rosneft on a less restrictive sanctions list known as the Sectoral Sanctions Identifications, or SSI, list that bans U.S. companies only from specific activities like providing equity or debt financing beyond the short-term. Those same specific restrictions apply when dealing with certain subsidiaries of SSI list companies.

Despite the looser restrictions, experts say U.S. firms still need to be wary of subsidiaries of companies on any sanctions list. “Once an entity is on the SSI list, you know that they’re in the cross hairs of the U.S. government,” said Ms. Lee.

Uniti LLC, a Moon Township, Pa., titanium joint venture between Allegheny Technologies Inc. and what an Allegheny Technologies spokesman described as a U.S. subsidiary of Russia’s VSMPO-Avisma Corp., is linked to the sanctions list, according to the database. The Russian company is 25%-owned by Rostec, a state-owned entity that the U.S. placed on the less-restrictive SSI list in September.

The spokesman for Allegheny Technologies said “business is as normal” in the joint venture.

Restrictions typically kick in only when doing business with certain subsidiaries: those that are owned 50% or more by a blacklisted party. But officials have signaled that companies should be careful doing business with a firm that is less than 50%-owned by a person or entity on these sanctions lists.

“If you’re dealing with a company that may be 33%-owned by designated parties, I would sweat a little bit,” said John E. Smith, deputy director at the U.S. Department of the Treasury’s Office of Foreign Assets Control, at a Dow Jones conference in April.

Write to Rachel Louise Ensign at

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