OFAC to De-List Certain Sanctioned Russian Entities*
On December 19, the U.S. Treasury Department, Office of Foreign Assets Control (OFAC) announced their intention to remove three Russian entities from their List of Specially Designated and Blocked Persons List (SDN List) within 30 days. The SDN’s that were de-listed are En+ Group plc (“En+), UC Rusal plc (“Rusal”), and JSC EuroSibEnergo (“ESE”).
As a general matter, U.S. individuals and entities are prohibited from engaging in any transaction with an SDN. En+ was sanctioned in April 2018 for being owned or controlled by, directly or indirectly, by sanctioned Russian Oligarch, Oleg Deripaska. Subsequently, Rusal and ESE were sanctioned for being owned or controlled by En+.
OFAC’s decision to delist En+, Rusal, and ESE’s is contingent upon these entities agreement to “undertake significant restructuring and corporate governance changes to address the circumstance that led to designation”. Among these agreed upon actions are:
Reducing Deripaska’s direct and indirect shareholding stake in those entities to below 50 percent. Deripaska’s stake in En+ will be reduced from 70 percent to 44.95 percent. Deripaska’s will have no direct ownership stake in ESE and will only retain a 0.01 percent stake in Rusal.
Restructuring the composition of the En+ and Rusal board of directors. Specifically, half of En+’s restructured board of directors will be comprised of U.S. or UK nationals with extensive business expertise and Rusal's current board chairman will step down. Deripaska will have the right to nominate no more than four directors and En+ has agreed that Directors nominated by Deripaska will not be permitted to sit on the Audit or Nominations committees.
Taking restrictive steps related to their corporate governance including limitations on Deripaska’s En+ voting rights. Specifically, Deripaska will not be able to vote more that 35 percent of En+ shares, as he will assign any voting rights above 35 percent of En+ shares to a voting trust obligated to vote in the same manner as the majority of shares held by shareholders other than Deripaska. Further, any voting rights held by shareholders with professional and family ties to Deripaska will be assigned to an independent third party.
Specific restrictions on Deripaska’s ability to control En+. Deripaska agreed to a number of binding legal commitments severing his ability to control En+ including, the restriction on entering into any agreement that directly or indirectly provides Deripaska with the ability to exercise a controlling influence over the management or policies of En+ or any entity owned or controlled by En+, including Rusal and ESE.
Ongoing transparency through extensive and ongoing auditing, certification, and reporting requirements. The newly de-listed entities have agreed to provide OFAC with an unprecedented level of transparency into the management and operation of these companies, including (1) submitting periodic certifications to OFAC of ongoing compliance with the agreement; (2) auditing the companies’ engagements with Deripaska to ensure the companies remain independent of his ownership and control; and (3) notifying OFAC of changes in the voting rights and ownership interests in En+.
OFAC stresses that they will continue to aggressive enforce sanctions on Deripaska as well as all entities in which he owns a 50 percent or greater interest. The newly de-listed entities risk re-designation if they fail to abide by the agreed to binding terms.
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