By Rachel Louise Ensign
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 the
database.
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 data compiled by Dow Jones Risk &
Compliance. News Corp's Dow Jones Inc., 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
crosshairs 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's 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.
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