Russia / Ukraine Sanctions & Export Controls

1. Russia / Ukraine Sanctions & Export Controls US and EU Sanctions Update 1 October 2014 Sylwia Lis, Partner, Washington, D.C Sunny Mann, Partner, London

2. Agenda • Jurisdictional Issues • Designated Parties • Energy Sector Controls • Export Controls • Sectoral / Financial Sanctions • Compliance Tips

3. Sanctions Toolbox Comprehensive Individuals / Entities Goods / Technology Services Investment Sectors Arms / Dual-use Finance Asset freeze / Blocked property Sanctioned country origin Insurance Making available / Dealing Other Brokering Funds transfer Anti-circumvention / Facilitation / Causing violations 3

4. Sanctions against Russia / Ukraine Includes: EU, U.S., Japan, Canada, New Zealand, Australia, Iceland, Moldova, Georgia, Norway, Switzerland, Liechtenstein, Albania and Montenegro 4

5. Jurisdictional Issues

6. Who Must Comply with EU Sanctions? • EU sanctions measures typically apply to: • Any entity incorporated in an EU Member State and its EU and non-EU branches • Any entity incorporated outside the EU, but only in respect of any business conducted in the EU • Any directors, officers, employees, agents, etc. located in the EU (irrespective of nationality) • Any directors, officers, employees, agents, etc. that are nationals of an EU Member State (even if located outside the EU)

7. Who Must Comply with U.S. Sanctions? • U.S. Sanctions • Apply to “U.S. Persons” • Entities organized under U.S. laws and their non-U.S. branches • Employees (regardless of nationality) of above entities • Individuals and entities in the United State • U.S. citizens and permanent resident aliens (“Green Card” holders) wherever located or employed • Non-U.S. Persons may be subject to U.S. jurisdiction if they cause prohibited transactions to occur in whole or in part in the United States or anywhere by U.S. Persons • Separately incorporated foreign subsidiaries of U.S. companies are NOT U.S. Persons

8. Consider… EU/US nationals working in Russia for a Russian Corp? Russian employee working in the EU/US? Russian transaction requiring authorisation by US/EU national? Transaction denominated in USD? Russian branch of EU/US Corp?

9. Designated Parties

10. DP / SDN Controls • EU and U.S. list-based sanctions programmes: EU Designated Parties (“DPs”) and U.S. Specially Designated Nationals (“SDNs”) • EU sanctions on DPs: • Prohibition on “making available” “funds” or “economicresources”, directly or indirectly, to or for the benefit of DPs • Freeze on funds and economic resources belonging to, owned, held or controlled by DPs • Administered and enforced by each EU Member State • U.S. sanctions on SDNs: • Prohibition on U.S.-Person dealings with SDNs, directly or indirectly, and any entity 50% or more owned by one or more SDNs, or “facilitation” of such dealings • Requirement to block SDN property and interests in property • Administered and enforced by Office of Foreign Assets Control (“OFAC”) • Prohibition under EU and U.S. sanctions in relation to acts of circumvention/facilitation • Non-U.S. Persons may also have liability for causing a U.S. Person to violate sanctions (e.g., U.S. dollar payments, ordering goods from United States for supply to SDNs)

11. Dealings with Affiliates of DPs / SDNs • Non-DP Shareholder • DP Shareholder • EU: Assess whether counterparty is majority owned or controlled by one or more DPs; test is complex and subject to EU Member State interpretation • U.S.: Assess whether counterparty is 50% or more owned by SDNs • Screening of counterparty’s name only would not address risk of dealing with non-designated entity that is owned/controlled by DP/SDN • Other forms of indirect dealings may be caught (e.g., distributor relationship) 60% • Customer 40% • Company

12. Russia & Ukraine: DPs / SDNs to Date EU: 141 individuals + 23 entities • 22 individuals for misappropriation of Ukrainian state funds / human rights violations • 119 individuals + 23 entities for actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine (incl. 9 entities whose ownership has been transferred contrary to Ukrainian law) US: 57 individuals + 36 entities • Executive Order 13660 (March 2014) – 23 SDNs • Executive Order 13661 (March 2014) – 70 SDNs • Executive Orders codified into Ukraine-Related Sanctions Regulations, 31 CFR Part 589 • H.R. 4152 (“Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014”) (April 2014) – no SDNs

13. Compare & Contrast

14. Questions?

15. Energy Sector Controls

16. EU Restrictions on Oil Industry in Russia • Prior authorisation is required for: • Sale, supply, transfer or export listed of equipment and technology used in the oil (and gas) industry to or for use in Russia • Providing related technical assistance, brokering services, financing or financial assistance • Controlled equipment and technology: • Listed in Annex II to the EU Russia Sanctions • Focused on drilling equipment and pipelines • Authorisation will not be granted if supply relates to projects in Russia regarding: • Deep water oil • Arctic oil • Shale oil • Exception: pre-1 Aug. contracts / agreements

17. EU Restrictions on Oil Industry in Russia (cont’d) • Prohibited: • Provision of drilling, well testing, logging and completion services, and supply of specialised floating vessels for deep water oil exploration and production, arctic oil exploration or production or shale oil projects in Russia • Carve-outs: • Pre-12 Sept. contracts (includes “framework agreements” and “ancillary contracts”) • Urgent prevention or mitigation of event where likely serious and significant impact on human health and safety or the environment • Note: EU guidance being developed regarding exceptions

18. U.S. Russian Oil Industry Sanctions Program • New licensing requirement as of August 6, 2014 • For exports, reexports, and transfers (in-country) of any item (i.e., goods, software, technology) subject to the Export Administration Regulations (“EAR”) • Listed in Supplement No. 2 to Part 746 (“Russian Oil Industry List”) or • Specified in Export Control Classification Numbers (“ECCNs”) 0A998 (new), 1C992, 3A229, 3A231, 3A232, 6A991, 8A992, or 8D999 (new) • When it is known that the item will be used directly or indirectly or when it cannot be determined whether the item will be used • In exploration for, or production of, oil or gas in • Russian deepwater (greater than 500 feet); • Arctic offshore locations; or • Shale projects in Russia (collectively, “Russian Oil Industry End-Uses”)

19. U.S. Russian Oil Industry Sanctions Program (cont’d) • License applications will be reviewed • With a presumption of denial • With respect to a Russian Oil Industry End-Use that has the potential to produce oil • (End-uses with potential to producegaswill be reviewed on case-by-case basis) • Only EAR License Exception GOV is available • Russian Oil Industry List – examples: • Drilling rig • Parts for horizontal drilling • Drilling and completion equipment • Wireline and down hole motors and equipment • Drill pipe and casing

20. Compare & Contrast 20

21. Export Controls

22. Export Controls and Sanctions Key Questions

23. Recap on Basics of EU Export Controls • Common EU-wide dual-use framework and common control list (“EU Dual-Use List”) • Generally licence is required for all exports of EU Dual-Use List items to location outside the EU • No re-export or deemed export controls • Military items dealt with under separate national regimes • National implementation by EU Member States, particularly in respect of licensing and enforcement

24. EU Dual-Use Controls Against Russia • Prohibit: • Sale, supply, transfer or export, directly or indirectly, EU Dual-Use List items, to anyone in Russia or for use in Russia, if items are or may be intended, in whole or in part, for military use or for a military end-user • Military use is presumed if end-user is Russian military • Sale, supply, transfer or export, directly or indirectly, EU Dual-Use List items to Annex IV companies (9 defence and mixed defence companies) • Provision of related technical assistance, brokering services, financing or financial assistance • Permitted: • Pre-1 August / 12 September contracts / agreements (depending on prohibition) • Provision of assistance necessary to the maintenance and safety of existing capabilities within the EU • Aeronautics and space industry and existing civil nuclear capabilities for non military use and for a non military end-user

25. EU Arms Embargo Against Russia • Prohibits: • Sale, supply, transfer or export of arms and other items controlled under EU Member State Military Lists to Russia • Provision of technical assistance, brokering services, financing or financial assistance, insurance and reinsurance services related to the above • Import, purchase or transport of the same items from Russia • Permitted: • Pre-1 Aug. contracts / agreements • Provision of spare parts and services for maintenance and safety of existing capabilities in the EU • Also triggers enhanced UK ‘trafficking and brokering’ controls; licence required for “any act calculated to promote” the supply of UK Military List items to Russia from a third country

26. EU Military End-Use Control • Applies tootherwise non-controlled items • Where Russia is the purchasing country or country of destination, you must obtain an export licence from the relevant EU Member State authority if has been informed by relevant authority, or is aware,that the items are or may be intended for a “military end-use”: • Incorporation into military items listed in the EU Member State military list • Use of production, test or analytical equipment and components, for the development, production or maintenance of military items listed in such lists • Use of any unfinished products in a plant for the production of military list items in such lists

27. U.S. Export Controls • Exports/reexports of certain items subject to U.S. jurisdiction to Russia or occupied Crimea may require a license, whether by U.S. Persons or non-U.S. Persons • International Traffic in Arms Regulations (“ITAR”) • U.S. or non-U.S. Persons dealing in U.S. defense articles/services • Administered and enforced by Directorate of Defense Trade Controls (“DDTC”) • Export Administration Regulations (“EAR”) • U.S. or non-U.S. Persons exporting/reexporting/transferring U.S. “dual-use” items (having military and civilian applications) • Administered and enforced by U.S. Bureau of Industry and Security (“U.S. BIS”)

28. U.S. International Traffic in Arms Regulations • Export/reexport of military items (“defense articles” or “defense services”) to Russia or occupied Crimea require a license • ITAR claims jurisdiction over non-U.S. items that incorporate a U.S. defense article • Policy of denial for “high technology” defense articles or services that contribute to Russia’s military capabilities

29. U.S. Export Administration Regulations • For Russia, “items subject to the EAR” include: • Items of U.S. origin • Items exported from the United States • Non-U.S. items containing more than 25% controlled U.S. content by value, or • Certain foreign direct products of controlled U.S. technology • Policy of denial for export/reexport of “high technology” items subject to the EAR that may contribute to Russian military capabilities • Separate licensing requirement for certain items subject to the EAR destined for military end uses or end-users in Russia (effective September 17) • Supplement No. 2 to Part 744 • 9x515 and “600-series” ECCNs

30. U.S. Export Administration Regulations (cont’d) • Exports, reexports, or transfers of “items subject to the EAR” to Russian parties on the EAR’s Entity List require a license • Applies to controlled and non-controlled (i.e., EAR99) items • Policy of denial for Russian parties on Entity List • Examples:Chernomorneftegaz, Feodosiya Enterprise, Volga Group, Stroytransgaz, Transoil • These Russian parties on Entity List are also SDNs • Energy sector designations on Entity List (effective September 17, 2014) • Russian parties: Gazprom, Gazprom Neft, Lukoil, Rosneft, Surgutneftegas • License requirement when it is known that an item will be used directly or indirectly or when it cannot be determined whether an item will be used for a Russian Oil Industry End-Use • Policy of denial when Russian Oil Industry End-Use has potential to produce oil

31. Compare & Contrast 31

32. Questions?

33. Sectoral / Financial Sanctions

34. EU Restrictions on Access to Capital Markets • Prohibited to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with, “transferable securities” or “money-market instruments” with a maturity: • Exceeding 90 days, issued after 1 Aug. - 12 Sept., or • Exceeding 30 days issued after 12 Sept. by: • Listedfinancial institutions (Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB) andRosselkhozbank (Russian Agricultural Bank) • Non-EU persons/ entities/bodies whose proprietary rights are directly or indirectly owned more than 50% by any of (1), or • Persons/entities/bodies acting on behalf or at the direction of the above • Excludedare other financial services

35. EU Restrictions on Access to Capital Markets (cont’d) • Prohibited to directly or indirectly purchase, sell, provide investment services for or assistance in the issuance of, or otherwise deal with, “transferable securities” or “money-market instruments” with a maturity exceeding 30 days issued after 12 Sept. by: • Listed persons, entities or bodies established in Russia and predominantly engaged and with major activities in the conception, production, sales or export of military equipment or services (OPK Oboronprom, United Aircraft Corporation andUralvagonzavod); • Listed persons, entities or bodies established in Russia, which are publicly controlled or with over 50% ownership, have estimated total assets of over 1 trillion Russian Roubles and whose estimated revenues originate for at least 50% from the sale or transportation of crude oil or petroleum products (Rosneft, Transneft and Gazprom Neft); • Non-EU persons, entities or bodies whose proprietary rights are directly or indirectly owned more than 50% by any of (1) or (2); or • Persons, entities or bodies acting on behalf or at the direction of any of (1), (2) or (3)

36. EU Restrictions on Access to Other Financing • Prohibited to directly or indirectly make or be part of any arrangement to make new loans or credit with a maturity exceeding 30 days to any legal person, entity or body subject to the capital market access restrictions described above, after 12 Sept. • Permitted: • Loans or credit that have a specific and documented objective to provide financing for non-prohibited imports or exports of goods and non-financial services between the EU and Russia • Loans that have a specific and documented objective to provide emergency funding to meet solvency and liquidity criteria for legal persons established in the EU, whose proprietary rights are more than 50% owned by any Annex III entity (Sberbank, VTB Bank, Gazprombank, Vnesheconombank (VEB) or Rosselkhozbank (Russian Agricultural Bank))

37. EU Restrictions: Crimea and Sevastopol • Prohibited to: • Import into the EU “goods originating” in Crimea or Sevastopol • Provide financing or financial assistance, insurance or reinsurance related to these goods • Exceptions: • Where a certificate of origin is obtained from Ukrainian authorities • Limited grand-fathering until 26 Sept. • Additional prohibitions in respect of targeted sectors in Crimea and Sevastopol: • Creation, acquisition, or development of infrastructure in the transport, telecommunications or energy sectors • “Exploitation” of oil, gas or “mineral resources” • Prohibitions in relation to these sectors target: • Investment in entities or formation of JVs in respect of these sectors • Sale, supply, transfer, export of key equipment and technology to or for use in Crimea or Sevastopol (note: grand-fathering provision for pre-30 July contracts / agreements until 28 Oct.) • Provision of related services

38. U.S. Sectoral Sanctions: Energy Sector • Target entities on OFAC’s Sectoral Sanctions Identification List (“SSIL”) and entities 50%-or-more owned by SSIL Parties • Significantly expanded on September 12, 2014 with immediate effect • Directive 2 (energy sector) - new parties as of September 12, 2014 • Prohibition on U.S. Persons transacting in, providing financing for, or otherwise dealing in “new debt of longer than 90 days maturity” for Directive 2 parties, their property, or their interests in property • Directive 2 parties: AK Transneft; Gazprom Neft; Novatek;and Rosneft • Directive 4 (energy sector) - new directive as of September 12, 2014 • Prohibition on U.S. Persons providing, exporting, or reexporting any U.S. or non-U.S. goods, services (except for financial services), or technology to Directive 4 parties for Russian Oil Industry End-Uses that have potential to produce oil • Directive 4 parties: Gazprom; Gazprom Neft; Lukoil; Rosneft; and Surgutneftegas • General License No. 2 to wind down prohibited activities by September 26, 2014

39. U.S. Sectoral Sanctions: Financial & Defense Sectors • Directive 1 (financial sector) - expanded as of September 12, 2014 • Prohibition on U.S. Persons transacting in, providing financing for, or otherwise dealing in “new debt of longer than 30 days maturity” and/or “new equity” for Directive 1 parties, their property, or their interests in property • Credit restrictions applied to new debt of longer than 90 days maturity issued between July 16 or 29 and September 12, 2014 • Directive 1 parties: Vnesheconombank; Gazprombank; Bank of Moscow; VTB Bank; Russian Agricultural Bank;and Sberbank • Directive 3 (defense sector) - new directive as of September 12, 2014 • Prohibition on U.S. Persons transacting in, providing financing for, or otherwise dealing in “new debt of longer than 30 days maturity” for Directive 3 party • Directive 3 party: Rostec

40. U.S. Sectoral Sanctions: Overview Chart

41. Compare & Contrast 41

42. Compliance Tips

43. How can you comply?

44. How can you comply?

45. Thank You!

46. Questions?

47. Speakers Sylwia Lis Speaker – Washington, DCT+ 1 202 835 6147 F+ 1 202 416 7147sylwia.lis@bakermckenzie.com Sunny MannSpeaker – LondonT + 44 20 7919 1397 F + 44 20 7919 1099sunny.mann@bakermckenzie.com Sylwia Lis is a partner in our Washington, DC office and has extensive experience advising companies on US laws relating to exports and reexports of commercial goods and technology, defense trade controls and trade sanctions — including licensing, regulatory interpretations, compliance programs and enforcement matters. She also has advised clients on national security reviews of foreign investment administered by the Committee on Foreign Investment in the United States (CFIUS), including CFIUS-related due diligence, risk assessment, and representation before the CFIUS agencies. Sunwinder (Sunny) Mann is a Partner in the compliance and risk management team of Baker & McKenzie London. He joined the London office as a trainee solicitor in 2000 and qualified as a solicitor in March 2002. He undertook an 18-month secondment to the Washington, DC and New York offices, where he worked as part of the international trade and antitrust teams. He has also spent some time in the Sydney and Hong Kong offices. He spent nine months on secondment with a major UK mobile network operator and a further four months with a major consumer goods manufacturer. He is a visiting professor at the Bruges and Warsaw campuses of the College of Europe. Sunny's practice focuses on international trade compliance, particularly export controls and trade sanctions. He has successfully resolved numerous UK disclosure and enforcement cases and also advises on UN, EU and UK sanctions.  ,

48. Russia / Ukraine Sanctions & Export Controls US and EU Sanctions Update 1 October 2014 Sylwia Lis, Partner, Washington, D.C Sunny Mann, Partner, London