U.S. Sanctions on Russia: Overview and Compliance Guidance

1. U.S. Sanctions on Russia: Overview and Compliance Guidance Momentum Webinar May 8, 2014

2. Agenda Regulatory Overview Ukraine-Related Restrictions Lessons from Other Sanctions Programs Questions

3. Regulatory Overview

4. Sanctions – The Basics

5. Sanctions – KEY POINTS U.S. persons wherever located, U.S. companies, any national while in the U.S SDNs 50% Ownership by SDNs Exports of Services / Facilitation

6. Magnitsky Sanctions Targets persons involved in human rights violations in Russia Authorities connected to corruption-related concerns 18 individuals designated in April 2013

7. Military and Security Exports

8. Dual Use / Commercial Exports

9. Ukraine-Related Restrictions

10. Recent Developments in Ukraine

11. Sanctions - Executive Orders • 3 Executive Orders issued in March authorizing economic sanctions against Russia • Not geared toward entire Russian economy, but • Broader scope with each successive EO

12. Executive Order 13660 • Issued on March 6, 2014 • Allows for designations of individuals involved in or related to: • Threatening security, democratic processes, of Ukraine • Misappropriation of Ukrainian assets • Unauthorized assertion of government authority • Material support for any of the above

13. Executive Order 13661 • Issued March 16, 2014 • Allows for designations of: • Russian Federation government officials; • Persons operating in Russia’s arms industry; • Persons owned or controlled by a senior official of the Russian government; • Persons providing material assistance to senior Russian government officials or blocked parties.

14. Executive Order 13662 • Issued March 20, 2014 • Allows for designations of: • Parties operating in sectors of the Russian economy “as may be determined” by Treasury and State • “Such as” financial services, energy, metals and mining, engineering, and defense and related materiel. • Entities owned or controlled by persons blocked in the EO, or • Persons providing support to those blocked.

15. Sanctions Designations • March 20, 2014 • 1 bank (Bank Rossiya) • 20 individuals (Russian government officials, others) • April 11, 2014 • 7 high-profile Crimean separatists • Chernomorneftegaz gas firm, Crimean branch

16. Congressional Action Support for the Sovereignty, Democracy, and Economic Stability of Ukraine Act of 2014 • Requires sanctions – with available waiver - related to: • Human rights abuses in Ukraine; • Undermining the peace or sovereignty of Ukraine; • Acts of corruption in Ukraine; or • Providing material assistance for the above. • Other sanctions encouraged • Allows for aid to Ukraine

17. Export Restrictions • Department of Commerce (BIS): • Announced (on March 26) that, since March 1, 2014 and until further notice, it had not issued and will not issue licenses for exports or re-exports to Russia. • Does not affect existing licenses, but • Affects all exports to Russia requiring licenses, not just those to targeted individuals

18. Export Restrictions (cont.) • Department of State (DDTC): • March 27: announced that, until further notice, it will not issue any authorizations for exports of defense articles or services to Russia. • Does not affect existing licenses, but • Amounts to indefinite, absolute arms embargo on Russia

19. Export Restrictions (cont.) • State and Commerce Departments Revocations • Existing export licenses for high technology items that could contribute to Russia’s military capabilities • Internal discussions continuing on how revocations will be announced, and when they will be implemented • Unclear what items may be in line for revocation • Not clear if there would be grace period for exporters to comply • There may not be much guidance – the revocations may just start happening with little notice • Commerce Department added 13 parties on the Entity List • Additional licensing requirement with presumption of denial

20. Export Restrictions (cont.) Additional OFAC Designations on April 28 • 7 individuals, including two in Putin’s “inner circle” • 17 companies in a wide array of industries, including financial services

21. Summary: Prohibited Transactions • Transactions with designated persons • Includes entities 50% or more owned by those persons, and their subsidiaries • Transactions involving blocked property • Transactions routed through designated banks • Exports of U.S.-origin items that require a license for Russia

22. Summary: Permissible Transactions • Transactions with persons or entities that are not designated • Shipments of items under existing licenses (maybe) • Financial transactions routed through Russian banks other than Bank Rossiya or other designated banks (for now)

23. Lessons from Other Sanctions Programs

24. Sanctionsand Foreign Policy • Sanctions rapidly track political developments • For example: Libya 2011 • Feb. 22: Qaddafi speech vowing to kill protesters “house by house” • Feb. 25: EO blocks assets of virtually entire government of Libya • August: Rebels storm Qaddafi’s compound • September: General License authorizing transactions with virtually entire government of Libya

25. Increasing Jurisdiction • For example: Iran 2010-Present • Increase in scope, breadth of sanctions • Multilateral sanctions • U.S. restrictions against non-U.S. persons • Practical effect: forces major non-U.S. companies, financial institutions to choose between Iranian, U.S. markets

26. Potential Impact of Sanctions GDP (in billions) Source: IMF World Economic Outlook Oct. 2013

27. Russia Challenges • Developed economy with close ties to Europe • Natural gas • Banking system • Stock markets • Ownership restrictions for SDNs may be significant • E.g. Hartwall Arena in Helsinki, Finland

28. Compliance Steps • Know your customers • Designated parties and entities they own / control • Regular, up-to-date screening • Know your bank (and that of your customers) • Know your classifications • Plan for license requirements • Follow developments

29. Compliance Steps (cont.) • Inventory exposure to Russia • Evaluate future business in accordance with increased risk • Educate LOBs on effect of sanctions, including licensing requirements • Set-offs, insurance, guarantees • Contingency planning in case of sanctions • License applications that may need to be filed

30. Questions?

31. Thank you! Lorraine Lawlor Wells Fargo Lorraine.B.Lawlor@wellsfargo.com Thad McBride Sheppard Mullin tmcbride@smrh.com Mark Jensen Sheppard Mullin mjensen@smrh.com