Sanctions update – US imposes sanctions on Ventspils
On Monday, 9 December, the US imposed sanctions imposed on Ventspils Freeport Authority (VFA) - a by-product of sanctions imposed on the primary target Aivars Lembergs, a Latvian oligarch and mayor of Ventspils. Lembergs is said by the US authorities to own or control the VFA (and three other Latvian entities that also had sanctions imposed on them).
Lembergs is accused of money laundering, bribery and abuse of office, and is said to have business links with Russia. Executive Order 13818 enacted under the Global Magnitsky Human Rights Accountability Act, intended to target perpetrators of serious human rights abuse and corruption. In order to increase the pressure on Lembergs, sanctions have been imposed on companies, including the VFA, that he is said to control or own. Therefore anyone who assists, or provides financial, material or technological support for goods/services in support of the VFA will be subject to the US sanctions.
Immediate effect of sanctions
Ventspils is one of the largest ports in the Baltic and is managed by the VFA. The effects of the sanctions have been immediate with its bank accounts being frozen. Despite that, it is reported that the port is continuing to operate – for now. Calls at Ventspils will become difficult for vessel owners who will not want to fall foul of the sanctions and banks are not going to want to involve themselves in any transactions which might encompass calls at Ventspils. This will give rise to a number of disputes between various parties as additional costs are incurred in shipping cargo to an alternative port and delays experienced.
OFAC General Licence
It will be noted whilst an Office of Foreign Asset Control (OFAC) General Licence has been released allowing transactions to continue to 8 January 2020, this is only for the purpose of “winding down transactions”. Accordingly, there must be some existing transaction in place (from before 9 December 2019) in order to justify any continuing transactions with the VFA until 8 January next year. The alternative would be to seek a specific licence from OFAC. The alternative would be to seek a specific licence from OFAC.
In an effort to overcome the negative impact from sanctions and to reduce corruption at ports, the Latvian Government has announced that it will be taking over Ventspils port and Rigas port. It is hoped that state control of Latvia’s two largest ports will create distance between the ports and Lembergs. Lembergs himself has asked to be removed from the managing board of directors for the VFA. However, as things stand the VFA is subject to US sanctions and parties should be aware that any intended calls at Ventspils is likely to be significantly affected.
This article was co-authored by Jessica Tham, trainee solicitor, London.