As the war in Ukraine rages on, we have all read or heard about, either in the press or in conversation with others in the yacht industry, Russian sanctions. Few know exactly how the sanctions apply though, and what the end result will be for the yachting industry.
On March 11, the US Department of the Treasury issued a press release entitled Treasury Sanctions Kremlin Elites, Leaders, Oligarchs and Family for Enabling Putin’s War Against Ukraine. The European Union, Canada and Australia have also issued sanctions, which are not considered in this article.
The sanctions apply to all sectors of commerce, including the yacht industry. We have also all read or heard about recent “seizures” of yachts pursuant to the sanctions mostly in Europe so far. Many brokers and lawyers involved in high value yacht transactions have seen deals fall apart because of the sanctions, and any deals involving Russians have put industry professionals on high alert. Brokerage houses with listings for, and management companies supporting, yachts owned by Russians are struggling to figure out how best to proceed.
The implications of the U.S. sanctions are stated clearly in the Press Release as follows: “As a result of today’s action, all property and interests in property of the individuals above that are in the United States or in the possession or control of US persons are blocked and must be reported to OFAC.
“In addition, any entities that are owned, directly or indirectly, 50 per cent or more by one or more blocked persons are also blocked. All transactions by US persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC, or exempt.
“These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.”
The full text of the Press Release is here: https://home.treasury.gov/news/press-releases/jy0650.
In practical terms, what this means is the following, if you are a US person or not, but you are in the United States:
You are prohibited from doing business with, or continuing to do business with someone on the sanctions list. It does not matter where the asset is located.
Determination of Identity. If you have a listing to sell, manage, or provide goods or services to a Russian or a Russian owned yacht, you need to check to see if they are on the Department of the Treasury’s Office of Foreign Asset Control, known as OFAC, sanctions list. OFAC provides a search tool, which you can find here.
If you are in 'possession or control' of an asset of such a person, you must report that to OFAC. The methodology for reporting is set forth here.
While there is a provision for exemptions from these restrictions, specific analysis must be undertaken to determine if any of these apply to your situations, and without researching the issue, I would speculate that it unlikely exemptions would help those of us in the yacht industry. Guidance is provided by OFAC here. If you think an exemption may apply to you, seek legal advice.
There are financial penalties applicable to persons who violate the sanctions. For further guidance, if you think you are at risk for having violated or potentially violating the prohibition, seek legal counsel.
In summary, the yachting sector, being a particularly international segment of a world commercial system which has itself become increasingly internationalised, will be affected for sure, and will be impacted in some cases very seriously. Though Russian owners do not account for a large percentage of the superyacht space, they do have an important place within it, particularly with regard to megayachts.
It is unclear what the ripple effects of the multi-national sanctions will be. Undoubtedly, many people who work on Russian owned yachts have and will lose their jobs, and thousands of people who work in support of yacht construction, yacht management, and the provision of services to the yachting sector generally will be negatively affected.
The European geo-political balance which developed following the break-up of the Soviet Union is over. What this portends for the yacht industry and the Mediterranean cruising grounds is unclear. It will be destabilising for sure. For now, for the sake of humanity, we can only hope for a quick end to hostilities in the Ukraine and better leadership by all concerned. As to the sanctions in place, what they portend, and when they will end, the power of governments to act against foreign nationals based on suspicion and without due process of law is virtually unlimited. We may wish it were not so, but as the saying goes: “It is what it is.”
*The information offered in this column is summary in nature and should not be considered a legal opinion.
Nicholas J. Zeher is an attorney at Robert Allen Law whose practice includes maritime and commercial litigation, superyacht transactions, and immigration issues. For further information related to this article, please contact [email protected] or (561) 510-9606