On 10 January 2025, the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of Treasury’s issued a Determination pursuant to Section 1(a)(i) of Executive Order 14024 (“the EO 14024 Determination”) and a Determination pursuant to Section 1(a)(ii) of Executive Order 14071 (“the EO 14071 Determination”).
Determination under EO 14024 specifies that Section 1(a)(i) of Executive Order 14024 applies to the energy sector of the Russian Federation’s economy, and that any entity found to be operating or having operated in this sector is subject to sanctions under this provision. These determinations are key measures of U.S. foreign policy as part of a broader strategy to exert economic pressure on Russia through sanctions.
In connection with these determinations, OFAC keeps a Specially Designated Nationals (“SDN”) list, which includes individuals and entities subject to sanctions. The consequence of being placed on the SDN list is a prohibition on financial transactions, asset freezing, and a ban on doing business with U.S. persons and entities, as well as with any international entities that engage with the U.S.
In light of geopolitical developments, particularly the conflict in Ukraine, the SDN list has been significantly expanded. In this context, the largest Russian oil company, Gazprom Neft, is one of the entities that has been sanctioned. Additionally, sanctions have been extended to: 1) companies in which Gazprom Neft has a direct or indirect ownership stake of 50% or more, and 2) companies that are not on the SDN list but in which Gazprom Neft’s subsidiaries, which are on the SDN list, hold such a stake. Sanctions include a prohibition on providing any financial contributions, goods, or services to or for the benefit of sanctioned entities, as well as receiving such contributions from sanctioned entities.
The updated SDN list now includes NIS AD Novi Sad (“Petroleum Industry of Serbia”) and designates this company as being included under Executive Order 14024 due to its affiliation with Gazprom Neft.
In practice, the consequence of sanctions on NIS AD Novi Sad is that its future operations are jeopardized, as other business entities and financial institutions may cease cooperation due to the risk of secondary sanctions—that is, the risk of themselves becoming subject to sanctions for doing business with sanctioned entities. The question arises as to how sanctions will affect cooperation between JANAF d.d. and NIS AD Novi Sad, as well as what possible solutions and business and strategic negotiations will ensure further energy security and stability, bearing in mind that NIS AD Novi Sad supplies oil through their oil pipeline. The cooperation of NIS AD Novi Sad with other participants in the oil market should also be considered in light of the sanctions.
Entities placed on the SDN list can challenge their designation by submitting a Request for Administrative Review (“Request”) to OFAC. OFAC allows persons or entities placed on the SDN list to request their removal by filing a Request for review.
Along with the Request, the entity must provide relevant evidence or information that may be pertinent to the decision-making process: 1) details of the person or entity that is submitting the request; 2) a detailed explanation of why the person or the entity should be removed from the SDN list; 3) arguments and evidence demonstrating that the person or the entity is incorrectly listed or that the circumstances that led to its listing have changed.
OFAC will review the Request, after which it may request clarification, confirmation, or additional information. The U.S. Department of State will consider all relevant circumstances before making a final decision.
By Jelena Gazivoda, Senior Partner, Nikola Djordjevic, Partner, Marko Mrdja, Senor Associate, and Jana Stanojevic, Associate, JPM Partners
