US Sanctions against USC Not Fatal, but Still a Headache

The U.S. sanctions against Russian state-owned naval designer and shipbuilder JSC United Shipbuilding Corporation (USC) will make life difficult for the company, especially with respect to financial transactions with payments in USD, according to the Corp. President Alexey Rakhmanov.

However, the sanctions “are not fatal” for the USC, Rakhmanov told “Russia 24” TV Channel, adding that the company is mulling ways of switching to payments in alternative currencies, such as the Chinese Yuan Renminbi (RMB) and that “is not fantastic.”

Regarding other aspects of USC’s business operation, contracts will not be affected significantly, as the corporation has no significant deals with the U.S. based companies.

“The format in which the sanctions have been announced present for United Shipbuilding Corporation is more a nuisance rather than a significant obstacle in the operations and execution of the existing contracts. The Group is currently exploring all aspects of the USC situation prevailing in the imposition of sanctions, and then we will work out a solution to minimize the risks involved while executing our commitments to all our customers and partners,” the USC said in a statement.

Nevertheless, Rakhmanov voiced the need for for Russia to achieve a 100% import substitution in naval shipbuilding, as sanctions get tougher in Europe.

The corporation head said that he is concerned about the possible termination of cooperation with European partners in the field of marine equipment necessary for offshore projects. In this case, said Rakhmanov, Russian engineers and draftsmen will have “use again to the drawing board.”

The U.S. Department of the Treasury imposed prohibitions on additional Russian entities on Tuesday, July 29th operating within the financial services sector of the Russian economy pursuant to Executive Order (E.O.) 13662, as explained, “in response to Russia’s continued efforts to destabilize eastern Ukraine.”

Specifically, Treasury imposed sanctions that prohibit U.S. persons from providing new financing to three major Russian financial institutions, limiting their access to U.S. capital markets, those being Bank of Moscow, Russian Agricultural Bank, and VTB Bank OAO,

The Treasury has also designated one Russian state-owned defense technology firm United Shipbuilding Corporation pursuant to Executive Order (E.O.) 13661 and blocked its assets.

This addition expands upon the list of eight defense technology firms designated on July 16.

As a result of the action, any assets of the entity designated that are within U.S. jurisdiction must be frozen. In addition, transactions by U.S. persons or within the United States involving the entities designated are generally prohibited.

These measures coincide with actions taken to suspend U.S. export credit and development finance to Russia.

“In light of Russia’s continuing support for separatists in Ukraine, we took additional steps today to further increase financial pressure on the Russian government,” said Under Secretary for Terrorism and Financial Intelligence David S. Cohen. “These actions, along with actions announced today by the European Union, significantly increase the costs to Russia for its efforts to undermine Ukraine’s sovereignty. We are prepared to continue to expand these sanctions if Russia refuses to change course.”

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World Maritime News Staff, July 31, 2014; Image: polylog