Contract analysis

I. Purpose and Executive Summary This memorandum provides a comprehensive analysis of the United States sanctions framework administered by the Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury, as that framework applies to the conduct currently under investigation at Dunmore Trading International Ltd. ("DTI"), the Dubai-based trading subsidiary of Dunmore Energy Holdings Ltd. ("Dunmore

II. Background A. The Client and Relevant Entities The following entities and individuals are relevant to the sanctions analysis set forth in this memorandum. Dunmore Energy Holdings Ltd. ("Dunmore" or "DEH"). Dunmore Energy Holdings Ltd. is a Cayman Islands–domiciled exempted company with limited liability (Cayman Islands Company Registration No. MC-334821). Dunmore maintains its operational headquarters at 1200 McK

III. Applicable Sanctions Framework A. Overview of OFAC and Its Authority The Office of Foreign Assets Control ("OFAC") is a division within the U.S. Department of the Treasury charged with administering and enforcing U.S. economic and trade sanctions programs. OFAC operates under the policy direction of the Under Secretary of the Treasury for Terrorism and Financial intelligence and acts pursuant to presidential nat

1. E.O. 13662 — Overview Executive Order 13662, titled "Blocking Property of Additional Persons Contributing to the Situation in Ukraine," was signed by President Obama on March 20, 2014, in response to the actions of the Government of the Russian Federation with respect to Ukraine, including the purported annexation of Crimea. E.O. 13662 was issued pursuant to the authority vested in the President by the Constitutio

2. Directive 2 — Sectoral Sanctions on the Energy Sector Directive 2 under E.O. 13662 (as amended) establishes the sanctions framework applicable to entities operating in the Russian energy sector that have been identified on OFAC's Sectoral Sanctions Identifications ("SSI") List. The SSI List is distinct from the SDN List: entities on the SSI List are subject to the specific prohibitions set forth in the applicable

3. Implications for Dunmore's Conduct (March 2020 – April 5, 2022) During the period from March 2020 through April 5, 2022, Volkhov Industrial Group JSC was subject to Directive 2 sectoral sanctions but had not yet been placed on the SDN List. Accordingly, the relevant sanctions framework for this period is the Directive 2 prohibition on providing goods, services, or technology for specified energy projects involving

1. E.O. 14024 — Overview Executive Order 14024, titled "Blocking Property With Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation," was signed by President Biden on April 15, 2021. E.O. 14024 was issued pursuant to IEEPA, the National Emergencies Act, and Section 301 of Title 3 of the United States Code. The executive order declared a national emergency to address "the unusual

2. SDN List Designation — Volkhov Industrial Group JSC OFAC added Volkhov Industrial Group JSC to the SDN List effective April 6, 2022, under E.O. 14024. This designation escalated the sanctions applicable to Volkhov from the sectoral restrictions of Directive 2 to comprehensive blocking sanctions. The April 6, 2022 designation was part of a broader package of sanctions imposed by the United States and its allies in

3. The OFAC 50% Rule OFAC's "50% Rule," formally set forth in 31 C.F.R. § 589.406 and OFAC's Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are blocked (August 13, 2014, as revised), provides that any entity that is owned, directly or indirectly, 50% or more in the aggregate by one or more blocked persons (SDN-listed persons) is itself treated as a blocked person, even if that

4. Implications for Dunmore's Post-April 6, 2022 Obligations Following Volkhov's SDN designation on April 6, 2022, Dunmore — to the extent any of its entities or employees qualify as "U.S. persons" within the meaning of the sanctions regulations — is subject to comprehensive blocking obligations. The implications are as follows: (a) Immediate blocking requirement. Any property or interests in property of Volkhov (or

Section 589.201 — Blocking provisions. Section 589.201 implements the property-blocking provisions of the relevant executive orders, including E.O. 14024. It provides that all property and interests in property of persons designated under the applicable executive orders that are in the United States, that hereafter come within the United States, or that are or hereafter come within the possession or control of any U.

Section 589.209 — Prohibited transactions relating to the SSI List. Section 589.209 implements the Directive 2 prohibitions on certain transactions with persons identified on the SSI List. It provides the regulatory text of the Directive 2 restrictions on financing, goods, services, and technology, as discussed in Section III.B above. This provision governs the sanctions analysis applicable to the period from Novembe

Section 589.406 — Evasion/avoidance prohibition. Section 589.406 provides: "Any transaction on or after the effective date that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set forth in this part is prohibited." This provision is of critical importance to the Dunmore investigation. The evasion and avoidance prohibition is broadly draft

Section 589.701 *et seq.* — Licensing provisions. Part 589, Subpart E, sets forth the general and specific licensing provisions applicable to the Russia/Ukraine sanctions programs. OFAC has the authority to issue both general licenses (which authorize specified categories of transactions without the need for an individual application) and specific licenses (which authorize particular transactions on a case-by-case ba

IV. Criminal Liability Framework A. International Emergency Economic Powers Act (IEEPA) — 50 U.S.C. §§ 1701–1706 The International Emergency Economic Powers Act provides both civil and criminal penalties for violations of sanctions regulations and executive orders issued pursuant to IEEPA authority. IEEPA is the principal criminal statute under which sanctions violations are prosecuted. Criminal Penalties — 50 U.S.C.