Contract analysis

I. Executive Summary The purpose of this memorandum is to trace the complete designation history of Volkhov Industrial Group JSC ("Volkhov" or "VIG"), a Russian Joint Stock Company headquartered at 12 Kutuzovsky Prospekt, Moscow 121248, Russia, and chaired by Arkady Volkhov, under the sanctions programs administered by the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC"). This memorandum fu

II. Background A. The DOJ Inquiry and This Memorandum's Role On April 19, 2022, the National Security Division of the U.S. Department of Justice, through its Counterintelligence and Export Control Section ("CES"), formally opened an inquiry into the activities of Dunmore Energy Holdings Ltd. and its affiliates. On the same date, grand jury subpoena GJ No. 22-418 was issued by the U.S. District Court for the District

III. OFAC Designation History of Volkhov Industrial Group JSC This Part traces the two-phase designation history of Volkhov Industrial Group JSC under OFAC-administered sanctions programs, from the initial sectoral sanctions designation in November 2019 through the full SDN blocking designation in April 2022. A. Phase 1: Sectoral Sanctions Designation under Directive 2 of E.O. 13662 (November 15, 2019)

1. The Designation On November 15, 2019, the Office of Foreign Assets Control designated Volkhov Industrial Group JSC under Directive 2 of Executive Order 13662, adding the entity to OFAC's Sectoral Sanctions Identifications ("SSI") List. This designation identified Volkhov as an entity operating in the energy sector of the Russian Federation and subjected it to the specific transactional prohibitions set forth in Di

2. Executive Order 13662 — Background Executive Order 13662, titled "Blocking Property of Additional Persons Contributing to the Situation in Ukraine," was issued on March 20, 2014, as part of the U.S. government's response to the Russian Federation's actions in and relating to Ukraine. E.O. 13662 authorized the Secretary of the Treasury, in consultation with the Secretary of State, to impose sanctions on persons det

3. Directive 2 — Specific Prohibitions Directive 2 under Executive Order 13662, as amended on September 29, 2017, applies to entities determined by the Secretary of the Treasury to be operating in the energy sector of the Russian Federation. Directive 2 prohibits U.S. persons from the following activities with respect to SSI-listed entities: (a) Transacting in, providing financing for, or otherwise dealing in new deb

4. Relevance to the Dunmore Transactions The sectoral sanctions designation of Volkhov under Directive 2, effective November 15, 2019, did not categorically prohibit crude oil swap transactions between DTI and Volkhov-owned entities. Rather, the question of whether any of the 14 flagged transactions violated Directive 2 turns on the specific financial structure of each transaction — in particular, whether any compone

5. The 50% Rule Under Directive 2 A critical point, discussed in greater detail in Part IV.C below, is that OFAC's 50% Rule applies to sectoral sanctions designations. OFAC guidance expressly provides that entities owned 50% or more by an SSI-listed entity are themselves subject to the same sectoral sanctions restrictions applicable to the SSI-listed parent, even if the owned entity is not separately identified on th

1. The Designation On April 6, 2022, OFAC added Volkhov Industrial Group JSC to the Specially Designated Nationals and blocked Persons List ("SDN List") pursuant to Executive Order 14024. This action represented a significant escalation of the sanctions targeting Volkhov, elevating the entity from sectoral sanctions (which impose limited, transaction-specific prohibitions) to full blocking sanctions (which impose a c

2. Executive Order 14024 — Background Executive Order 14024, titled "Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation," was issued on April 15, 2021, and has been amended on multiple occasions. E.O. 14024 authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to impose blocking sanctions on any person determined, among o

3. Consequences of SDN Listing The designation of Volkhov Industrial Group JSC on the SDN List under E.O. 14024 carries the following consequences: (a) Asset Freeze: All property and interests in property of Volkhov Industrial Group JSC that are in the United States, or that hereafter come within the United States, or that are or hereafter come within the possession or control of any U.S. person, are blocked and may

4. Timing and Significance The SDN designation of Volkhov became effective on April 6, 2022. This date is significant for the following reasons: All 14 of the suspect crude oil swap transactions between DTI and Petronova/Zenith Petroleum were executed between June 2020 and February 2022. Every one of these transactions therefore predated the full SDN blocking designation. However, the pre-existing sectoral sanctions

5. Internal Detection On April 11, 2022 — five days after the SDN designation — Gerald Fisk, then serving as Chief Compliance Officer of Dunmore Energy Holdings Ltd. and based at the company's Houston, Texas headquarters, conducted a routine OFAC screening refresh of Dunmore's counterparty database. During this screening, Fisk identified potential historical exposure to Volkhov Industrial Group JSC through Petronova

IV. The OFAC 50% Rule — Legal Framework The 50% Rule is the analytical linchpin of the sanctions analysis in this memorandum. If Petronova Trading FZE is owned 50% or more, directly or indirectly, by Volkhov Industrial Group JSC (and/or by Arkady Volkhov), then Petronova is deemed subject to the same sanctions restrictions as Volkhov — regardless of whether Petronova is separately identified on any OFAC sanctions lis

V. Application of the 50% Rule to Petronova Trading FZE This Part applies the legal framework set forth in Part IV to the specific facts regarding Petronova Trading FZE, drawing on the detailed beneficial ownership analysis prepared by Liam Donahue (Doc. 33, June 15, 2022) and the documentary and testimonial evidence collected during the investigation. A. Ownership Structure of Petronova

1. Legal Ownership The legal ownership structure of Petronova Trading FZE is straightforward on its face. As a Free Zone Establishment registered with JAFZA, Petronova is a single-shareholder entity. Available corporate records obtained from JAFZA identify Sergei Volkov as the sole shareholder and Managing Director of Petronova. No other shareholders or equity holders are identified in the publicly available formatio

2. Beneficial Ownership — Documentary and Forensic Evidence The beneficial ownership analysis prepared by Liam Donahue (Doc. 33, June 15, 2022) sets forth in detail the documentary and forensic evidence supporting the determination that Sergei Volkov holds his 100% legal interest in Petronova as a nominee or beneficial holder on behalf of Volkhov Industrial Group JSC and/or Arkady Volkhov. The key categories of evide

VI. Implications for the Dunmore Transactions A. The 9 Tainted Crude Oil Swap Transactions Of the 14 crude oil swap transactions totaling approximately $218.7 million in notional value, Ridgeline Advisory Group's forensic analysis determined that at least 9 transactions — with a combined notional value of approximately $156.3 million — involved crude oil that was ultimately sourced from or destined for entities contr

VII. Implications for Zenith Petroleum DMCC Zenith Petroleum DMCC is a company registered with the Dubai Multi Commodities Centre ("DMCC"), with a registered office at Unit 2201, Jumeirah Bay Tower X2, Cluster X, Jumeirah Lakes Towers, Dubai, UAE. Its Managing Director is Farhan Qureshi, a Pakistani national and UAE resident. Zenith Petroleum was involved in two of the 14 flagged crude oil swap transactions executed