Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On September 29, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) amended Directive 1 and Directive 2 of its Ukrainian-/Russian-related Sectoral Sanctions, as required by the Countering America’s Adversaries Through Sanctions Act of 2017 (H.R. 3364), which was signed into law by President Trump in August. (See previous InfoBytes summary here.) As amended, Directive 1 prohibits U.S. persons from all dealings in equity issued on or after July 16, 2014, of persons determined by OFAC to be part of the Russian financial services sector. Directive 1 also prohibits U.S. persons from dealing in the following debt of such persons: (i) debt of over 90 days maturity issued on or after July 16, 2014, but prior to September 12, 2014; (ii) debt of over 30 days maturity issued on or after September 12, 2014, but before November 28, 2017; and (iii) debt of over 14 days maturity issued on or after November 28, 2017. As amended, Directive 2 prohibits U.S. persons from all dealings in the following debt of persons identified by OFAC to be part of the Russian energy sector: (i) all debt of over 90 days maturity issued on or after July 16, , but before November 28, 2017; and (ii) all debt of over 60 days maturity issued on or after November 28, 2017. OFAC also released updated FAQs to answer questions related to the amended directives.
OFAC Assesses $2 Million Penalty Against International Oil and Gas Company for Violations of Ukraine-Related Sanctions
On July 20, the Treasury’s Office of Foreign Asset Control (OFAC) announced a $2 million civil money penalty assessed against an international oil and gas company, including two of its U.S. subsidiaries, for alleged violations of OFAC’s Ukraine-Related sanctions regulations. OFAC claims that, in May 2014, the company impermissibly dealt in services of a senior official of the Government of the Russian Federation who had been placed on the List of Specially Designated Nationals and Blocked Persons (SDNs) by signing eight legal documents related to oil and gas projects in Russia with the individual. Although the company claimed that it believed such actions were permissible, OFAC noted that the “plain language of the Ukraine-Related Sanctions” clearly indicates otherwise. In particular, OFAC stated that the sanctions blocked “any property and interests in property, and prohibited any dealing in any property and interests in property, of a person so designated.” In addition, the sanctions expressly forbid U.S. persons from “any contribution or provision of funds, goods, or services from any such person,” and, according to OFAC, do not differentiate between an individual’s “personal” and “professional” capacity—a distinction the company tried to make.
Thus, concluded OFAC, information available at the time of the alleged violations “clearly put [the company] on notice that OFAC would consider executing documents with an SDN to violate the prohibitions in the Ukraine-Related Sanctions Regulations.” The $2 million penalty was the largest that OFAC could impose under statute. OFAC imposed the penalty based on the following factors: (i) the company did not voluntarily self-disclose the violations; (ii) the company demonstrated reckless disregard for U.S. sanctions requirements by disregarding clear warning signs; (iii) the company’s senior-most executives knew of the official’s status as an SDN when it executed the legal documents; (iv) the company caused significant harm to the sanctions program by dealing with a senior official of the Russian Federation; and (v) the company is a sophisticated and experienced oil company that has global operations and routinely deals in goods, services and technology subject to U.S. economic sanctions and export controls.
On December 20, Treasury’s Office of Foreign Asset Control (OFAC) announced its decision to sanction seven individuals and eight entities in connection with Russia’s occupation of Crimea and the conflict in Ukraine. OFAC also identified 26 subsidiaries of Russian banks as subject to sanctions already in place on their parent companies. Among other things, the sanctions prohibit U.S. residents, citizens, and financial institutions from participating in various financial dealings with the companies. As explained by John E. Smith, acting director of Treasury’s sanctions enforcement office, the sanctions were introduced “in response to Russia's unlawful occupation of Crimea and continued aggression in Ukraine” in order to “maintain pressure on Russia by sustaining the costs of its occupation of Crimea and disrupting the activities of those who support the violence and instability in Ukraine.” Concurrent with today’s announcement, OFAC also issued a Russia/Ukraine-related General License 11, which authorizes certain transactions “necessary to requesting, contracting for, paying for, receiving, or utilizing a project design review or permit from FAU Glavgosekspertiza Rossii’s office(s) in the Russian Federation.”
On December 22, OFAC updated its Specially Designated Nationals (SDNs) list to identify additional persons and entities with which U.S. citizens and permanent residents are prohibited from doing business and whose assets or interests in assets must be frozen if they come within the jurisdiction of the U.S. OFAC’s update to the SDN list names 34 individuals and entities under Ukraine-related sanctions and authorities. In addition, OFAC identified – under the Sectoral Sanctions Identifications List – a number of subsidiary companies that are at least 50% owned by two previously-sanctioned banks and/or one previously-sanctioned defense company.
On July 30, OFAC issued a “Crimea Sanctions Advisory,” highlighting certain actions that have been used to circumvent or evade U.S. sanctions involving the Crimea region as described in Executive Order 13685. The Advisory provides guidance to U.S. persons and persons engaging in business activities in or through the United States, directing them to implement appropriate internal controls relative to their OFAC sanctions risk profile. Specifically with respect to financial transactions, OFAC noted that “certain individuals or entities have engaged in a pattern or practice of repeatedly omitting originator or beneficiary address information” from SWIFT messages. OFAC advised that U.S. financial institutions should be “cautious” when processing payment instructions that fail to disclose complete address information when engaging in transactions involving an individual or entity that has previously omitted information of Crimean individuals or entities. OFAC offered three examples of risk mitigating measures: (i) ensure that transaction monitoring systems include appropriate search terms corresponding to major geographic locations in Crimea and not simply references to “Crimea”; (ii) request additional information from entities that previously violated or attempted to violate U.S. sanctions on Crimea; and (iii) clearly communicate U.S. sanctions obligations to international partners and discuss OFAC sanctions compliance expectations with correspondent banking and trade partners.
In addition to issuing the Crimea Sanctions Advisory, OFAC updated its Specially Designated Nationals List and Sectoral Sanctions Identifications List with additional designations.
On March 11, OFAC updated its Specially Designated Nationals (SDNs) list comprising of individuals and entities including a Russian national bank, Russian National Commercial Bank. The SDN list identifies persons and entities with which U.S. citizens and permanent residents are prohibited from doing business and whose assets or interests in assets that come within U.S. jurisdiction must be frozen.
On May 8, OFAC issued regulations to implement recent Executive Orders establishing sanctions against Russian individuals and entities related to the situation in Ukraine. The Ukraine-Related Sanctions Regulations, 31 C.F.R. Part 589, implement Executive Order 13660 of March 6, 2014, Executive Order 13661 of March 17, 2014, and Executive Order 13662 of March 20, 2014. Consistent with its prior practice, OFAC published the regulations in abbreviated form and plans to provide a more comprehensive set of regulations, which may include additional interpretive and definitional guidance and additional general licenses and statements of licensing policy.
On April 28, the Treasury Department announced additional sanctions in response to developments in Ukraine by designating seven Russian government officials and 17 entities, including numerous financial institutions, pursuant to Executive Order 13661. That order authorizes sanctions on, among others, officials of the Russian Government and any individual or entity that is owned or controlled by, that has acted for or on behalf of, or that has provided material or other support to, a senior Russian government official. The designated individuals will be subject to an asset freeze and a U.S. visa ban, and the companies will be subject to an asset freeze. In addition, the Department of Commerce imposed additional restrictions on 13 of the companies by imposing a license requirement with a presumption of denial for the export, re-export or other foreign transfer of U.S.-origin items to the companies. Further, the Departments of Commerce and State tightened review of export license applications for any high-technology items that could contribute to Russia’s military capabilities, and plan to revoke any existing export licenses that meet the tightened conditions.
This week, President Obama issued two new Executive Orders, one on March 17 and another on March 20, authorizing the Treasury Department to impose sanctions on (i) current and former Russian and Ukrainian officials; (ii) a Russian bank; (iii) any individual or entity that operates in the Russian arms industry; and (iv) any individual or entity determined to be owned or controlled by, to act on behalf of, or provide material or other support to, any senior Russian government official or blocked person. Concurrent with each executive order, OFAC added (on March 17 and March 20) numerous current and former Ukrainian and Russian officials to its list of Specially Designated Nationals and Blocked Persons. These latest actions expand on the President’s initial March 6 Executive Order authorizing sanctions in response to Russia’s recent actions related to Ukraine, which the Obama Administration has characterized as threatening Ukraine’s democratic processes and institutions, sovereignty, territorial integrity, and assets. Generally, the orders exclude the designated persons and entities from the U.S. financial system and block the designated persons’ and entities’ access to property and interests in property that are within the U.S. As a result, U.S. banking institutions are required to block the financial assets of the designated individuals and entities and report such blocked property to OFAC within 10 business days. The orders and sanctions are the beginning stages of a potential extended sanctions framework involving Russian officials and businesses.
- Daniel R. Alonso to discuss "The international compliance situation and new challenges" at the World Compliance Association Covid Compliance Conference
- Benjamin W. Hutten to discuss "Understanding OFAC sanctions" at a NAFCU webinar
- Garylene D. Javier to discuss "Navigating workplace culture in 2020" at the DC Bar Conference