OFAC Issues New Sanctions Prohibiting Certain Accounting, Auditing, Corporate Formation and Management Services to Persons in Russia Effective June 7, 2022; And Additional Bank Designations and General Licenses | Husch Blackwell LLP
On May 8, 2022 the U.S. Department of the Treasury’s (“Treasury”) Office of Foreign Assets Control (“OFAC”) further escalated U.S. sanctions against the Russian Federation (“Russia”) by issuing two Determinations, adding new individuals and entities to the Specially Designated Nationals and Blocked Persons list (“SDN List”), and issuing three new general licenses in connection with the Determinations and SDN List designations. Among those newly designated as SDNs by OFAC are three state-controlled Russian television stations; Russian-state bank Joint Stock Company Moscow Industrial Bank and a number of its subsidiaries; a state-owned weapons manufacturer; and all of the board members of Sberbank and Gazprombank. In addition, on the same day, the U.S. Department of State designated eight maritime shipping companies used by the Russian government. OFAC stated the SDN List designations aim to further restrict the ability of Russian leadership to fund the war against Ukraine and the Executive Order 14071 and 14024 Determinations will further restrict Russian entities’ and individuals’ ability to use the U.S. economy to evade U.S. sanctions. The Determinations under the two EOs include the following:
- EO 14071 Determination: The Determination under EO 14071 prohibits the “exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in the Russian Federation.” (Emphasis added.) There are two important carve-outs to the prohibition:
- Such services provided “to an entity located in the Russian Federation that is owned or controlled, directly or indirectly, by a United States person.”
- Such services provided in connection with the wind down or divesture of an entity located in Russia so long as the entity is not owned or controlled, directly or indirectly, by a Russian person. (Under FAQ 1034, OFAC defines “Russian person” as “an individual who is a citizen or national of the Russian Federation, or an entity organized under the laws of the Russian Federation.”)
- EO 14024 Determination: The Determination under EO 14024 allows Treasury and the U.S. Department of State, in consultation with one another, the discretion to subsequently determine that any individual or entity operates or has operated in the accounting, trust and corporate formation services, and management consulting sectors of the Russian Federation economy and therefore designate such persons on the SDN List or other U.S. sanctions lists. For the avoidance of doubt, FAQ 1037 clarifies that this determination does not automatically add any person who operates in the accounting, trust and corporate formation services, or management consulting sectors of the Russian economy to any sanctions list.
FAQs 1034 and 1038, issued contemporaneously with the Determinations and amended just days later on May 11, 2022 provide definitions for the terms “accounting services,” “trust and corporate formation services,” and “management consulting services.”
OFAC also issued three new general licenses and amended General License 25 (now 25A) in connection with these new Determinations and new designations to the SDN List.
- General License 25A: GL 25 authorizing certain transactions related to telecommunications and Internet-based communications that would otherwise be prohibited by the Russian Harmful Foreign Activities Sanctions Regulations (“RuHSR”) was amended and reissued as General License 25A to clarify that transactions involving the three newly designated Russian state-owned television stations are not authorized.
- General License 33: GL 33 authorizes through 12:01 a.m. eastern daylight time, June 7, 2022, all transactions ordinarily incident and necessary to the wind down of operations, contracts, or other agreements involving; (1) Joint Stock Company Channel One Russia; (2) Joint Stock Company NTV Broadcasting Company; (3) Television Station Russia-1; or (4) any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest, provided that the operations, contracts, or other agreements were in effect prior to May 8, 2022.
- General License 34: GL 34 authorizes through 12:01 a.m. eastern daylight time, July 7, 2022, all transactions ordinarily incident and necessary to the wind down of the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in the Russian Federation that are prohibited by EO 14071. FAQ 1034 provides definitions of the terms “accounting services”, “trust and corporate formation services” and “management consulting services”.
- General License 35: GL 35 authorizes through 12:01 a.m. eastern daylight time, August 20, 2022, all transactions ordinarily incident and necessary to the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of credit rating or auditing services to any person located in the Russian Federation that are prohibited by EO 14071. This means that any U.S. person engaged in auditing services must wind down such operations in Russia by August 20, 2022. FAQ 1035 explains that “auditing services means examination or inspection of business records by an auditor, including checking and verifying accounts, statements, or other representation of the financial position or regulatory compliance of the auditee.”
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https://www.jdsupra.com/legalnews/ofac-issues-new-sanctions-prohibiting-7888176/
