September 30, 2022

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U.S. Bans the Provision of Accounting, Corporate Formation, and Management Consulting Services to Any Person in Russia

The United States has recently announced a new package of sanctions that prohibit U.S. persons from providing accounting, trust and corporate formation, and management consulting services to any person in the Russian Federation.

This latest round of sanctions and the explicit prohibition of certain services demonstrates the U.S. Government’s increased efforts to expand sanctions and make doing business in Russia more difficult.

On April 6, 2022, President Biden issued Executive Order 14071. Among other things, the Executive Order prohibits:

  • new investment in the Russian Federation by a United States person, wherever located;
  • the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any category of services as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, to any person located in the Russian Federation; and
  • any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.

On May 8, 2022, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a determination in accordance with Executive Order 14071. Pursuant to OFAC’s determination, the following activities will be prohibited, except to the extent provided by law, or unless licensed or otherwise authorized by OFAC:

  • 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.

This determination excludes the following:

  • any service to an entity located in the Russian Federation that is owned or controlled, directly or indirectly, by a United States person;
  • any service in connection with the wind down or divestiture of an entity located in the Russian Federation that is not owned or controlled, directly or indirectly, by a Russian person.

This determination becomes effective on June 7, 2022.

Subsequently, OFAC published Frequently Asked Question 1034 which states that OFAC anticipates defining the relevant prohibited services in a subsequent regulation as follows:

  • Accounting services” includes services related to the measurement, processing, and evaluation of financial data about economic entities.
  • Trust and corporate formation services” includes services related to assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for other persons to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts. Please note that all of these activities are common activities of trust and corporate service providers (TCSPs), although they may be provided by other persons.
  • Management consulting services” includes services related to strategic business advice; organizational and systems planning, evaluation, and selection; development or evaluation of marketing programs or implementation; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.

As was made clear by OFAC’s FAQ 1034, the definitions of the prohibited services are broad and can encompass many types of services, including various administrative services, advising on marketing and corporate matters, and human resources-related services. U.S. service providers and vendors who operate in Russia must examine these new prohibitions carefully before engaging in further business in Russia.

 

https://www.lexology.com/library/detail.aspx?g=917052ca-0c9a-45c7-bedf-552a0500ce71