In response to the Russian invasion of Ukraine the United States Treasury has imposed sanctions on the Russian government, businesses and individuals. These sanctions prohibit U.S. persons (including U.S. banks and other businesses) from transactions with the sanctioned parties and related persons and entities. Federal law imposes criminal liability for willful violation of sanctions and there are civil fines for any violation of sanctions, regardless of knowledge or intent, on a strict liability basis. Northwest firms should take care to conduct extensive due diligence before engaging in any transaction that has a connection to Russia.
Generally speaking, restrictions on financial transactions with foreign parties are initiated by the Treasury’s “Office of Foreign Assets Control” (OFAC), which issues directives listing the persons and entities that are to be sanctioned. The public receives notice of which persons or parties have been sanctioned when OFAC adds their names to either the Sectoral Sanctions Identification List (SSIL) or the Specially Designated Nationals List (SDN).
The lists serve two different purposes. The SSIL identifies persons or entities operating in certain sectors of a foreign nation’s economy that are subject to specific sectoral sanctions. The types of specific transactions that are prohibited with respect to an entity on the SSIL are further outlined in the related OFAC Directive. The property and interests of persons on the SDN list, however, are completely blocked. U.S. persons are required to block the funds or other assets of persons listed on the SDN List that are within their possession (including those of any entity that is 50% or more owned by an entity on the SDN List, whether or not the owned entity is itself specifically listed). Any blocked funds must be placed into separate accounts and cannot be released unless authorized by OFAC. Sanctions apply to any transaction involving a U.S. person and a sanctioned party where there is a U.S. nexus; in general a U.S. nexus will be found for any transaction which occurs in any way on U.S. territory or through U.S. technology (e.g., transactions that use U.S. dollars that pass through the U.S. financial system, or which use U.S. developed software, computers or communications services).
The measures the United States and other nations have placed to isolate Russia economically are wide-ranging. In addition to sanctions on specific companies and businesses, they include prohibitions on transactions with the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation as well as the Joint Stock Company Management Company of the Russian Direct Investment Fund, the LLC RVC Management Company, and the Russian Direct Investment Fund (OFAC Directive 4). Russia’s largest banks, Public Joint Stock Company Sberbank of Russia (Sberbank) and VTB Bank Public Joint Stock Company, have also been sanctioned. In the case of Sberbank, U.S. financial institutions are prohibited from opening or maintaining a correspondent account or payable-through account for or on behalf of, or processing of a transaction involving, that entity (OFAC Directive 2). VTB Bank has been blocked, meaning that assets of that or any related entity held in U.S. financial institutions are frozen and inaccessible. Russian financial institutions Otkritie, Novikom, and Sovcom have also been blocked.
OFAC has also ordered prohibitions on transactions and dealings by U.S. persons or within the United States in new debt of longer than 14 days maturity and new equity of Russian state-owned enterprises, entities that operate in the financial services sector of the Russian Federation economy, and other identified companies (OFAC Directive 3). This means that U.S. persons may not buy, sell or dispose of the prohibited Russian debt or equity as further described in the Directive.
The above are just a small sampling of the sanctions that have been imposed with respect to Russia, and more are expected to follow as the conflict continues. Because significant penalties and reputational damage can come from violating U.S. sanction law it is critically important for persons doing business that involve Russian assets, companies or persons to conduct thorough due diligence. Attorneys at Jordan Ramis stand ready to assist in helping Northwest companies make sure they avoid violating the long and growing list of sanctions related to Russia’s invasion of Ukraine.
Gregory Zerzan is an attorney with Jordan Ramis PC. Zerzan has served in a wide range of roles in the U.S. government, including as Acting Assistant Secretary of the U.S. Treasury; Counsel to the House Committees on Agriculture, Financial Services, and Energy and Commerce; and as Principal Deputy Solicitor of the U.S. Department of the Interior. Contact him at email@example.com or (503)-598-7070.
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