On July 16, 2014 the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) ramped up its Ukraine-related sanctions program against Russia. Specifically, OFAC has issued the Sectoral Sanctions Identifications List (SSI List). These new sanctions, issued pursuant to Exec. Order 13662 (pdf), are different than the existing Ukraine-related sanctions. The persons listed on the new SSI List are not blocked. Instead, U.S. persons are prohibited from undertaking certain transactions with those listed persons in Russia’s energy and financial sectors.
OFAC’s action was carried out through two directives issued pursuant Exec. Order 13662. Directive 1 prohibits transacting in, providing financing for, or otherwise dealing in debt with a maturity of longer than 90 days or equity if that debt or equity is issued on or after July 16, 2014 by, on behalf of, or for the benefit of the persons operating in Russia’s financial sector named under Directive 1, their property, or their interests in property.
Directive 2 separately prohibits transacting in, providing financing for, or otherwise dealing in new debt—issued on or after July 16, 2014—of greater than 90 days maturity by, on behalf of, or for the benefit of the persons operating in Russia’s energy sector named under the Directive 2, their property, or their interests in property.
Consistent with OFAC’s prior guidance, these new prohibitions apply to entities owned 50% or more by persons identified under Directives 1 and 2 on the SSI List. So even if the particular entity is not listed, U.S. persons would still have to be conscious of the possibility of carrying out a prohibited transactions with an unlisted entity if it is at least half owned by an SSI-listed person.
With respect to the above mentioned prohibitions, OFAC issued General License No. 1 (pdf) authorizing “all transactions by U.S. persons, wherever they are located, and transactions within the United States involving derivative products whose value is linked to an underlying asset that constitutes (1) debt with a maturity of longer than 90 days or equity issued on or after July 16, 2014 by a person identified in Directive 1 . . . or (2) debt with a maturity of longer than 90 days issued on or after July 16, 2014 by a person identified in Directive 2.”
In its Frequently Asked Questions section, OFAC clarifies that “this is not a blocking action, nor will persons identified in Directives 1 and 2 be added to the Specially Designated Nationals (SDN) List. U.S. persons should reject transactions or dealings that are prohibited by the directives, and to the extent required by the regulations, report such rejected transactions to OFAC within 10 days.
All other transactions with SSI-listed persons or involving any property in which one or more SSI-listed persons has an interest are permitted, provided such transactions do not otherwise involve property or interests in property of a person blocked pursuant to Executive Orders 13660, 13661 or 13662, or any other sanctions programs implemented by the Office of Foreign Assets Control.
Those concerned about their obligations under these directives should consult with an experienced OFAC sanctions attorney. Application of these prohibitions to real-life transactions will likely involve complex and thoughtful analysis. If a person is still unsure about how to proceed, it may be prudent to file a request for interpretive guidance with OFAC to obtain guidance directly from the agency on how to proceed.
Disclaimer: Blog posts should not be relied upon as legal advice and are only provided for informational purposes. Information contained in blog posts may also become outdated with the passage of time as laws change and U.S. foreign policy and national security objectives evolve.