Originally Published June 5, 2014
OFAC’s recent activity re: the South Sudan-related sanctions program reaffirms its “affirmative determination” opinion highlighted in our last blog post. In that post we described a bid protest brought by SpaceX. OFAC opined that Exec. Order 13661 (Ukraine-related sanctions) requires an “affirmative determination” by the Treasury before an entity is considered blocked due to being “owned or controlled” by a blocked person.
The key language driving this interpretation is contained in Section 1(a) of the executive order: “[A]ny person determined by the Secretary of the Treasury, in consultation with the Secretary of State” to be owned or controlled by any person whose property and interests in property are blocked is also blocked. Arguably, you may be able transact with an entity that you know is “owned or controlled” by a block person if it is unlisted. However, as an aside, such a course of action may run you afoul of the prohibition against evading sanctions contained in many such orders. See e.g., Section 5(a), Exec. Orders 13661.
Without that prior affirmative step from OFAC, no such unlisted entity can legally be considered blocked pursuant to Exec. Order 13661. As such, there appears to be no present risk that an unlisted entity is blocked under that order or other orders containing identical language (as long as the entity is less than 50% owned by a blocked person).
OFAC’s recent activity notified the public of an update to its South Sudan FAQ section. In that newly issued FAQ, OFAC opines that an “entity in South Sudan that is commanded or controlled by an individual under Exec. Order 13664 is not considered blocked by operation of law.” Consistent with OFAC’s 13661 interpretation, it would likely take an affirmative determination by OFAC before such entities are considered blocked because Exec. Order 13664 contains the same relevant language as Exec. Order 13661.
This development is significant because it appears to be inconsistent with OFAC’s blocked entity guidance that appears on the webpages of various sanctions programs that contain executive orders with similar “determination” provisions as the above orders. For example, the Counter Terrorism Sanctions (Exec. Order 13224); Non-Proliferation Sanctions (Exec. Orders 13382, 13608); Yemen-related Sanctions (Exec. Order 13611); and several others (including Ukraine and South Sudan-related sanction disclosed above), contain the “affirmative determination” language. Yet, the blocked entity guidance appears on all of the sanctions programs’ associated webpages.
Before assuming that every entity that might be owned or controlled by a blocked person is also blocked, one should first investigate whether the order requires blocking by operation of law or requires some affirmative determination by the Treasury first. If it’s the latter, it is then important to determine whether transacting with the entity would constitute evasion or a prohibited indirect transaction with a blocked person. Then, one should investigate whether the entity is less than 50% owned by a blocked person. Therefore, the process to protect oneself from dealing with a blocked entity is both legally and factually intensive
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.