Mitigating Risk with Ukraine-Related Sanctions

What steps can someone take to mitigate the risk before engaging in such business or transactions?

OFAC Attorney: People currently doing business in Russia or looking to do business in Russia should follow the recent events that are going on there to help predict the U.S. government’s next move. Staying ahead of the U.S. government in terms of who is going to be designated next is important. Anticipating who is going to be designated next or which industry in Russia will be designated next is important. Also, staying clear of businesses that are owned or controlled by Putin’s inner circle of colleagues is probably a prudent course of action. It is very likely that more sanctions will be applied to Putin’s inner circle of friends, so avoiding that circle of people would be important. Some key industries to look out for would be Russian weapons manufacturers or oil producers as they are thought to be next on the list for sanctions.

OFAC recently implemented sectoral sanctions against certain Russian entities.These new sanctions, issued pursuant to Exec. Order 13662, are different than the existing Ukraine-related sanctions.  The persons listed on the new Sectoral Sanctions Identifications (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.

Can people include provisions in contracts on how to deal with foreign companies that are designated by OFAC?

OFAC Attorney: Yes, people can put OFAC compliance clauses in their contracts so that when something sanction related happens, the parties in the contract are on notice that the contract might be voided. In terms of contract obligations in foreign countries this might be helpful, especially if one of the parties wants to drag the other party to court in a foreign country. In terms of limiting one’s liability for violating sanctions, no number of contract provisions can offset your legal liability. OFAC won’t look at your situation, see a contract clause that exonerates you, and then exonerate you as well; that’s not usually how OFAC works. But contract clauses can be used to mitigate an enforcement action if it looks like you tried to comply with OFAC sanctions in good faith.

Who should someone talk to in order to get a risk assessment for prospective or ongoing business?

OFAC Attorney: Speaking to an experienced OFAC sanctions attorney is a good start because the regulations pertaining to sanctions can be very complex.  For example, these sectoral sanctions targeting the finance and energy sectors are complex. Generally, sanctions are complex in two ways. Sometimes they are very broad so you don’t know exactly what is covered or what is meant to be covered by the regulations.  This makes them difficult to apply to a set of facts. Also, they rapidly change because the regulations are always being updated to keep up with United States foreign policy and national security developments.

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