Sanctions Tracker – Further U.S. Responses to the Crisis in Ukraine

We previously discussed Russia-related sanctions measures imposed by the United States on May 6, April 27, April 21, April 11, April 7, March 25, March 15, March 14, March 9, March 8, March 3, February 28, February 25, February 23, and February 4.  We also discussed recent sanctions measures related to the Russian energy sector in a podcast episode.

This post provides an update regarding further Russia-related sanctions measures in the United States.

New General Licenses

On May 8, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued several new General Licenses (“GLs”):

• GL 25A supersedes and replaces GL 25, and authorizes certain transactions ordinarily incident and necessary to the receipt or transmission of telecommunications involving Russia. It also authorizes the exportation, reexportation, sale, or supply, directly or indirectly, from the United States or by U.S. persons, wherever located, to Russia of services, software, hardware, or technology incident to the exchange of communications over the internet.
• GL 33 authorizes certain transactions ordinarily incident and necessary to the wind down of operations, contracts, or other agreements involving one or more of the following blocked persons that were in effect prior to May 8, 2022, until June 7, 2022, provided that any payment to a blocked person must be made into a blocked account located in the United States: (1) Joint Stock Company Channel One Russia; (2) Joint Stock Company NTV Broadcasting Company; (3) Television Station Russia-1; or (4) any entity owned 50% or more by the above entities.
• GL 34 authorizes certain transactions ordinarily incident and necessary to the wind down of the exportation, reexportation, sale, or supply, directly or indirectly, from the United States or by a U.S. person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in Russia, through July 7, 2022.
• GL 35 authorizes certain transactions ordinarily incident and necessary to the exportation, reexportation, sale, or supply, directly or indirectly, from the United States or by a U.S. person, wherever located, of credit rating or auditing services to any person located in Russia, through August 20, 2022.

Sanctions on Accounting, Trust and Corporation Formation, and Management Consulting Services With Respect to Russia

On the same date, OFAC issued a “Determination (“Determination”) Pursuant to Section 1(a)(i) of Executive Order (“E.O.”) 14024” (the “E.O. 14024 Determination”).  E.O. 14024 sets forth a framework to impose sanctions on any person determined by the Secretary of the Treasury to operate or have operated in certain sectors of the Russian economy.  Pursuant to the E.O. 14024 Determination, the Director of OFAC, in consultation with the Secretary of State, determined that E.O. 14024 now applies to the accounting, trust and corporate formation services, and management consulting services sectors of the Russian economy.  This means that non-U.S. persons risk exposure to U.S. secondary sanctions liability by operating in those sectors.  This Determination is effective upon publication.

OFAC also issued a “Determination Pursuant to Section 1(a)(ii) of E.O. 14071” (the “E.O. 14071 Determination”).  E.O. 14071 sets forth a framework for the Secretary of the Treasury to impose sanctions on any category of services to any person located in Russia.  Pursuant to the E.O. 14071 Determination, the Director of OFAC, in consultation with the Department of State, has determined that E.O. 14071 now applies to the following categories of services:  accounting, trust and corporate formation, and management consulting services.  As a result, the prohibitions of E.O. 14071 include the exportation, reexportation, sale, or supply, directly or indirectly, from the United States or by a U.S. person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in Russia.  This Determination excludes (i) any service to any entity located in Russia that is owned or controlled, directly or indirectly, by a U.S. person; or (ii) any service in connection with the wind down or divestiture of an entity located in Russia that is not owned or controlled, directly or indirectly, by a Russian person.  This Determination takes effect on June 7, 2022.

Additional Guidance Clarifications

OFAC also issued substantial guidance related to sanctions measures announced by the U.S. government.  In particular, OFAC issued the following new Frequently Asked Questions (“FAQs”):

• FAQ 1,033 states the actions taken in the new E.O. 14024 and E.O. 14071 Determinations.
• FAQ 1,034 states that, for purposes of the E.O. 14071 Determination, OFAC anticipates publishing regulations defining the following terms to include the following:
  • “Accounting services” – includes services related to the measurement, processing, and transfer 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.
  • “Management consulting services” – includes services related to strategic advice; organizational and systems planning, evaluation, and selection; marketing objectives and policies; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.
  • “Russian person” – means an individual who is a citizen or national of Russia, or an entity organized under the laws of Russia.
• FAQ 1,035 states that, for purposes of GL 35, the term “credit rating services” means services related to assessments of a borrower’s ability to meet financial commitments, including analysis of general creditworthiness or with respect to a specific debt or financial obligation. And the term “auditing services” means examination or inspection of business records by an auditor, including checking and verifying accounts, statements, or other representation of the financial position or regulatory compliance of the auditee.
• FAQ 1,036 clarifies that the E.O. 14071 Determination takes effect on June 7, 2022, and that the authorizations in GL 34 are effective through July 7, 2022.
• FAQ 1,037 clarifies that the E.O. 14024 Determination does not mean that all persons that operate or have operated in the accounting, trust and corporation formation services, and management consulting sectors of the Russian economy are sanctioned by OFAC. Rather, this sector determination exposes persons that operate or have operated in the identified sector to sanctions risk.  Only persons determined, pursuant to E.O. 14024, by the Secretary of the Treasury or the Secretary of the State (in consultation with each other) to operate or have operated in the above-identified sectors are subject to sections.
• FAQ 1,038 states that, for purposes of the E.O. 14024 Determination, OFAC interprets the following terms to include activities related to products and services in or involving Russia in the following:
  • “Accounting sector” – includes the measurement, processing, and transfer of financial data about economic entities.
  • “Trust and corporate formation services sector” – includes assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for another person 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.
  • “Management consulting sector” – includes strategic advice; organizational and systems planning, evaluation, and selection; marketing objectives and policies; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.
• FAQ 1,039 clarifies that transactions ordinarily incident and necessary to the exportation or reexportation of agricultural commodities to, from, or transiting Russia that involve newly-designated Agropromyshlennyi Kompleks Voronezhskii OOO, Anninskii Elevator OOO, and Azovskaya Zernovaya Kompaniya OOO are authorized under GL 6A.
• FAQ 1,040 clarifies that GL 25A specifically excludes from its authorizations any transactions involving newly-designated Joint Stock Company Channel One Russia, Television Station Russia-1, and Joint Stock Company NTV Broadcasting Company.

New Sanctions Designations

Finally, OFAC designated a number of individuals and entities “critical to Russia’s ability to wage war against Ukraine.”  These included:

• The “board members of two of Russia’s most important banks,” Joint Stock Company Sberbank of Russia and Gazprombank;
• A “Russian state-owned bank,” Joint Stock Company Moscow Industrial Bank, and ten of its subsidiaries;
• A “state-supported weapons manufacturer,” Limited Liability Company Promtekhnologiya; and
• “Three of Russia’s state-controlled television stations”: Joint Stock Company Channel One Russia, Television Station Russia-1, and Joint Stock Company NTV Broadcasting Company.

Addressing the various sanctions measures imposed on May 8, 2022, Secretary of the Treasury Janet L. Yellen explained:  “Today we are further constricting Russia’s economy and access to services and technology it needs to conduct this unprovoked invasion.”

The OFAC press release is available here.

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We will continue to monitor developments in this area and encourage you to subscribe to be kept informed of latest developments.  Please contact the authors or your usual Herbert Smith Freehills contacts for more information.