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Complying with Recent OFAC Sanctions Imposed Against Russia + Belarus

On Tuesday, March 8, 2022, President Joe Biden announced a ban on the import of oil and other energy sources from Russia. This ban was just the latest round of sanctions the U.S., in coordination with its allies, has imposed on Russia and Belarus in the last few weeks. In fact, the predictions are that this unprecedented expansive and sweeping sanctions program will continue to ramp-up in the weeks and months to come. U.S. citizens and companies conducting international business continue to grapple with the economic ramifications and compliance requirements of this fast-evolving sanctions program.

So far, in addition to the oil and energy ban, the U.S. Department of Justice has created a new KleptoCapture Taskforce to locate and seize the assets of specified wealthy Russian individuals, has restricted access to its financial systems to certain Russian banks, frozen the foreign reserves of the Russian central bank, and restricted entry into its airspace to Russian aircrafts. The restrictions that most directly affect, and have the far-reaching compliance implications for U.S. persons, entities, and businesses are those imposed and administered by the U.S. Treasury Department’s Office of Foreign Asset Control (OFAC).

The most recent tranche of sanctions and embargoes essentially precludes U.S. persons and entities from conducting prohibited business transactions or dealings in Russia or Belarus, or with Russian or Belarussian persons or entities listed on OFAC’s Specially Designated Nationals and Blocked Persons (SDN) list wherever they are in the world without first obtaining a license or authorization from OFAC. You can search OFAC’s SDN list here.

Although these sanctions have targeted specific Russian shipping companies, vessels, and financial institutions, the collective consequence is that it has become nearly impossible for U.S. entities to transact business in Russia or with Russian companies. Consequently, most U.S. companies have largely suspended their business activities in Russia and Belarus and international firms have stepped back from providing credit and insurance that underpin trade shipments.

If anything, the sanctions are achieving their stated goal of decimating Russia’s financial, investment, aviation, technology, and export-import sectors outlined in Executive Orders 13662, 14024, 1403814065 and 14066. Although these sanctions are being imposed on a rolling basis, understanding their significance, scope, nature, and compliance requirements is critical for U.S. businesses conducting international trade or cross-border business transactions as a whole.

Understanding the Comprehensive Scope of Sanctions

Although the SDN list is comprehensive, most businesses still struggle navigating OFAC’s complex compliance requirements, especially when they arise in the context of business transactions that are indirectly connected to sanctioned countries, entities, or persons. U.S. persons and companies are required to ensure that their distributors and customers comply with OFAC sanctions wherever they are located in the world. In a global market where goods are often sold and resold, sometimes in a long chain of business transactions, there is always a looming risk that a company’s exports can be re-exported by distributors or customers to a prohibited country or resold to prohibited persons or entities.

Who Must Comply with OFAC Sanctions

The following two major categories of persons and entities must comply with the prohibition on conducting business transactions with sanctioned entities.

  1. U.S. persons and entities, including all citizens and permanent alien residents wherever located, persons located within the U.S. or its territories, U.S. business entities and their foreign subsidiaries, branches, and distributors, and foreign registered companies that are majority-owned by U.S. persons or entities.
  2. Foreign persons or entities operating outside the U.S. under certain circumstances, including the following:
    • foreign persons or entities that have the requisite level of contacts with the U.S. (such as engaging in transactions involving U.S. dollars or U.S. financial systems);
    • foreign persons or entities subject to “secondary sanctions;” and
    • foreign persons or entities providing material support or assistance to or facilitating a significant transaction with persons or entities that are subject to U.S. sanctions.

Four Key Steps to Compliance

While compliance policies and measures will vary depending on the type, structure, industry, product, or scope of your company’s global business, a good place to start is with implementing the four steps outlined below.

  1. Due diligence is key. Conduct a thorough review of your business agreements to ensure that you have no direct or indirect dealings with designated individuals or entities, and that your practices do not include the export of technology that is restricted or that involves dealing with Russian financial institutions.
  2. Be vigilant. Ensure you have robust compliance measures in place to screen third-parties that may be subject to sanctions.
  3. Stay ahead of the curve. Monitor and assess the developing situation and seek out legal advice if you are concerned about any potential violations, either directly or indirectly.
  4. It is a team effort. Remind your foreign distributors, contractors, partners, etc., of their obligation to comply with applicable U.S. sanctions in the context of the sale of U.S. products or services.

For additional information or clarification on the impact these sanctions may have on your business operations, please contact Vinita Mehra ([email protected]) or Humphrey Kweminyi ([email protected]). 

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