OFAC Issues Revised Guidance Amid Confusion Over Ukraine-Related Sanctions

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In the wake of many questions and some confusion highlighted by the recent and ongoing Ukraine-Related Sanctions, this week the U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) issued Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property are Blocked. OFAC states that the Revised Guidance has been issued in response to inquiries it has received.

The Revised Guidance reaffirms that property blocked pursuant to Executive Orders or OFAC regulations is subject to a sweeping definition and includes “any property or interest in property, tangible or intangible, including present, future or contingent interests. A property interest subject to blocking includes interests of any nature whatsoever, direct or indirect.”

OFAC goes on to explain that a blocked person (both individuals and entities) is “considered to have an interest in all property and interests in property of an entity in which such blocked persons own, whether individually or in the aggregate, directly or indirectly, a 50 percent or greater interest.”

Therefore, OFAC considers an entity “owned in the aggregate,” whether directly or indirectly, 50% or more by one or more blocked persons to be a blocked person as well. In other words, an entity that is not identified on any of the U.S. Government’s “Lists” is a blocked (sanctioned) party if a blocked person (an individual or entity that appears on one of the Lists) owns 50% or more of the unlisted entity.

The practical difficulty in this coping with this broad definition is that it this rule covers aggregated and indirect ownership interests. It is not difficult to consider how even a rather simple ownership structure of a particular entity, say in Russia, might prohibit a U.S. company from accepting a recently received purchase order if that Russian entity is owned by 4 other entities in which a blocked person owns, through other entities or interests, a 50% stake of the Russian entity that submitted the purchase order.

Another unsettling statement in OFAC’s Revised Guidance is the warning to U.S. persons to proceed with “caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest.” So if the non-blocked/unlisted entity is managed by a President/CEO who is a blocked person who also owns a 30% interest in the company, OFAC seems to be strongly suggesting that U.S. companies avoid transactions with such entities.

The OFAC Revised Guidance does not represent a significant new development regarding economic sanctions administered and enforced by OFAC, but it does publicly illustrate the need for U.S. persons (including non-U.S. persons and companies that are subject to U.S. laws) to engage in enhanced due diligence and documenting those efforts before proceeding with a transaction, whether with a customer or other business partner in Russia and other countries where there is a targeted U.S. economic sanctions regime in place.

For assistance with understanding and complying with Ukraine-related and other economic sanctions regulations and Executive Orders, as well as representation before OFAC in investigations, civil penalty, and voluntary self-disclosures, please contact Jon P. Yormick, Attorney and Counsellor at Law, jon@yormicklaw.com or by calling +1.866.967.6425 (Toll free in Canada & U.S.) or +1.216.269.5138 (mobile).

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