573. A person designated under E.O. 13661 or E.O. 13662, or blocked by operation of law pursuant to OFAC’s 50 percent rule on April 6, 2018 as a result of such a designation holds an ownership interest of less than fifty percent in a U.S. company. In such a scenario, how does the U.S. company comply with U.S. sanctions?
If one or more blocked persons in such a scenario does not hold a 50 percent or more interest in the U.S. company, the U.S. company is not itself blocked, but the U.S. company must block all property and interests in property in which the blocked person has an interest. See OFAC’s 50 percent rule guidance. Depending on the nature of the property blocked by the U.S. company, the U.S. company may be able to continue operating, but any payments, dividends, or disbursement of profits to the blocked person would be prohibited and, to the extent such payments are required, must be placed in a blocked account at a U.S. financial institution. If a U.S. company is in such a scenario, the U.S. company is encouraged to contact OFAC to determine whether a license or other authorization is required.
Although E.O. 13662 provides OFAC the authority to impose sectoral sanctions on specified persons operating in sectors of the Russian economy as implemented through Directives 1-4, OFAC may also designate persons as blocked under E.O. 13662. Unlike with SSI entities, U.S. persons must block the property and interests in property of any person designated as blocked pursuant to E.O. 13662. Persons designated as blocked under E.O. 13662 are added to the SDN List. SSI entities on the SSI List are identified with the descriptive text “Executive Order 13662 Directive Determination,” followed by the applicable Directive.
568. I am a U.S. person, and I am also an employee, or sit on the board, of an entity that was either designated under E.O. 13661 or E.O. 13662, or blocked by operation of law pursuant to OFAC’s 50 percent rule on April 6, 2018 as a result of such a designation. Can I continue to be employed by or sit on the board of a blocked entity? What am I allowed to do with respect to severing ties with the entity?
Absent authorization from OFAC, your continued employment or board membership with such an entity is prohibited. You should review the actions you view as necessary to sever your ties with the blocked entity against applicable OFAC regulations, authorizations, and public guidance. If, after conducting that review, you decide that any of the contemplated activities necessary to sever the relationship are prohibited, you should apply for a specific license. If you are unsure about whether authorization is required, contact OFAC.
542. How does OFAC interpret the following terms as used in section 5 of the Ukraine Freedom Support Act (UFSA), as amended by section 226 of the Countering America’s Adversaries Through Sanctions Act (CAATSA), now incorporated into § 589.209 of the Ukraine-/Russia-Related Sanctions Regulations (URSR): “significant transaction,” “significant financial transaction,” and “facilitated?”
“Significant transaction” and “significant financial transaction”– section 589.413 of the URSR states that for purposes of the UFSA prohibitions in § 589.209, the Secretary of the Treasury will consider the totality of the facts and circumstances when determining whether transactions or financial transactions are “significant.” As a general matter, some or all of the following factors may be considered: (1) the size, number, and frequency of the transaction(s); (2) the nature of the transaction(s); (3) the level of awareness of management and whether the transaction(s) are part of a pattern of conduct; (4) the nexus between the transaction(s) and a person subject to sanctions imposed by the United States with respect to the Russian Federation as described in § 589.413(d)(2)–(3); (5) the impact of the transaction(s) on statutory objectives; (6) whether the transaction(s) involve deceptive practices; and (7) such other factors that the Secretary of the Treasury deems relevant on a case-by-case basis.
For purposes of section 5 of UFSA as implemented by § 589.209, a transaction is not significant if U.S. persons would not require a specific license from OFAC to participate in it.
For purposes of § 589.209(b), a transaction in which the person subject to sanctions is identified on the Sectoral Sanctions Identifications (SSI) List or the Non-SDN Menu-Based Sanctions (NS-MBS) List will only be potentially considered significant if: 1) the transaction involves deceptive practices (i.e., attempts to obscure or conceal the actual parties or true nature of the transaction(s), or to evade sanctions); and 2) such person is subject to sanctions pursuant to section of UFSA, as described in § 589.413(d)(2).
OFAC will generally interpret the term “financial transaction” broadly to encompass any transfer of value involving a financial institution. For example, the following is a non-exhaustive list of activities that OFAC would consider to be a “financial transaction”:
- The receipt or origination of wire transfers;
- The acceptance of commercial paper (both retail and wholesale), and the clearance of such paper (including checks and similar drafts);
- The receipt or origination of ACH or ATM transactions;
- The holding of nostro, vostro, or loro accounts;
- The provision of trade finance or letter of credit services;
- The provision of guarantees or similar instruments;
- The provision of investment products or instruments or participation in investments; and
- Any other transactions for or on behalf of, directly or indirectly, a person serving as a correspondent, respondent, or beneficiary.
“Facilitated” – For purposes of implementing section 5 of UFSA, OFAC will generally interpret the term “facilitated” broadly. “Facilitated” refers to the provision of assistance for certain efforts, activities, or transactions, including the provision of currency, financial instruments, securities, or any other transmission of value; purchasing; selling; transporting; swapping; brokering; financing; approving; guaranteeing; the provision of other services of any kind; the provision of personnel; or the provision of software, technology, or goods of any kind.
Date Updated: April 29, 2022