A year ago we posted an overview of OFAC’s Ukraine and Russia-related sanctions program, located here. Although the Executive Orders and program structure described in that post have not been changed or expanded, it is important to remember that (1) the existing prohibitions remain in place until further notice and (2) individuals and entities are added and removed from OFAC’s SDN and SSI lists on a regular basis. This means that if you are doing business with companies that may be located in or may have ties to Ukraine, Crimea, or Russia, you have an ongoing responsibility to ensure that you are not transacting with a prohibited party or exporting to Crimea in violation of OFAC’s regulations or associated State and Commerce policies.
Since implementing the Ukraine/Russia program OFAC has noted certain evasive practices used by entities with ties to Crimea attempting to circumvent the sanctions. These include using the disputed status of Crimea (Western countries maintain it is still part of Ukraine while Russia has annexed and occupied the peninsula) in order to hide the fact that they are located in the region. In light of the situation, OFAC published a Crimea Sanctions Advisory that includes three suggested protective measures you can take to avoid inadvertently involving your company in such transactions and remain compliant:
- Ensuring that transaction monitoring systems include appropriate search terms corresponding to major geographic locations in Crimea and not simply references to “Crimea.” For example, payment instructions or trade documents may reference major cities or ports located in Crimea, and interdiction filters may not flag such transactions for review if the filters do not include an appropriately expansive list of search terms.
- Requesting additional information from parties (including financial institutions, corporate entities, and individuals) that previously have violated or attempted to violate U.S. sanctions on Crimea. Such prior conduct could include, for example, routing transactions to or through U.S. financial institutions with inaccurate or incomplete address information for Crimean individuals or entities.
- Clearly communicating U.S. sanctions obligations to international partners (in both the financial and trade sectors) and discussing OFAC sanctions compliance expectations with correspondent banking and trade partners. Such communications should include, for example, a description of the prohibition on the direct and indirect exportation or reexportation of goods, technology, and services (including financial services) from the United States to Crimea.
Also, remember that OFAC’s 50% rule applies in this context. This means that in addition to parties listed on the SDN and SSI lists, U.S. persons cannot do business with any entity if a prohibited party directly or indirectly owns 50% (or more). Requiring potential business partners with possible ties to Ukraine, Crimea, or Russia to complete a compliance questionnaire that includes questions regarding relevant ownership interests is recommended in order to spot potential red flags and ensure you are not transacting with an entity owned by a prohibited party. Furthermore, the fact that these lists are constantly updated coupled with the reality that ownership interests in companies are regularly bought and sold means that your first screening of a potential business partner should not be your last: incorporating periodic screenings of business partners in this high-risk region of the world into your procedures is recommended to ensure continued compliance.