U.S. SANCTION REGULATION COMPLIANCE BY NON-BLOCKED COMPANIES

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U.S. economic sanctions are global, evolving and adopted in real time without approval of the U.S. Congress and reliance on court decisions. These sanctions are based on federal regulations, directives, statutes, and U.S. president’s executive orders.

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They are imposed not on a country but on targeted economic sectors, private and state-owned or controlled entities, and individuals. Each tranche of sanctions increases a number of companies which may become subject to the sanctions because they conduct business transactions with blocked entities and persons. But the constantly updated OFAC’s Specially Designated Nationals and Blocked Persons List (“SDN” List) does not identify all of the blocked entities. According to the OFAC's 50% ownership regulation, U.S. persons are prohibited to engage in any transactions with SDNs and entities that are owned 50 percent or more, directly or indirectly, by one or more SDNs, even if OFAC does not specifically list those entities as SDNs.

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Such lack of blocked SDN person/entity disclosure necessitates practically each U.S. person to find out the identities of owners and their percentage of ownership (whether owned directly or indirectly through other parties) in the companies they are dealing with.

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The Tekapult’s summarized “Do” and “Do Not” key points of U.S. regulations on economic sanctions for their fast comprehension in the abbreviated FAQ format as illustrated herein.

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Sanctions’ Enforcement: The U.S. Office of Foreign Assets Control (“OFAC”) enforces economic sanctions programs by blocking of assets and trade restrictions.

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Prohibited transactions are trade, business or financial transactions in which U.S. persons may not engage unless authorized by OFAC or expressly exempted by statute.

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Exceptions to the prohibitions - Licenses: OFAC’S general licenses authorizing category-based transactions and specific licenses on a case-by-case basis. 31 C.F.R. 501.801. License Application Page. U.S. persons may not provide such services to persons listed on OFAC’s SDNs and Blocked Persons List (SDN) without an OFAC specific or general license/ authorization to engage in a transaction that otherwise would be prohibited. 

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Regulations Apply to All U.S. persons (individuals and organizations), who are responsible for ensuring that they do not undertake a business dealing with an individual or entity on the SDN list, such as:

• All U.S. citizens and permanent residents (green card holders),

• All persons located in the United States,

• Overseas branches of U.S. companies, and

• Non-U.S. subsidiaries of U.S. companies for Cuba and North Korea programs,

 

Penalties for Noncompliance with OFAC Administered Statutes:

• Criminal violations range from $50,000 to $10,000,000 and/or up to 30 years imprisonment for willful violations.

• Civil penalties: up to $1,075,000 per violation.

• Russia-Related Blocking Sanctions issued in connection to Russia's invasion of Ukraine taken pursuant to E.O. 14024.

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The Department of the Treasury's Office of Foreign Assets Control (“OFAC”)

• Administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, and other threats to the national security, foreign policy or economy of the United​ States.

• Publishes lists of individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries.​

• Publishes lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country specific.

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Blocked Persons List. Such individuals’ and companies’ ("Specially Designated Nationals" or "SDNs.") assets are blocked and U.S. persons are generally prohibited from dealing with them. A growing “SDN list" includes approximately of about 7,000+ names of companies and individuals who are connected with the sanctions’ targets. Different prohibitions are associated with other lists.

 

Covered persons: U.S. persons and foreign persons other than any person

• Whose property and interests in property are blocked per OFAC Sanctions Regulations, including persons listed on OFAC's List of Specially Designated Nationals and Blocked Persons, or

• To whom a U.S. person is prohibited from exporting services or

• From whom a U.S. person is prohibited from importing services per OFAC Sanctions Regulations. 31 C.F.R. Chapter V.

 

Blocking / "freezing" the targeted property means that:

• The property title remains with the target.

• The exercise of ownership-related powers and privileges is prohibited without OFAC authorization.

• It immediately imposes an across-the-board prohibition against transfers or dealings of any kind with regard to the property.

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Blocked Entities: Entities that a person on the SDN List owns (a direct or indirect ownership interest of 50% or more) are also blocked, regardless of whether that entity is separately named on the SDN List.

Prohibition. U.S. persons are prohibited from dealing with SDNs wherever they are located and all SDN assets are blocked.

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U.S. persons may provide and continue to provide the services as to U.S. sanctions laws to covered persons regardless of whether:

• The U.S. person is self-employed,

• Employed by a U.S. entity, or

• Employed by a non-U.S. entity, and

• The U.S. person is either "inhouse" personnel or is an external attorney, consultant, or other person providing such services.

 

Allowed Services to be Provided to Covered Persons include:

• Lecture on the topic of U.S. sanctions laws in a non-sanctioned third country, and

• A U.S. person compliance officer working at a covered person entity may advise its employees and business partners on U.S. sanctions laws.

• Provide a legal opinion, certification, guidance, or other clearance as to the specific transactions’ legality under U.S. sanctions laws, executive orders and regulations regardless of whether it would be prohibited for a U.S. person to engage in those transactions.

• Research of online commercial databases and published reference materials to opine on the transactions’ legality under U.S. sanctions laws. provided there is no importation or exportation of services where such transactions are not OFAC-authorized or prohibited by OFAC Sanctions Regulations. 498. The Compliance Services Guidance.

 

Illegal Research. A U.S. person may not conduct research that otherwise involves the importation or exportation of services where such transactions are prohibited unless such transactions are authorized by OFAC. 499. Research exceeds the scope of the Compliance Services Guidance.

Prohibited services by U.S. persons, wherever located, include:

• Approve, finance, facilitate, or guarantee any transaction by a foreign covered person where such transaction would be prohibited by OFAC Sanctions Regulations if performed by a U.S. person or within the United States.

• U.S. persons could not vote on a transaction (e.g., as a board member), or execute transaction documents (other than as to the transaction legality), where the transaction would be prohibited if performed by a U.S. person or within the United States.

• Solicit information regarding a transaction from covered persons, such as: the currency involved; any involvement of U.S. persons, directly or indirectly; and the identity of the covered person’s counterparty. 498. The Compliance Services Guidance.

• Conduct research involving the importation or exportation of services where such transactions are prohibited unless such transactions are authorized by OFAC. 499. Research exceeds the scope of the Compliance Services Guidance.

• Engage in an exportation of services where such services are prohibited by OFAC Sanctions Regulations (31 C.F.R. chapter V).

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Activities Subject to Secondary Sanctions Risk. Non-U.S. persons may be exposed to secondary sanctions risk and could be designated for property-blocking sanctions for assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of persons blocked pursuant to the Executive Order (E.O.) 14024.

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Since transactions with SDNs are not permitted, each company must conduct due diligence investigation of all persons which provide services and conduct transactions with them to ascertain whether they are blocked, or 50%+ owned by the blocked entities.

 

Tekapult’s regulations’ compliance digests are periodically amended since the U.S. sanctions regulations are subject to change and updates without any pre-publication notice.

 

/Boris Parad/

 

 

U.S. REGULATIONS COMPLIANCE: PAYMENTS / TRANSACTIONS WITH SANCTIONED ENTITIES

https://home.treasury.gov/policy-issues/financial-sanctions/faqs/topic/1501