Hannah Newman
Associate Editor
Loyola University Chicago School of Law, JD 2024
On June 6, 2022, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) released new and revised guidelines regarding the Russian investment ban established by Executive Orders 14071, 14066, and 14068. As a result of the executive orders, sanctions can be imposed on individuals or entities determined to have operated in the accounting, trust and corporate formation services, or management consulting sectors of the Russian Federation economy. OFAC has consistently been updating and revising the guidelines to keep the guidelines as clear and consistent as possible, in an attempt to keep Americans doing business in Russia out of legal trouble.
What do these new and amended FAQs mean?
One of the new FAQs defines what is meant by a “new investment” in the context of the ban. It has been clarified in FAQ 1049 that a “new investment” is one made on or after the respective effective dates of the ban.
New FAQs 1050, 1051, 1052, and 1053 clarify what activities are not prohibited under the ban and may continue operating as usual. FAQ 1050 lists activities that are considered maintenance of investments and not subject to prohibitions under the ban. Typically, maintenance includes all transactions that fall under performing under an agreement prior to the cutoff dates. This would not include expansion of pre-existing agreements, but rather only performing or modifying already existing agreements.
FAQ 1051 explains that the export or import of goods, services, or technology, or the related sales or purchases to or from Russia, are not prohibited. However, these transactions must follow ordinary commercial sales terms. Additionally, trade finance products, including commercial letters of credit and documentary collections may be used within these transactions. FAQ 1052, along the same lines as FAQ 1051, confirms that US individuals may continue funding subsidiaries and affiliates for maintenance purposes in Russia.
Further, FAQ 1053 clarifies that transactions relating to the divestment or facilitation of pre-existing investments in Russia are not banned. This means that US individuals and financial institutions may facilitate a seller winding down or divesting already existing investments in Russia, but may not acquire an equity interest in an entity located in Russia.
Amended FAQs
Two FAQs were amended to increase clarity and accuracy. Old FAQ 1019 addressed the ban within the scope of the energy sector and defined new investments in the energy sector in the Russian Federation. However, amended FAQ 1019 has removed this definition and now directs the public to FAQs 1049-1055 for the proper guidance on investment prohibitions related to the energy sector. Further, FAQ 1005 was amended to add clarity on the ban of US individuals’ purchase of debt or equity securities issued by Russian entities.
Cryptocurrency: Another Concern Addressed by the Sanctions
Cryptocurrency has also been an area of concern during this time, as cryptocurrency often poses opportunity for sanction evasion. Individuals sometimes use cryptocurrency to evade sanctions and to circumvent typical detection mechanisms. Even though sanction evasion is not a new fear because of the Russia Ukraine conflict, it is unclear how often cryptocurrency has been used to evade sanctions. Regardless, the US is intent on controlling the cryptocurrency space and placing sanctions on those who violate the guidelines. This is important to do so because, as stated by the Cyber Digital Task Force, the space presents a “troubling new opportunity for individuals and rogue states to avoid international sanctions and to undermine traditional financial markets, thereby harming the interests of the United States and its allies.”
A Job Well Done by OFAC
These FAQs and other reports created by various governmental agencies are crucial to the average citizen understanding what is allowed or not allowed during this time of conflict. For these sanctions to be most effective, it is important that they are accessible to every individual who may be doing business in these spaces. Individuals will not refrain from conducting business in these manners if they are either unaware of the sanctions they may face or the risk in doing so. While the FAQs may not put direct fear in those conducting business with Russian organizations or individuals, they do help clarify what exactly is prohibited by the various executive orders and why these acts are prohibited.
For more information about the guidelines and details regarding the Russian Investment Ban, see the FAQ section of the OFAC website.