On May 7, OFAC revised FAQs 395 and 419 regarding SSIs under the Ukraine-related sanctions. The changes are highlighted below.
OFAC expanded the scope of its guidance concerning letters of credit involving entities subject to Directives 1, 2 and 3. OFAC previously indicated that “U.S. persons may advise or confirm a letter of credit issued on behalf of a non-sanctioned entity in which an entity subject to Directive 1, 2, or 3 is the beneficiary (i.e., the exporter or seller of the underlying goods) because the subject letter of credit does not represent an extension of credit to the SSI entity.” OFAC revised the FAQ to state that “U.S. persons may deal in (including act as the advising or confirming bank or as the applicant (i.e., the purchaser of the underlying goods or services)) or process transactions under a letter of credit in which an entity subject to Directive 1, 2, or 3 is the beneficiary (i.e., the exporter or seller of the underlying goods or services) because the subject letter of credit does not represent an extension of credit to the SSI entity.”
Moreover, OFAC expanded the scope of the FAQ so that it addresses SSI entities not only as beneficiaries but also as issuing banks. OFAC cautioned that if an SSI entity is the issuing bank (i.e., the bank providing credit to the importer), U.S. persons seeking payment or reimbursements from the SSI entity under a letter of credit should ensure that the payment terms do not exceed 30 or 90 days, as applicable. OFAC provides an example of a U.S. bank acting as the negotiating bank for a letter of credit issued by an SSI entity subject to Directive 1. Upon receipt of export-related documents that satisfy the terms of the letter of credit, negotiating banks generally pay the seller or exporter and seek reimbursement from the issuing bank. In that scenario, OFAC states that the U.S. bank should ensure that it receives reimbursement from the SSI entity within the allowable 30-day debt limit as required under Directive 1.
OFAC also revised FAQ 419, relating to how U.S. persons should account for the 30- and 90-day debt prohibitions under Directives 1, 2 and 3 as they relate to payment terms for certain commercial transactions, such as sales of goods to SSI entities. OFAC strengthened its statement relating to U.S. persons offering payment terms of longer than 30 or 90 days, as applicable, to an SSI entity by stating that it generally constitutes a prohibited dealing in debt of the SSI entity. In its prior statement, OFAC noted that such payment terms may constitute a violation.
OFAC also provides more detailed guidance concerning the payment terms for transactions involving the sale of goods to an SSI entity, the provision of services to and subscription arrangements involving SSI entities, and progress payments for long-term projects. In this regard, OFAC notes that these types of payment terms should utilize a “value date of not later than 30 or 90 days” from either the point at which title or ownership of the goods has transferred to the SSI entity (for payments relating to sales of goods) or the date a final invoice (or each final invoice) is issued (for payments relating to services, subscription arrangements, and progress payments). It is unclear what OFAC means by its use of the phrase “value date.”