On April 29, 2022 the US Department of Treasury’s Office of Foreign Assets Control (“OFAC”) announced the publication of a Final Rule that reissued and renamed the Ukraine-/Russia-Related Sanctions Regulations (“Reissued Regulations”) and updates to related public guidance. Found at 31 C.F.R. Part 589, the Reissued Regulations took effect on May 2 and have been expanded to include a more comprehensive set of regulations, including additional interpretive and definitional guidance, general licenses, and other regulatory provisions. The Reissued Regulations primarily address the US sanctions targeting Russia that have been implemented since 2014 and are separate from the Russian Harmful Foreign Activities Sanctions Regulations at 31 C.F.R. Part 587 that implement Executive Order (“EO”) 14024 and subsequent Russia-related Orders issued in 2022.
The Reissued Regulations now incorporate Directives 1, 2, 3, and 4 of EO 13662 in Sections 589.202-589.205. The Reissued Regulations also include in Section 589.521 the former General License (“GL”) 1B, which authorizes certain transactions involving derivative products linked to persons subject to Directives 1, 2, or 3 under EO 13662.
In addition, OFAC added four new Russia-related GLs into the Reissued Regulations, which the agency says do not represent a significant alteration of US foreign policy. The new Russia-related GLs are as follows:
- Sections 589.509, 589.510, and 589.511 incorporate GLs that respectively authorize certain transactions relating to investment and reinvestment of blocked assets; official business of the US government that would otherwise be prohibited under the Reissued Regulations; and official business of certain international organizations and entities that would otherwise be prohibited under the Reissued Regulations.
- Section 589.521 authorizes transactions related to closing a correspondent or payable-through account that may be required pursuant to Section 589.209.
In Sections 589.206-589.208, the Reissued Regulations incorporate the prohibitions of EO 13685 (which imposes US comprehensive sanctions targeting Crimea). The Reissued Regulations incorporate GLs 4, 6, 7, 8, and 9 that were previously found on OFAC’s website. With respect to the Crimea region, these GLs authorize the exportation or reexportation of agricultural commodities, medicine, medical supplies, and replacement parts; noncommercial, personal remittances; operation of certain bank accounts; transactions related to telecommunications and mail; and exportation of certain services and software incident to internet-based communications. OFAC added three new Crimea-related GLs to the Reissued Regulations: Sections 589.518, 589.519, and 589.520 respectively authorize transactions necessary and ordinarily incident to publishing; emergency landings and air ambulance services; and certain transactions in support of nongovernmental organizations’ activities.
Section 589.201 has been significantly expanded in the Reissued Regulations to include provisions of the Ukraine Freedom Support Act of 2014, the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014, and sections of title II of the Countering America’s Adversaries Through Sanctions Act. These provisions provide various authorities for OFAC to impose secondary sanctions related to Russia (e.g., designation as a “Specially Designated National” (“SDN”)).
Section 589.209 of the Reissued Regulations details prohibitions or strict conditions related to US correspondent or payable-through accounts that OFAC can impose on foreign financial institutions (“FFIs”) that are determined to engage in significant transactions and certain activities for or on behalf of certain SDNs. Should OFAC impose strict restrictions on US correspondent or payable-through accounts for a FFI, OFAC will add that FFI to the List of FFIs subject to the Correspondent Account or Payable-Through Account Sanctions (“CAPTA List“) on OFAC’s website and publish the name of the FFI in the Federal Register along with the applicable prohibition or strict condition(s).
Finally, OFAC amended Frequently Asked Questions (“FAQs”) 418, 541, 542, 543, 545, and 546 to clarify changes to the Reissued Regulations and provide updated guidance on EO 13662 Directives incorporated into the Reissued Regulations. FAQ 418 has been updated to align with the definition of “shale projects” now found in Section 589.334 of the Reissued Regulations, which is relevant for the prohibitions in Directive 4 of EO 13662 (now Section 589.205). According to OFAC’s new guidance, “shale projects” include projects that have the potential to produce oil from resources located in shale formations or from resources located in fine-grained sedimentary rock formations including shale, limestone, dolomites, sandstones, and clay. With this revision, OFAC removed from FAQ 418 the guidance that Directive 4’s prohibitions do “not apply to exploration or production through shale to locate or extract crude oil (or gas) in reservoirs.”