Starting last March with the issuance of Executive Order 13660, the United States began imposing sanctions against Russian interests because of the situation in Ukraine. The U.S. sanctions regime that began back then has now grown to include three executive orders, the Ukraine Related Sanctions Regulations in Title 31 of the CFR, four OFAC-issued Directives, two OFAC-issued General Licenses, forty-six OFAC-issued Q’s & A’s relating to one of the executive orders and several amendments to the Commerce Department’s Export Administration Regulations. The EU followed suit with a first set of regulations in March, with amendments in July and August, and yet another set of regulations just this month. Other countries, such as Canada, Switzerland and Japan, have issued their own sanctions.
Compliance is not easy.
The difficulties in complying are illustrated by just a sampling of the forty-six Q’s & A’s OFAC has felt impelled to issue to explain what the sanctions mean and how they are to be applied.
Q 370: “What do the prohibitions in Directives 1 and 2 mean? Are they blocking actions?”
Q 371: “What does OFAC interpret to be debt and equity …?”
Q 372: “Do Directives 1, 2, and 3 prohibit U.S. persons from entering into derivatives contracts linked to new debt or new equity issued by the entities subject to the Directives?”
Q 393: “Does OFAC consider counterparty credit risk associated with derivatives transactions that are authorized pursuant to General License 1A to Executive Order 13662 to constitute new debt?”
Q 405: “Does the prohibition on ‘otherwise dealing in new debt’ of longer than 30 days maturity (for persons subject to Directives 1 and 3) or 90 days (for persons subject to Directive 2) of SSI [Sectoral Sanctions Identification List] entities, their property, or their interests in property prohibit dealing in debt with maturity that exceeds the applicable authorized tenor in which the SSI entity is not directly or indirectly the borrower?”
Q 411: “What does the prohibition contained in Directive 3 under Executive Order 13662 mean? What is the scope of prohibited services?”
Q 413: “For purposes of Directive 4, how does OFAC define ‘deepwater’ projects that have the potential to produce oil?”
Q 414: “Does Directive 4 apply to projects that have the potential to produce gas?”
The difficulties of compliance are compounded by the Commerce Department’s action in adding some but not all the companies on OFAC’s SDN or SSI lists to the Commerce Department’s Entity List, subjecting them to prohibitions under the Export Administration Regulations that are far from uniform and prohibiting a number of previously permitted exports or reexports to Russian military entities.
Compliance is compounded still further by the EU’s sanctions relating to Russia because they deal with many of the same kinds of transactions as the U.S. targets but in ways that are far from identical to the way those transactions are treated under U.S. law. Needless to say, the sanctions other countries have issued are by no means parallel either.
For years, many in the economic sanctions bar have criticized OFAC for creating sanctions like those against Cuba, Iran and Sudan that fail to differentiate among the pressure points that might actually be effective in producing a desired result. In the case of the Russian sanctions, however, differentiation is the woof and warp of the sanctions fabric, and two agencies, OFAC and Commerce, are among the tailors but not necessarily working from the same pattern. If experience is any guide, those who run afoul of the sanctions are likely to find themselves in the cross-hairs of competing enforcement initiatives.
The Russian sanctions perfectly illustrate the adage about being careful what you wish for. For those subject to U.S. and EU sanctions and the sanctions issued by others, as many multinationals are, the fabric requires more stitching than anyone might ever have imagined.