On May 1, 2018, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) issued General License 12B (“GL 12B”) and General License 13A (“GL 13A”), replacing and superseding in their entirety General License 12A (“GL 12A”) and General License 13 (“GL 13”), respectively. These expanded general licenses are intended to relieve some of the challenges faced by US persons, including US financial institutions, in winding down activities with and divesting interests in certain targeted Russian Specially Designated Nationals (“SDNs”). Please see our prior blog posts concerning (i) the designation of certain Russian oligarchs, government officials, and entities, and the initial issuance of General License 12 and GL 13 here and (ii) the issuance of GL 12A and General License 14 here.
Changes Made by GL 12B (Maintenance and Wind Down Activities)
- Like the earlier GL12A, GL 12B still authorizes US persons to engage in certain activities before June 5, 2018 that are ordinarily incident and necessary to the maintenance and wind down of operations, contracts, or other agreements in existence as of April 6, 2018 (“Wind-Down Activities”) with 12 specified Russian SDNs (and entities owned 50% or more by those SDNs). (Those SDNs are: AgroHolding Kuban; Basic Element Limited; B-Finance Ltd.; EN+ Group PLC; JSC EuroSibEnergo; GAZ Group; Gazprom Burenie, OOO; Ladoga Menedzhment, OOO; NPV Engineering Open Joint Stock Company; Renova Group; Russian Machines; and United Company RUSAL PLC (“RUSAL”).) No new SDNs have been added and the deadline has not been extended. Also, with the exception of RUSAL (and entities 50% or more owned by RUSAL), payments to these Russian SDNs in furtherance of such Wind-Down Activities must still be blocked and placed in an interest-bearing account in the United States.
- What GL 12B does is to add language clarifying that: (i) US financial institutions may process a payment that is directly or indirectly to the account of a blocked US person identified in GL 12B at a US financial institution in accordance with the original wire transfer; and (ii) all funds in accounts of blocked US persons, including funds received on or after April 6, 2018, may be used for the Wind-Down Activities. FAQ 583, issued concurrently with GL 12B, states that OFAC is issuing GL 12B to address difficulties blocked US persons are having in accessing funds needed for the authorized Wind-Down Activities.
Changes Made by GL 13A (Divestment and Transfers of Interests)
- Like the earlier GL 13, GL 13A still authorizes certain transactions by US persons ordinarily incident and necessary to divest or transfer debt, equity, or other holdings in three specific Russian SDNs – EN+ Group PLC, GAZ Group, and RUSAL – to non-US persons, but extends the deadline from May 7, 2018 to June 6, 2018.
- In addition, GL 13A expands that authorization beyond the three “primary issuer” SDNs (EN+ Group PLC, GAZ Group and RUSAL) to include also the following three entities that issued debt and equity for them, namely Irkutskenergo, GAZ Auto Plant, and Rusal Capital Designated Activity Company (termed “Other Issuer Holdings”). Specifically, US persons may now also engage in transactions and activities ordinarily incident and necessary to divest or transfer to non-US persons debt, equity, or other holdings either (i) in the three primary SDNs or (ii) in entities that are directly or indirectly 50% or more owned by those three primary SDNs, provided the financial instruments were issued by any of Irkutskenergo, GAZ Auto Plant, and Rusal Capital Designated Activity Company. US persons may also facilitate such activities. The same deadline applies, i.e., before June 6, 2018. Note that GL 13A is limited to the three specified “Other Issuer Holding” subsidiaries, and does not apply to other entities that are 50% or more owned by any of the three primary Russian SDN issuers.
- Separately, GL 13A also authorizes US persons to make certain intermediary purchases or investments in debt, equity or other holdings in EN+ Group PLC, GAZ Group, RUSAL or the Other Issuer Holdings that are ordinarily incident and necessary to authorized divestment or transfer activities, including purchases of securities to close out a short position and settlement of “in-flight” transactions executed pre April 6, 2018 but that had not yet settled or cleared.
- OFAC also published three new FAQs, 583, 584 and 585, explaining these updates and revised several existing FAQs regarding these general licenses, the links to which are available here.
- None of these new/revised FAQs expressly addresses OFAC’s interpretation of the scope of permitted “maintenance” activities. Preliminary informal guidance from OFAC suggests that “maintenance” of operations may not be strictly limited to continuance of activities under pre-April 6 written commitments, but may allow continued business absent a written agreement to the extent related to business lines or services that were operational as of April 6, 2018.