Accounting, Trust and Corporate Formation, and Management Consulting Services Ban

On May 8, 2022, the US Department of Treasury’s Office of Foreign Assets Control (“OFAC”), in consultation with the US Department of State, issued a Determination Pursuant to Section 1(a)(ii) of Executive Order 14071 (“EO 14071 Determination”) determining that the prohibitions under Section (1)(a)(ii) of Executive Order (“EO”) 14071 (our previous blog regarding EO 14071 can be found here) shall apply to accounting, trust and corporate formation, and management consulting services.

The EO 14071 Determination then goes on to specifically prohibit:

the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in the Russian Federation.

OFAC’s press release explaining the foreign policy background of these sanctions is available here.

OFAC FAQ 1034 defines these services as follows:

  • “Accounting services” – includes services related to the measurement, processing, and transfer of financial data about economic entities.
  • “Trust and corporate formation services” – includes services related to assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for other persons to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts. Please note that all of these activities are common activities of trust and corporate service providers (TCSPs), although they may be provided by other persons.
  • “Management consulting services” – includes services related to strategic advice; organizational and systems planning, evaluation, and selection; marketing objectives and policies; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.

Significantly, the EO 14071 Determination excludes (and therefore does not prohibit) the following:

(1) any service to an entity located in the Russian Federation that is owned or controlled, directly or indirectly, by a United States person;

(2) any service in connection with the wind down or divestiture of an entity located in the Russian Federation that is not owned or controlled, directly or indirectly, by a Russian person.

This prohibition takes effect at 12:01 a.m. eastern daylight time on June 7, 2022, and OFAC issued General License No. 34 (“GL 34”) to authorize the wind down of these services by 12:01 a.m. eastern daylight time, July 7, 2022.

In conjunction with the EO 14071 Determination, OFAC issued two general licenses (“GLs”) authorizing certain transactions related to these services.

  • As mentioned above, GL 34 authorizes, subject to certain conditions, transactions ordinarily incident and necessary to the wind down of the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a US Person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in Russia that are prohibited by Section 1(a)(ii) of EO 14071. This GL does not authorize any transactions involving any person designated on OFAC’s Specially Designated Nationals and Blocked Persons List (“SDNs”). GL 34 expires at 12:01 a.m. eastern daylight time, July 7, 2022.
  • GL 35 authorizes, subject to certain conditions, transactions ordinarily incident and necessary to the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a US Person, wherever located, of credit rating or auditing services to any person located in Russia prohibited by Section 1(a)(ii) of EO 14071. GL 35 does not authorize any transactions involving any SDNs. GL 35 expires at 12:01 a.m. eastern daylight time, August 20, 2022.

Given the breadth of these services bans, they are likely to affect many parties engaged in the provision of services that meet the definitions above whether or not the service provider itself can be categorized as, e.g., an accountant or a management consulting firm. In addition, we note that these services bans were agreed upon in coordination with the G7 such that services bans that may be similar in certain aspects and different in others are expected in new packages of EU sanctions and UK sanctions to be issued.

In parallel with the above determination, OFAC, in consultation with the US Department of State, determined that the same service sectors — (i) accounting, (ii) trust and corporate formation services, and (iii) management consulting sectors of the Russian economy — are subject to blocking sanctions pursuant to Section 1(a)(i) of EO 14024, Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation. This is effective as of May 8, 2022, but does require that OFAC make SDN designations and does not apply automatically to any party in these sectors.

New SDN Designations

OFAC designated as SDNs individuals and entities “critical to Russia’s ability to wage war against Ukraine.” These include the board members of two major Russian banks (Gazprombank and Public Joint Stock Company Sberbank of Russia), a Russian state-owned bank (Joint Stock Company Moscow Industrial Bank) and 10 of its subsidiaries, a state-supported weapons manufacturer (Limited Liability Company Promtekhnologiya), and three of Russia’s state-controlled television stations (Joint Stock Company Channel One Russia, Joint Stock Company NTV Broadcasting Company, and Television Station Russia-1).

Other Russia-related GLs

OFAC also updated and reissued GL 25A and issued GL 33.

  • GL 25A, which replaces GL 25 in its entirety, subject to conditions, authorizes certain transactions ordinarily incident and necessary to the receipt or transmission of telecommunications involving Russia that are prohibited by the Russian Harmful Foreign Activities Sanctions Regulations. This authorization includes the exportation, reexportation, sale, or supply of services, software, hardware, or technology incident to the exchange of communications over the internet, such as instant messaging, videoconferencing, chat and email, social networking, sharing of photos, movies, and documents, web browsing, blogging, web hosting, and domain name registration services, directly or indirectly, from the United States or by US persons, wherever located, to Russia. GL 25A specifically excludes certain transactions, such as the opening or maintaining of a correspondent account or payable-through account for or on behalf of any entity subject to Directive 2 of EO 14024.
  • GL 33 authorizes, subject to conditions, certain transactions ordinarily incident and necessary to the wind down of operations, contracts, or other agreements involving (i) Joint Stock Company Channel One Russia, (ii) Joint Stock Company NTV Broadcasting Company, (iii) Television Station Russia-1, or (iv) any entity 50% or more owned, directly or indirectly, individually or in the aggregate, by one or more of the aforementioned parties. GL 33 expires at 12:01 a.m. eastern daylight time, June 7, 2022.

New FAQs

In addition to FAQ 1034 (mentioned above), OFAC published 7 additional new FAQs: FAQ 1033, 1035, 1036, 1037, 1038, 1039, and 1040. These FAQs address the scope of the relevant prohibitions under EO 14024 and EO 14071 Determination and the scope of authorizations of certain relevant GLs.