On May 8, 2014, the US Treasury Department, Office of Foreign Assets Control (OFAC) issued the Ukraine-Related Sanctions Regulations (URSR), 31 C.F.R. Part 589. The URSR formally implement the sanctions set forth in Executive Orders 13660, 13661, and 13662.
President Obama has issued three executive orders with respect to the ongoing crisis in Ukraine:
- Executive Order 13660, issued March 6, 2014. As we have previously advised, this executive order provided for the blocking of persons involved in certain Ukraine-related activity, including threatening the territorial integrity of Ukraine, undermining of democratic processes, and misappropriation of state assets.
- Executive Order 13661, issued March 17, 2014. As we have previously advised, this executive order targeted certain Russian persons not necessarily involved in the Ukraine situation, including Russian government officials and persons involved in the Russian arms sector.
- Executive Order 13622, issued March 20, 2014. As we have previously advised, this executive order authorized the Treasury Department to impose sanctions against persons in any sector of the Russian economy as it deems appropriate, including the financial services, energy, metals and mining, engineering, and defense sectors.
The executive orders authorize OFAC to designate any person “owned or controlled” by a sanctioned person, or any person who has provided material assistance to or acted on behalf of a sanctioned person.
OFAC has made extensive designations under Executive Orders 13660 and 13661, which we have previously summarized in part. To date, OFAC has not sanctioned any sectors of the Russian economy under Executive Order 13662.
Ukraine-Related Sanctions Regulations
The URSR formally implement Executive Orders 13660, 13661, and 13662 at new 31 C.F.R. Part 589, but do not elaborate upon them or provide detailed interpretive guidance. Section 589.201 provides that “[a]ll transactions prohibited pursuant to Executive Order 13660 of March 6, 2014, Executive Order 13661 of March 16, 2014, and Executive Order 13662 of March 20, 2014, are also prohibited pursuant to this part.”
Section 589.406 of the URSR formally implements OFAC’s “50 percent rule,” which provides that any entity in which a sanctioned person owns a 50 percent or greater interest is blocked, even if OFAC has not publicly designated the entity as a Specially Designated National (SDN). Therefore, US persons will be restricted from engaging in any transaction or dealing with such entities directly or indirectly owned by sanctioned persons, and any assets of such entities that are in the United States or within the possession or control of US persons will be frozen.
The URSR also set forth general licenses authorizing certain activity, including:
- Transfer of funds between blocked accounts held in the same name, provided the transfers are within the United States (§ 589.504).
- Debit from a blocked account by a US financial institution for certain service charges (§ 589.505).
- Provision of certain legal services (§ 589.506) to sanctioned persons, including counseling on sanctions compliance and representation in legal, arbitral, or administrative proceedings. Any other type of legal services requires a specific license issued by OFAC.
- Provision of nonscheduled emergency services in the United States to sanctioned persons, provided that receipt of payment for such services must be specifically authorized (§ 589.508).
The URSR also contain certain interpretive provisions typical of other sanctions regimes, including provisions noting that property is no longer blocked after it is transferred away from a sanctioned person pursuant to a licensed or authorized transaction (§ 589.403); property transferred or attempted to be transferred to a sanctioned person is blocked (§ 589.403); transactions ordinarily incident to licensed transactions are authorized (§ 589.404); and setoffs against blocked property are prohibited (§ 589.405).
Other sections of the URSR incorporate standard provisions and definitions typically found in other OFAC sanctions regimes.
In the Federal Register notice issuing the URSR, OFAC notes that it intends to issue a more complete set of regulations in the future, which could include additional interpretative guidance, definitions, statements of licensing policy, and general licenses.
The URSR formally implement the Ukraine-related sanctions that had previously been effective pursuant to Executive Orders 13660, 13661, and 13662. The regulations establish a framework within which OFAC may issue interpretive guidance and general licenses, which could authorize certain types of activity that is currently restricted. The flexibility to issue general licenses could be especially significant in the event that OFAC imposes sector-wide sanctions under Executive Order 13662.
It should be noted that the URSR do not implement the Russia-related export restrictions recently imposed by the US Commerce and State Departments, on which we have previously advised. Such action would be within the purview of the Commerce Department’s Bureau of Industry and Security and the State Department’s Directorate of Defense Trade Controls, respectively.