On Monday, April 23, 2018, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued a new general license that expands the ability of companies to wind down their affairs with United Company RUSAL PLC and its subsidiaries (collectively Rusal). Specifically, this new license authorizes all transactions and activities “ordinarily incident and necessary to the maintenance or wind down of operations, contracts, or other agreements, including the importation of goods, services, or technology into the United States, involving” Rusal that were in effect prior to April 6, 2018. Such transactions and activities must be completed by “12:01 a.m. eastern daylight time, October 23, 2018.”
Rusal, one of the world’s largest aluminum producers, was sanctioned by OFAC and added to the Specially Designated National List (SDN List) on April 6 for its entanglement with Russian oligarch Oleg Deripaska. Rusal has petitioned OFAC for its removal from the SDN List and OFAC has signaled that such delisting would be possible if Oleg Deripaska divests his interest in Rusal.
What is new in General License 14?
General License 14 expands on the wind-down that authorities issued by OFAC in General License 12 on April 6 in two respects.
First, General License 14 authorizes U.S. persons to engage in specified transactions related to winding down or maintaining business with Rusal and its subsidiaries until October 23, 2018. Previously, under General License 12, the deadline was June 5, 2018. OFAC extended the wind-down period due to the impact Rusal’s designation had on U.S. trading partners and allies.
Second, under General License 14, while funds in Rusal accounts remain blocked, such blocked funds may be used for maintenance or wind-down activities authorized by General License 14. In addition, OFAC has made clear in FAQs issued on April 23, that U.S. persons are not required to block transactions authorized by General License 14 that occur on or after April 23, 2018, except for transactions involving blocked persons other than Rusal. Previously, under General License 12, all payments to or for the benefit of certain SDNs, including Rusal, had to be made into a blocked, interest-bearing account in the United States – even if the payments were ordinarily incident and necessary to winding down one’s affairs with the SDNs. OFAC substituted General License 12 with General License 12a to make clear that a limited exception applies to Rusal under General License 14.
Non-U.S. companies and individuals are not strictly prohibited from dealing with Rusal, and any payments they may make to Rusal do not need to be made into a U.S. blocked account, provided they are not in U.S. dollars. However, non-U.S. companies are exposed to so-called “secondary sanctions” under the Countering America's Adversaries through Sanctions Act (CAATSA). Specifically, OFAC can sanction non-U.S. persons that knowingly “facilitate a significant transaction…including deceptive or structured transactions, for or on behalf of” Rusal and any of the other parties designated as SDNs on April 6, 2018 – including companies owned 50 percent or more by those SDNs. “Facilitating” in this context is broadly understood to include “providing assistance for a transaction from which the person in question derives a particular benefit of any kind.”
The term “significant transaction” is not defined and left intentionally vague by OFAC in order to dissuade non-U.S. companies from doing business with sanctioned entities. However, OFAC has confirmed that, at a minimum, OFAC will not consider activities or transactions to be “significant” for the purpose of secondary sanctions if a U.S. person would have been authorized to engage in such activities under General Licenses 12a, General License 13 (which applies to the divestment or transfer debt, equity, or other holdings in SDNs) or under the newly issued General License 14.