On February 3, 2010, the United States Treasury Department, Office of Foreign Assets Control (OFAC) issued regulations implementing Executive Order 13405, which blocks property of certain persons undermining democratic processes or institutions in Belarus. The regulations are codified at a newly-promulgated 31 C.F.R. Part 548.
On June 19, 2006, following the Belarus elections of March 2006, President Bush issued Executive Order 13405 blocking the property of persons determined to be undermining the democratic process or institutions in Belarus, committing human rights abuses related to political repression, or engaging in public corruption by misusing Belarusian public assets or authority (this provision covers “senior-level officials” engaged in corruption, their family members, and persons “closely linked” to them). The Executive Order listed ten such persons, including Belarusian President Lukashenka. In addition, the Executive Order permitted the Secretary of the Treasury, in consultation with the Secretary of State, to designate others that would be subject to the blocking provision of the Executive Order.
All property and interest in property of these persons are blocked and may not be transferred, paid, exported, withdrawn or otherwise dealt in by “U.S. persons”, defined to include companies or business entities organized under the laws of the United States (and any foreign branches thereof), any U.S. citizen or lawful permanent resident wherever located and for whomever employed, and any person within the United States. The Executive Order includes a prohibition on the making or receiving by a U.S. person of any contribution for the benefit of a person whose assets have been blocked under the Executive Order. Any action that evades or avoids, or that attempts to evade or avoid, application of the Executive Order is also prohibited.
The regulations implement the prohibitions contained in the Executive Order. The names of persons designated pursuant to the regulations will be published on OFAC’s Specially Designated Nationals and Blocked Persons List and in the Federal Register. The regulations prohibit any dealing in a security within the possession or control of a U.S. person that is registered or inscribed in the name of (or known to be held for the benefit of, or issued by) any blocked entity. Blocked funds must be held in interest-bearing blocked accounts.
The regulations exempt from the general prohibitions transactions relating to personal communications, the importation and exportation of information or informational materials, and transactions ordinarily incident to travel. They also authorize the provision of certain legal services to or on behalf of persons whose property and interests in property are blocked.
The proposed regulations generally do not depart in their approach or apparent application from the text of the Executive Order or other similar OFAC sanctions programs that are primarily asset-freezing or property-blocking regimes, but contain certain provisions that are worthy of note. OFAC’s promulgation of these provisions continues a trend initiated in the Weapons of Mass Destruction Proliferators Sanctions Regulations (31 C.F.R. Part 544), which were implemented last year.
For example, the rule authorizes OFAC to block property and interests of property of a person during the pendency of an investigation (see § 548.201(a), Note 2). The names of persons blocked during the pendency of an investigation will be published on the SDN list with the identifier “[BPI-BELARUS].” The rule also includes a section (§ 548.411) explicitly stating that a blocked person has an interest in all property and interests in property of an entity in which it owns, directly or indirectly, a 50 percent or greater interest. The property and interests in property of that subsidiary entity are blocked regardless of whether it is specifically designated by OFAC or included on the SDN list. Those features were included in the new WMD regulations last year, but had not been included in earlier blocking regimes.
U.S. persons need to be mindful of the ownership structure of companies where there may be some level of ownership participation by persons or entities that are designated under the Belarus Sanctions Regulations. Furthermore, depending on how this regime is implemented, it may prove to have more relevance to U.S. companies with operations in Europe than most of the other existing sanctions regimes. Given the broad notion of “control” set forth in the regulations, any number of Belarus companies with ongoing commercial dealings with US and Western European companies could be caught under the OFAC restrictions. Accordingly, companies that are subject to the jurisdiction of OFAC’s regulations and who have commercial dealings in or around Belarus should be sure that appropriate screenings and due diligence are performed to ensure compliance with these regulations.