Last spring, when the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced that the President had issued Executive Order 13662 under the Ukraine-Related Sanctions program (sometimes called Russia sanctions) and that there were a new type of sanctions known as Sectoral Sanctions, a lot practitioners, compliance personnel, and those who follow sanctions spent a great deal of time attempting to understand what these new sanctions were. In response to the confusion caused by Sectoral Sanctions, OFAC offered some helpful guidance through its publication of FAQs, and language contained within the Sectoral Sanctions List itself.

However, despite having been in place for over a year, a great deal of confusion concerning Executive Order 13662 and Sectoral Sanctions appears to remain. Indeed, this phenomenon has manifested itself recently in my practice when advising clients who was obtaining conflicting advice from other counsel. As such, this post is intended to address three (3) common questions concerning Ukraine-Related (Russia) Sectoral Sanctions that seem to have confused both companies and practitioners alike.

1. Do Sectoral Sanctions Block Entire Sectors of the Russian Economy?

No. The sectoral sanctions created pursuant to Executive Order 13662 provide authority to designate parties operating in certain sectors of Russia’s economy. It does not, however, prohibit all dealings with parties operating in those sectors. In other words, if a Russian company is working in the financial services sector of the Russian economy, but they have not been identified by OFAC, then U.S. persons are not prohibited from dealing with them. Furthermore, the prohibitions on dealings with those parties who are identified on the Sectoral Sanctions Identifications List (“SSI List”) are tailored to certain types of conduct dictated by the particular directives under which the party is identified, as opposed to constituting wholesale prohibition on all dealings with that party.

2. Are Parties Identified on the Sectoral Sanctions List Blocked?

Not necessarily. Although Section 1(a)(i) of Executive Order 13662 seems to indicate that parties determined by the Secretary of the Treasury, in consultation with the Secretary of State, to be operating in certain sectors (financial services, energy, metals and mining, engineering, and defense and related materiel) are blocked, it is important to read Section 1(b) which states that the prohibition of Section 1(a) apply except to the extent provided by statutes, or in regulations, orders,directives or licenses.

In relation to SSI List designations, there are certain directives (Directives 1-4) under which designated parties are identified. Those directives specific the prohibitions which apply to dealings with those parties. Indeed, the SSI List explicitly notes that, “The property and interests in property of persons identified on the SSI List are not blocked….” This is also explicitly noted (at least in relation to parties identified under Directive 1 and 2) in OFAC’s FAQ #370.

3. Can I get an OFAC license to deal with an SSI entity?

That is going to depend on the particular circumstances submitted to OFAC, and whether those circumstances present a compelling case as to the authorization being in line with the foreign policy and national security objectives of the United States. The real question that should be asked, however, is do you even need a license to deal with an SSI entity? As noted above, the prohibitions on dealings with SSI entities are tailored in accordance with the directive under which the party is identified. As such, it could very well be the case that you don’t need an OFAC license to deal with the SSI entity. Of course, there are other risks to consider as well, including reputational risks, potential for future designation of that party under another authority (i.e., Executive Order 13660 or 13661), etc.