ARTICLE
21 November 2024

OFAC Expands Reach Over Foreign Financial Institutions

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Lewis Brisbois Bisgaard & Smith LLP

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Founded in 1979 by seven lawyers from a premier Los Angeles firm, Lewis Brisbois has grown to include nearly 1,400 attorneys in 50 offices in 27 states, and dedicates itself to more than 40 legal practice areas for clients of all sizes in every major industry.
In a June 12, 2024, guidance document, the U.S. Treasury Department's ("Treasury") Office of Foreign Assets Control ("OFAC") announced a new interpretation...
United States International Law

Washington, D.C. (August 20, 2024) - In a June 12, 2024, guidance document, the U.S. Treasury Department's ("Treasury") Office of Foreign Assets Control ("OFAC") announced a new interpretation that significantly expands its authority to impose secondary sanctions on Foreign Financial Institutions ("FFIs"). The guidance, a revised Sanctions Advisory, clarifies that any FFI now risks being sanctioned by OFAC if it conducts or facilitates any significant transaction or provides any service involving any person blocked pursuant to Executive Order ("E.O.") 14024.

E.O. 14024 authorizes the Treasury, through OFAC, to impose primary sanctions on individuals and entities identified as furthering specified harmful foreign activities of the Russian Federation. U.S. persons and institutions are broadly prohibited from dealing with such individuals and entities and may be subject to a civil enforcement action or related criminal proceeding for violating such prohibitions (see one of our previous alerts for an example of an OFAC enforcement action).

In December 2023, President Biden issued E.O. 14114, which amended E.O. 14024 and authorized OFAC to impose secondary sanctions on FFIs that, among other things, have conducted or facilitated any significant transaction or transactions or provided any service to entities sanctioned for having "operated in Russia's military-industrial base." According to a previous OFAC Sanctions Advisory to FFIs, OFAC's interpretation of the term "Russia's military-industrial base" included only certain sanctioned entities—namely, those blocked by OFAC for "operating in the technology, defense and related materiel, construction, aerospace, and manufacturing sectors of the Russian Federation economy."

In the new guidance, OFAC identified its adoption of a new, dramatically expanded interpretation of "Russia's military-industrial base": OFAC now interprets the term to include "all persons blocked under E.O. 14024, as amended." Consequently, an FFI now risks being sanctioned by OFAC if it conducts or facilitates any significant transactions or provides any service to any entity blocked under E.O. 14024 unless otherwise authorized by OFAC. If sanctioned, FFIs would effectively be cut off from transacting with U.S. persons and institutions. However, OFAC noted in additional updated guidance that FFIs "may continue to conduct or facilitate any transaction(s) or provide any service related to activities that are otherwise authorized or exempted under the Russian Harmful Foreign Activities Sanctions program," including "transactions authorized for U.S. persons under General Licenses."

This action affects a wide range of entities; the term "foreign financial institution" is very broadly defined. It includes not only banks, but also any entity engaged in purchasing or selling foreign exchange, securities, futures, or options, or procuring purchasers and sellers thereof, as principal or agent. It also includes "money services businesses; operators of credit card systems; trust companies; insurance companies; securities brokers and dealers; futures and options brokers and dealers; securities and commodities exchanges; clearing corporations; investment companies; employee benefit plans; dealers in precious metals, stones, or jewels; and holding companies, affiliates, or subsidiaries of any of the foregoing." Any such entity may now be subject to the broadened scope of OFAC's secondary sanctions.

FFIs—and individuals, companies, and institutions dealing with FFIs—should carefully review this updated guidance to ensure compliance and mitigate risks associated with dealings involving Russia and Belarus, both directly and indirectly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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