370. What do the prohibitions in Directives 1 and 2 mean? Are they blocking actions?
The sectoral sanctions imposed on specified persons operating in sectors of the Russian economy identified by the Secretary of the Treasury were done under Executive Order 13662 through Directives issued by OFAC pursuant to its delegated authorities. Directive 1, as amended on September 29, 2017 in accordance with section 223(b) of the Countering America’s Adversaries Through Sanctions Act of 2017 (CAATSA) (Pub. L. 115-44), prohibits transacting in, providing financing for, or otherwise dealing in debt of specified tenors or equity if that debt or equity was or is issued on or after the relevant sanctions effective date ("new debt" or "new equity") by, on behalf of, or for the benefit of the persons operating in Russia’s financial sector named under Directive 1, their property, or their interests in property.
There were two prior (and now superseded) versions of Directive 1, which were issued on July 16, 2014 and September 12, 2014. The prior versions of Directive 1 prohibited the same activities, but involving debt of longer than 90 days maturity (July 16, 2014 version) and 30 days maturity (September 12, 2014 version) or equity if that debt or equity was issued on or after the date a person was determined to be subject to Directive 1.
The relevant tenors of prohibited debt under Directive 1 are noted in the table below.
Directive 1
Period when the debt was issued Applicable tenor of prohibited debt
On or after July 16, 2014 and before September 12, 2014 Longer than 90 days maturity
On or after September 12, 2014 and before November 28, 2017 Longer than 30 days maturity
On or after November 28, 2017 Longer than 14 days maturity
Directive 2, as amended on September 29, 2017 in accordance with section 223(c) of CAATSA, prohibits transacting in, providing financing for, or otherwise dealing in new debt of specified tenors by, on behalf of, or for the benefit of the persons operating in Russia’s energy sector named under Directive 2, their property, or their interests in property.
There were two prior (and now superseded) versions of Directive 2, which were issued on July 16, 2014 and September 12, 2014. The prior versions of Directive 2 prohibited the same activities, but involving debt of longer than 90 days maturity if that debt was issued on or after the date a person was determined to be subject to Directive 2.
The relevant tenors of prohibited debt under Directive 2 are noted in the table below.
Directive 2
Period when the debt was issued Applicable tenor of prohibited debt
On or after July 16, 2014 and before November 28, 2017 Longer than 90 days maturity
On or after November 28, 2017 Longer than 60 days maturity
Directives 1 and 2 prohibit transactions by U.S. persons as defined in E.O. 13662, wherever they are located, and transactions within the United States. Directives 1 and 2 do not require U.S. persons to block the property or interests in property of the entities identified in the Directives, nor will persons identified in Directives 1 and 2 automatically be added to the Specially Designated Nationals (SDN) List. U.S. persons should reject transactions or dealings that are prohibited by Directives 1 or 2, and to the extent required by section 501.604 of the Reporting, Procedures and Penalties Regulations (31 C.F.R. part 501), U.S. persons must report to OFAC any rejected transactions within 10 business days.
[Ed Note: see original FAQ for hyperlinks]
1) Note the expansive scope of the term "otherwise dealing in." Even with respect to property that is not "blocked," OFAC will interpret virtually any action with respect to or involving the unblocked-but-prohibited "new debt" as "dealing in" that debt. See Haverly Systems, Inc. (2019), and comments thereto.
2) While there is nothing in the EO referring or alluding to sectoral sanctions, note that Section 1. (a) of EO 13662 (as modified by CAATSA 223(a)) is the source of authority for the sectoral sanctions generally and this FAQ in particular. The authority is crafted so as to permit the full-on blocking of the entirety of the sectors mentioned, but nothing prohibits OFAC from implementing the sanctions in a softer manner, as was done here.