410. Are U.S. persons prohibited from entering into new contracts after the sanctions effective date with persons subject to Directives 1, 2, or 3 that provide payment terms to the SSI entities of greater than the applicable tenor specified in the relevant Directive? For instance, if a U.S. person agrees to sell shares or assets to an SSI entity in a corporate transaction that becomes effective on or after the sanctions effective date, is the U.S. person prohibited from agreeing to deferred purchase payments, even if no interest is involved, that may be paid more than the permissible number of days later by the SSI entity?
Directives 1, 2, and 3 prohibit new extensions of credit to SSI entities of greater than the applicable tenor specified in the relevant Directive, and these prohibitions include deferred purchase agreements extending payment terms of longer than the applicable tenor specified in the relevant Directive to an SSI entity. Such agreements would constitute a prohibited extension of credit to an SSI entity if the terms were longer than the permissible number of days and the agreement was entered into on or after the sanctions effective date. OFAC does not consider the inclusion of an interest rate to be a necessary condition for establishing whether a transaction represents new debt. [11-28-2017]
1) The purpose of this FAQ appears to be heading off the possibility that parties will structure transactions such that the "clock" on the SSI entity's legal obligation to pay does not start until some point in the future, subsequent to the agreement being made. OFAC appears to take the view that, no matter the formal structure of the agreement, the clock starts running once the agreement to sell is made.
2) OFAC has confirmed that even an ordinary "net 90" payment term for an ordinary sale of goods to an SSI entity would constitute prohibited "new debt" where the applicable tenor is 60 days. See Haverly Systems, Inc. (2019). The principle articulated here would in principle have the same application in ordinary goods transactions as it would in corporate transactions and transactions involving financial instruments, where the deferred purchase structure is more common, but see FAQ 419, making an exception in the case of sales of goods, where OFAC allows the clock to start running from the “point at which title or ownership of the goods transfers to the SSI entity,” not the issuing of the invoice or the making of a contractual obligation to purchase the goods.
* See generally General Note on the Prohibitions on Dealings in “New Debt” of Certain Sanctions Targets (System Ed. Note)