574. Will foreign persons be subject to sanctions for doing business with the individuals or entities designated under E.O. 13661 or E.O. 13662, or blocked pursuant to OFAC’s 50 percent rule on April 6, 2018 as a result of such a designation?
Section 228 of CAATSA amends SSIDES by inserting a mandatory sanctions provision on foreign persons that Treasury determines, inter alia, knowingly facilitate significant transactions, including deceptive or structured transactions, for or on behalf of any person subject to U.S. sanctions with respect to the Russian Federation, or their child, spouse, parent, or sibling. Additionally, section 226 of CAATSA amends UFSA by making the sanctions in that section mandatory. Under the amended section 5 of UFSA, foreign financial institutions face correspondent account or payable through account sanctions if the Secretary of the Treasury determines, inter alia, that they knowingly facilitate significant financial transactions on behalf of any Russian person added to OFAC’s SDN List pursuant to UFSA, E.O. 13660, E.O. 13661, E.O. 13662, E.O. 13685, or any other E.O. addressing the crisis in Ukraine.
As described in FAQs 542 and 545, a transaction is not "significant" if U.S. persons would not require specific licenses from OFAC to participate in it. Therefore, activity authorized by Ukraine-/Russia-related General Licenses 12A and 13, and occurring within the time period authorized in these general licenses, would not be considered "significant" for the purposes of a sanctions determination under section 10 of SSIDES, as amended by CAATSA, and section 5 of UFSA, as amended by CAATSA. Nothing in the general licenses should be construed as authorizing deceptive or structured transactions.
The intent of the designations on April 6, 2018 is to impose costs on Russia for its malign behavior. The United States remains committed to coordinating with our allies and partners in order to mitigate adverse and unintended consequences of these designations. [04-23-2018]
1) See FAQ 542, FAQ 545, and FAQ 546, and comments thereto, and note the difference in the respective scopes of SSIDES section 10 and UFSA section 5, where the former applies to SDNs, SSI-listed entities and all entities blocked by operation of law, and the latter applies only to persons appearing on the SDN list.
The relationship between UFSA Sec. 5, limited to persons included on the SDN list, and SSIDES Sec. 10 is unclear. In theory, UFSA allows for CAPTA sanctions on FFIs, while SSIDES allows for full blocking of all "persons" engaged in secondarily sanctionable conduct, including but not limited to FFIs. Technically speaking, SSIDES "overrides" the limitation in UFSA limiting the scope of sanctions to significant transactions with persons actually included on the SDN list. When FFI-centric CAPTA sanctions coexist with full blocking secondary sanctions, there is nothing requiring OFAC to opt for the more limited CAPTA sanction. See General Note on Provisions Containing Secondary/"CAPTA" Sanctions Applicable to Foreign Financial Institutions (System Ed. Note).
2) See pertinent interpretive Guidance Letter at Case No. Ukraine-EO13662-2018-354754-1 (2018).
3) This FAQ is notable insofar as it explicitly carves "deceptive or structured transactions" out of all primary sanctions general licenses that otherwise, as a result of OFAC's guidance at FAQ 542 and FAQ 545, set the boundary of what constitutes a "significant transaction" for secondary sanctions purposes. This raises the question of whether that guidance applies only for Russia secondary sanctions purposes, or whether OFAC is saying that there is an implicit carveout in all general licenses for "deceptive or structured transactions," even for primary sanctions purposes.
4) Refer generally to General Note on "Counterfactual Secondary Sanctions and Derivative Designation Safe Harbors" in Certain OFAC Guidance and FAQs (System Ed. Note).