Russian Attempts to Evade Sanctions Using New Overseas Branches and Subsidiaries
The Office of Foreign Assets Control (OFAC) is issuing this alert to warn foreign jurisdictions and financial institutions about Russia’s attempts to evade sanctions by opening new overseas branches and subsidiaries of Russian financial institutions. As OFAC previously warned in its “Updated Guidance for Foreign Financial Institutions on OFAC Sanctions Authorities Targeting Support to Russia’s Military-Industrial Base,” Russia is increasingly using third countries to evade sanctions and continue procurement to support its military-industrial base. Russia continues to reorient its entire economy and government resources to support its war effort, including through Russian financial institutions. Treasury has a variety of tools under both its sanctions and Bank Secrecy Act authorities to target Russia’s attempts to finance its military-industrial base, including through the establishment of these new financial institution branches or subsidiaries.
Foreign regulators and financial institutions...
1) This alert appears to be a first insofar as it is targeted at least in part at “foreign regulators,” with the apparent hope that such government regulations can act as a “choke point” to stop the establishment of Russian bank subsidiaries within their jurisdictions. The wording of the alert is somewhat ambiguous in terms of OFAC’s intentions as it relates to new subsidiaries and branches. There are, of course, Russian bank branches and subsidiaries in many countries, and as of the date of the alert, the only ones that are sanctioned are sanctioned because they are owned by blocked Russian parents. Here, OFAC suggests that non-Russian FFIs dealing with “new branches or subsidiaries of Russian financial institutions that are not themselves sanctioned” may be targets for sanctions, without saying the same for pre-existing ones. OFAC conveys that “[e]xisting financial relationships that solely facilitate permissible transactions...