U.S. Continues to Turn Up the Heat on Russia Sanctions
Washington D.C. (June 14, 2022) - Continuing to tighten economic pressure on Russia (see Lewis Brisbois' alert of May 12, 2022), on June 2, 2022, the White House announced the imposition of new sanctions against leading Russian government officials and business leaders. In addition, the new sanctions add 71 parties to the Commerce Department’s Export Administration Regulations’ Entity List, which cuts them off from U.S.-origin or foreign-made items derived from certain sensitive U.S. technology or software. According to the White House’s tally, the combined impact to date of all sanctions against Russia includes the addition of 1,000 parties to Treasury’s Specially Designated Nationals and Blocked Persons Lists and more than 300 parties to Commerce’s Entity List.
Other recent actions clarify the far-reaching implications of Administration actions under Executive Order 14071 of April 6, 2022, which prohibited new investment and provision of certain services to any person in Russia after June 7, 2022, including “accounting, trust and corporate formation, and management consulting services.” In Frequently Asked Questions (FAQ) documents issued June 6, 2022 and June 9, 2022, the Treasury Department provided further explanation of specific aspects of these new prohibitions. Key points include:
- “New Investment” is defined as the commitment, after June 7, 2022, of capital or other services for the purposes of generating returns or appreciation. FAQs 1049, 1050, and 1053 provide examples of activities that fall within and outside this definition. For example, transactions related to divestment or wind-down of pre-existing investments are excluded from the prohibition.
- The prohibition on providing trust and corporation formation services applies to both new and existing trusts and companies, and includes “services related to assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for other persons to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts,” (FAQ 1034). As noted in our previous alert, the breadth of this prohibition calls for caution even in the provision of legal services.
- The new investment prohibition does not preclude U.S. persons from lending funds to or purchasing an equity interest in entities located outside Russia, if the funds are not specifically intended for new projects or operations in Russia and the revenues of the entity are not predominantly derived from its investments in the Russian Federation (FAQ 1055).
- Similarly, U.S. persons are not prohibited from providing covered services to persons located outside of the Russian Federation that are owned or controlled by persons located in the Russian Federation, if the services are not an indirect export to a person in Russia. For purposes of this determination, OFAC interprets the “indirect” provision of the prohibited services to include “when the benefit of the services is ultimately received by a ‘person located in the Russian Federation’” (FAQ 1059).
- The bar on providing accounting services includes tax preparation and filing, and includes services performed by a U.S. subsidiary for its parent company located in Russia (FAQ 1062), but excludes activities relating to divestiture or wind-down performed for a U.S. person as well as provision of tax-related software (FAQ 1068).
- U.S. persons are prohibited from serving as voting trustees on behalf of (including for shares of) persons located in Russia (FAQ 1065). However, they are not barred from serving on the board of directors of a company located in Russia, as long as they do not provide “nominee officer or director services in which a U.S. person is contracted to serve as a nominee officer, director, shareholder, or signatory of a legal person on behalf of a person located in the Russian Federation (FAQ 1060).
The continuing evolution of U.S. sanctions on Russia and the complexity of these provisions underscore the challenges posed for U.S. businesses. Businesses and individuals involved in transactions with or affecting Russian entities face a heightened level of risk in these matters and should take extra care both to ensure compliance and to structure dealings with these complicated factors in mind.
Lewis Brisbois’s attorneys are advising clients on these increasingly complex and quickly-evolving issues, providing assistance on compliance and management of business and legal risks. For more information contact the authors of this alert. Visit our Ukraine Conflict Response Practice page for more alerts in this area.
Jane C. Luxton, Managing Partner - Washington, D.C.
Andrew Pidgirsky, Partner
Sean P. Shecter, Partner