New guidelines published for foreign financial institutions relating to US sanctions against Russia

On June 12, 2024 the Office of Foreign Assets Controls (OFAC) of the US Treasury Department published the Updated Guidance for Foreign Financial Institutions on OFAC Sanctions Authorities Targeting Support to Russia’s Military-Industrial Base (“Compliance Advisory”).

E.O. 14024 – “Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation”, as amended by E.O. 14114 dated December 22, 2023, allows OFAC to sanction foreign financial institutions which, among other things, have carried out or facilitated one or more significant transaction or provided a service involving Russia’s military-industrial base.

On June 12, 2024, OFAC updated its definition of the “Russian military-industrial base” (FAQ 1151) to include:

• any person designated under E.O. 14024;
• any person working in certain “Critical Sectors” of the Russian economy, such as technology, defense and related materials, the building industry, the aerospace industry or manufacturing (FAQ 1126).

The Russian military-industrial base may also include persons who facilitate the sale, supply or direct/indirect transfer to the Russian Federation of certain “Critical Products” (including machine tools, materials for the production of semiconductors and electronics, some fuels, chemical components for fuels and explosives, certain advanced optical systems and navigation instruments).[1]

Consequently, foreign financial institutions which carry out or facilitate any significant transaction or provide any service involving a listed person pursuant to E.O. 14024 now risk OFAC sanctions, unless they facilitate solely so-called “Permitted Transactions”, i.e., transactions authorized for US persons on the basis of the General Licenses issued within the framework of the sanctions program against Russia. OFAC specifies exceptions to bans under E.O. 14024 enabling: transactions relating to the production, manufacture, sale, transport or supply of basic agricultural products, medicines, medical devices, spare parts and components for medical devices, as well as software updates for medical devices (GL 6D), transactions relating to energy (GL 8J), transactions supporting NGOs (GL 27), the official business of the diplomatic or consular missions of third countries located in the Russian Federation (GL 20), telecommunications and communications based on Internet (GL 25C).

With the exception of the above cases, OFAC can impose sanctions by freezing, prohibiting or restricting the holding of correspondent bank accounts in the US for foreign financial institutions.

The aim of the Compliance Advisory is to provide an operational tool guiding financial institutions in relation to the complex US sanctions program against Russia.

[1] The complete updated list of “Critical Products” is set out in “Determination of December 22, 2023 pursuant to subsection 11(a)(ii) of Executive Order 14024 (Russia Critical Items Determination). See FAQ 1150 for further details.