Accounting Services, Trust and Corporate Formation, or Management Consulting Services are now off limits to Russian Nationals as per the May 8, 2022 U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announcement of a Determination pursuant to Section 1(a)(ii) of Executive Order 14071 (released April 6, 2022). Effective 12:01am ET, June 7, 2022, U.S. Persons are prohibited from directly or indirectly exporting, reexporting, selling, or supplying accounting, trust and corporate formation, or management consulting services to any person located in the Russian Federation. That said, it is of great importance, that any party doing business with Russia needs to review their sanctions exposure and ensure that there is an effective OFAC Sanctions Compliance Program in place in order to minimize OFAC enforcement exposure.
Who are the U.S. Persons?
Section 4 of the Executive Order 14071 states that for the purposes of the Order, the definitions for the terms are as follows:
- ‘‘United States person’’ means any United States citizen, lawful permanent resident, entity organized under the laws of the United States, or any jurisdiction within the United States (including foreign branches), or any person in the United States.
- ‘‘person’’ means an individual or entity.
- ‘‘entity’’ means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization.
Who is a Russian Person?
OFAC anticipates publishing regulations defining the term “Russian person” to mean an individual who is a citizen or national of the Russian Federation, or an entity organized under the laws of the Russian Federation.
What is Excluded in the Determination?
- any service to an entity located in the Russian Federation that is owned or controlled, directly or indirectly, by a United States person.
- Any service in connection with the wind-down or divestiture of an entity located in the Russian Federation that is not owned or controlled, directly or indirectly, by a Russian person.
OFAC’s FAQ 1034 Provides Definitions for “accounting,” “trust and corporate formation,” and “management consulting” services as follows:
- “Accounting services” – includes services related to the measurement, processing, and evaluation of financial data about economic entities. Please note that OFAC has issued General License 35 to authorize certain transactions ordinarily incident and necessary to the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of credit rating or auditing services to any person located in the Russian Federation through 12:01 a.m. eastern daylight time, August 20, 2022. See FAQ 1035.
- “Trust and corporate formation services” – 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. Please note that all of these activities are common activities of trust and corporate service providers (TCSPs), although they may be provided by other persons.
- “Management consulting services” – includes services related to strategic business advice; organizational and systems planning, evaluation, and selection; development or evaluation of marketing programs or implementation; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.
For the purposes of Russia-related General License 35 what is meant by the terms “credit rating services” and “auditing services?”
The term “credit rating services” means services related to assessments of a borrower’s ability to meet financial commitments, including analysis of general creditworthiness or with respect to a specific debt or financial obligation.
The term “auditing services” means examination or inspection of business records by an auditor, including checking and verifying accounts, statements, or other representation of the financial position or regulatory compliance of the auditee.
General License 35 authorizes certain transactions ordinarily incident and necessary to the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of credit rating or auditing services to any person located in the Russian Federation through 12:01 a.m. eastern daylight time, August 20, 2022.
Authorizing Transactions Involving Credit Rating and Auditing Services
(a) Except as provided in paragraph (b) of this general license, all transactions ordinarily incident and necessary to the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of credit rating or auditing services to any person located in the Russian Federation that are prohibited by section 1(a)(ii) of Executive Order 14071 are authorized through 12:01 a.m. eastern daylight time, August 20, 2022.
(b) This general license does not authorize any transactions otherwise prohibited by the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587 (RuHSR), including transactions involving any person blocked pursuant to the RuHSR, unless separately authorized.
In order to avoid any type of OFAC enforcement, continuing attention ought to be given to having Polices and Procedures in place to comply with U.S. Sanctions, and an OFAC Sanctions Compliance Program.
OFAC compliance applies to all US persons; including, all US citizens and permanent resident aliens regardless of where they are located, all persons and entities within the US, all US incorporated entities and their foreign branches, all organizations subject to US jurisdiction, foreign entities that conduct business in or with the US or US persons, or that use US origin goods or services and organizations that facilitate or engage in online commerce or process transactions using Virtual Currency.
While OFAC Sanctions Compliance Programs (SCP) are tailored made programs designed according to the uniqueness of a specific organization, there are certain fundamental “mindsets” applicable across the commercial business environment that are teachable. According to OFAC, the existence of an effective OFAC Sanctions Compliance Program at the time of a violation will be considered by OFAC’s Office of Compliance and Enforcement when determining civil monetary penalties. Seeking professional third-party assistance in the development and implementation of a SCP within the OFAC framework can be a practical step in the right direction.