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US jumps the gun: issues sanctions re Ukraine

Nigel Morris-Cotterill

US President Biden has signed a new Executive Order Blocking Property Of Certain Persons And Prohibiting Certain Transactions With Respect To Continued Russian Efforts To Undermine The Sovereignty And Territorial Integrity Of Ukraine (the capitals are exactly how the US department of the Treasury wrote this in its notice).

OFAC has issued Ukraine General License (sic) Numbers 17, 18, 19, 20, 21 and 22.

"I, JOSEPH R. BIDEN JR., President of the United States of America, hereby expand the scope of the national emergency declared in Executive Order 13660 of March 6, 2014, and expanded by Executive Order 13661 of March 16, 2014, and Executive Order 13662 of March 20, 2014, and relied on for additional steps taken in Executive Order 13685 of December 19, 2014, and Executive Order 13849 of September 20, 2018, finding that the Russian Federation’s purported recognition of the so-called Donetsk People’s Republic (DNR) or Luhansk People’s Republic (LNR) regions of Ukraine contradicts Russia’s commitments under the Minsk agreements and further threatens the peace, stability, sovereignty, and territorial integrity of Ukraine, and thereby
constitutes an unusual and extraordinary threat to the national security and foreign policy of the United States."

The sanctions are:

a) to ban any new (it does not say "additional") investment in the named regions or such other regions of Ukraine as the Secretary of the Treasury may determine.

b) the import into the USA of any good, services or technology originating in the named regions.

c) the export or re-export, sale or supply, directly or indirectly from the USA - or by any US person wherever located - of any goods, services or technology.

d) Any financial services or support by an US person to any foreign person to in any way finance, support or facilitate a transaction under b or c.

e) The bans take place immediately and affect contracts in force and goods in transit.

f) in relation to certain persons, their that are in or may come into the possession or control of a US person "are blocked." They must not be "transferred, paid, exported, withdrawn or otherwise dealt with. The "certain persons" are to be determined by the Secretary to the Treasury. The pool of potential asset holders is huge. Basically, it's anyone who has exercised any influence or taken part in protests or action resisting an independent Ukraine.

The Order specifically bans donations that could be used to circumvent the sanctions.

The general licences authorise

a) the expatriation of money and other assets where a US company closes business in the designated territories ( General licence 17)

b) with express permission of the Secretary of the Treasury to take part in supply of agricultural commodities (animal, human and plant food and bottled water, live animals, vitamins and minerals, seeds for food crops, reproductive materials, medicines and medical devices. ( General licence 18)

c) US persons may carry for personal use telecommunications equipment but must not sell, lease or provide it. ( General licence 19)

d) international aid schemes by several international bodies are authorised ( ( General licence 20)

e) it is permitted to make and facilitate non-commercial remittances provided that "he transfer is not by, to, or through any person whose property and interests in property are blocked pursuant to Executive Order of 21 February, 2022" and "Non-commercial, personal remittances do not include
charitable donations of funds to or for the benefit of an entity or funds transfers for use in supporting or operating a business, including a family-owned business."

Here's the risk and compliance wrinkle: "Transferring institutions may rely on the originator of a funds transfer with regard to compliance with paragraph (a)(1) of this general licence, provided that the transferring institution does not know or have reason to know that the funds transfer is not in compliance with paragraph (a)(1)." (General Licence 21).

Financial crime risk and compliance officers should be able to see the risks inherent in that paragraph even before they have finished reading it.