OFAC Imposes New Reporting Requirement in Connection With Russia Sanctions

Katten Muchin Rosenman LLP

On May 19, the U.S. Treasury Department's Office of Foreign Assets Control (OFAC) issued an amendment to Directive 4 of the Russian Harmful Foreign Activities Sanctions. As originally issued on Feb. 28, 2022, in the immediate aftermath of Russia's invasion of Ukraine, Directive 4 prohibits U.S. Persons from participating in any transaction that involves the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation. The prohibition includes, among other things, any transfer of assets to these entities, and any foreign exchange transactions for or on behalf of these entities. The amendment to Directive 4 requires U.S. persons who hold assets in which any of these entities have a direct or indirect interest to file a detailed report with OFAC by June 18.

Directive 4 is part of a sprawling, complex patchwork of sanctions against Russia. Among other categories of sanctions, there are designations of numerous individuals, entities, vessels and aircraft on OFAC’s Specially Designated Nationals and Blocked Persons List, which includes government officials, oligarchs, banks, and others said to be abetting corruption, cybercrime, election interference, murder, and the war against Ukraine. There are also various restrictions on U.S. persons transacting with specified sectors of the Russian economy, including the financial services, energy, and defense sectors, and prohibitions and restrictions on the import or export of an array of goods and services. Additional restrictions have been imposed by the U.S. Commerce Department’s Bureau of Industry and Security.

Directive 4 is just one element of this very robust U.S. sanctions program. The United States has stopped short of imposing a full embargo against Russia, leaving certain activities permitted under certain circumstances. Before engaging in any commercial activity with or through Russia, it is necessary to navigate through the regulatory minefield to determine whether a particular activity is permitted.

As now amended, Directive 4 requires any U.S. Person who holds assets of entities subject to Directive 4 to submit a detailed report to OFAC on or before June 18, 2023, (and annually thereafter) regarding any property in their possession or control in which any of the entities subject to Directive 4 has a direct or indirect interest.

With the June 18 deadline less than a month away, U.S. Persons who hold assets subject to the reporting requirement should promptly take all necessary steps to prepare and file the necessary reports on a timely basis and to seek advice from competent sanctions counsel with regard to any compliance issues.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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