issued a joint alert on increased vigilance for potential Russian and Belarusian export evasion attempts.1 The agencies warn that companies may attempt to transfer money for regulated items such as aircraft equipment, antennas, breathing systems, cameras, integrated circuits and oil field equipment, to name a few, which require additional regulatory compliance considerations. The alert specifically states: Financial institutions with customers in maritime or export/import industries should rely on the financial institutions’ internal risk assessments to employ appropriate risk mitigation measures consistent with their underlying BSA obligations.2 In 2019, the U.S. and Ukraine engaged in $3.5 billion in trade.3 Of this amount, approximately $2.3 billion was in U.S. exports to Ukraine, and $1.2 billion was in U.S. imports from Ukraine. The most commonly traded items were agricultural products, minerals, base metals, machinery, and transportation. These market items seem fairly innocuous, but many smaller market items may be heavily regulated and may require an export license. Among others, some regulated export items were optical sighting systems, integrated circuits for information security, cameras, shotguns and shotgun shells, and lasers. Banks should be alert for businesses engaged in the trade of such regulated products. Office of Foreign Asset Control and Crimea The Office of Foreign Asset Control (OFAC) is responsible for the Specially Designated Nationals and Blocked Persons List (SDN). This list is periodically updated to reflect the current sanctions issued by the U.S. President. Prior to the most recent invasion of Ukraine, former President Obama issued sanctions Dec. 24, 2014, to block monetary transfers to the Crimea Oblast or Region of Ukraine. Given the geographic scope of these sanctions, it is important to provide a brief note on the geography of Ukraine. Ukraine is comprised of several “oblasts,” administrative divisions or regions in Russia and some of its former republics, such as Ukraine. An oblast is similar to a province or region and comprises smaller regions and cities. Crimea was an oblast of Ukraine, and OFAC sanctions often refer to oblasts or regions. The sanctions issued by President Obama were in response to Russia’s occupation and eventual annexation of the region. Executive Order (EO) 13685 specifically prohibited “new investment in the Crimea region of Ukraine by a U.S. person, wherever located.”4 This EO was straightforward and easy enough to follow – if the person or entity resides in the Crimea region, any new business transfer is prohibited. The Crimea Oblast is now (almost) universally considered to be part of Russia. Any transfers to the Crimea Oblast are strictly prohibited due to this EO, but also due to sanctions against Russia in general. The Oblasts of Donetsk and Luhansk and the Current Conflict Russia's most recent invasion of Ukraine has included the recognition of the independence of these regions and/or occupation of parts of the Donetsk and Luhansk Oblasts by Russia.5 The occupation of these oblasts led to the issuance of EO 14065 by President Biden. The EO states in part restrictions on “new investment in the so-called DNR or LNR regions of Ukraine or such other regions of Ukraine as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State (collectively, the ‘‘Covered Regions’’), by a U.S. person, wherever located.”6 So while EO 13685 prohibiting investment in Crimea was fairly straightforward, the EO 14065 regarding the DNR and LNR is much less clear regarding the locations of transfers that may be restricted. The regions of the prohibition will be determined by the Secretary of the Treasurer and Secretary of State on an ongoing basis. This determination of the “Covered Regions” depends on the advancement of Russian forces to determine the so-called “line of contact.” The line of contact is the stretch of land that separates conflict-affected people in Ukraine from the Russian-controlled areas of eastern Ukraine. This line of contact changes rapidly, even daily or weekly, and this change may be reflected in the determination of the Secretaries of Treasury and State. This changing landscape created a regulatory nightmare for banks attempting to follow U.S. sanctions policy. Practical Implementation of the Order and Risk Management Transfers to and from the former oblasts of Ukraine, now referred to as the DNR and LNR, are prohibited, as are transfers to and from Crimea, but transfers to other regions may also be prohibited. Determining the legality of transfers Counselor’s Corner — Continued on page 20 The regions of the prohibition will be determined by the Secretary of the Treasurer and Secretary of State on an ongoing basis. 19
RkJQdWJsaXNoZXIy ODQxMjUw