1https://www.fincen.gov/sites/default/files/2022-06/FinCEN%20 and%20Bis%20Joint%20Alert%20FINAL.pdf 2ID at page 4 3https://www.bis.doc.gov/index.php/country-papers/2618-2019statistical-analysis-of-u-s-trade-with-ukraine/file#:~:text=The%20 U.S.%20trade%20balance%20with%20Ukraine%20is%20 positive.&text=In%202019%2C%20of%20the%20%242.4,and%20 Mechanical%20Appliances%20(9.8%25) 4Federal Register Vol. 79, No. 247, Wednesday, December 24, 2014, p. 77357 5The Donetsk Oblast is recognized by Russia as the Donetsk People's Republic (DPR and also referred by the Russian acronym of DNR); the Luhansk Oblast is also known in Russia as Luhansk People’s Republic (LPR or by the Russian acronym of LNR). 6Federal Register Vol. 87, No. 36 Wednesday, February 23, 2022, p. 10293 to regions other than these enumerated areas depends on the current line of contact. But as this line changes, so will the legality of such a transfer; a transfer approved today may be headed for a city occupied by Russia tomorrow. To avoid engaging in a prohibited transaction, banks must determine their risk tolerance levels in one of three ways: 1) avoid transactions to the covered regions only; 2) avoid transactions to the covered regions and possibly compromised adjacent regions; or 3) avoid transfers to all areas of Ukraine. The first option of avoiding transfers only to the covered regions of DNR, LHR, and other identified regions carries the most risk. While the covered regions are certainly offlimits, the line of contact will constantly change while the war continues, and adjacent regions may also become subject to sanctions. These persistent changes may result in a transfer that crosses the line of contact, thus violating the EO. The second option of avoiding transfers to named regions and the oblasts surrounding the conflict area carries less risk, but is administratively difficult to implement. Such a plan avoids any possible prohibited transactions but requires a thorough working knowledge of the oblasts of Ukraine and the conflict regions. Bank transfers to safe regions will not be affected so long as the conflict and line of contact remain in adjacent territories. Such a plan also requires a regular review of the line of contact, affected oblasts and regions, and regular updates to a list of affected postal codes, addresses, and cities to compare scheduled wire transfers. The adjacent and possibly affected territories would include the oblasts of Dnipropetrovsk, Kharkiv, Kherson, and Zaporizhzhia. Finally, the least risky of all policies is avoiding all transfers to Ukraine and businesses trading with Ukrainian businesses. Such a policy would avoid any inadvertent transfers to areas within or near the conflict area and avoid running afoul of trade licenses and restrictions. Conclusion The war in Ukraine has created many complications for U.S.-based banks. The constantly changing line of contact creates risks for banks that transfer money to the region. There are many possible pitfalls in allowing wire transfers to Ukraine or engaging with businesses that trade in regulated goods and supplies shipped to Ukraine. To be sure, banks are in a position to have a unique insight into the war. These business trades and money transfers provide banks with insight such as letters of credit to their customers, the types of banking operations and procedures in the war regions, and the insight gained from locations of termination for wire transfer payments as part of a correspondent banking transaction. Finally, banks must be mindful and alert to the challenging issues in financing businesses in Ukraine or near the line of contact by implementing a comprehensive policy commensurate with their risk tolerance to mitigate such challenges. Counselor’s Corner — Continued from page 19 20
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