Are We Understanding Sanctions Well? (Keeping things in check while we all play by the rules.)
As we understand it, sanctions target individuals, entities, or entire countries, serving various foreign policy and national security objectives. Basically, sanctions have two main types:
Let's explain the difference between these two types beyond their definitions (refer to the image above):
Blocking (SDN) :
It refers to sanctions that require U.S. persons to block, essentially [freezing all property or interests] that are in the U.S. or that later come within the U.S. or under the possession or control of a U.S. person.
Any property that is blocked must be reported to OFAC. This type of sanction generally prohibits all dealings involving the blocked person's property or interest in property. All these blocked persons are added to OFAC's SDN List.
Therefore, if Entity 'A' is on the SDN List, it will no longer have access to the US financial system.
Also, note that as per OFAC 50% Rule, same blocking requirements that affect the listed person also apply to entities(property and interests in property) that are owned 50% or more by that person or by a combination of blocked persons directly or indirectly even if that entity is not specifically named on the SDN list.
E.g. Entity 'A', a non-US company, is owned 60% by a person listed on the SDN list by OFAC. According to the OFAC 50% Rule, since Entity 'A' is majority-owned (more than 50%) by a blocked person, it is subject to the same blocking requirements as the listed person.
It is important to note that non-U.S. companies and individuals can engage in U.S. nexus transactions and thereby unknowingly violate U.S. sanctions.
Wondering what is US Nexus?
OFAC sanctions generally refer to a series of prohibitions preventing U.S. persons from engaging in certain activities involving targeted persons or locations. In certain scenarios, Non-US entities are also prohibited to engage in certain activities if they have a U.S. nexus. This means that:
It is also important to know that the sanctions' prohibitions generally extend to any transaction involving the U.S. financial system, which usually means a U.S. person or bank is somehow involved in the transaction, even if the underlying activity and involved parties are located abroad. For instance, if a U.S. dollar transaction between two non-U.S. parties clears through a U.S. bank, that transaction would be subject to OFAC prohibitions. Hence, you may know that OFAC sanctions can be against listed persons or involve an entire region or country as well.
Non-Blocking (Non-SDN):
In this kind of sanction, the prohibitions don't necessarily require the outright blocking of property but they do involve some other kind of [economic restrictions] such as no dealing in securities issued by a specific person E.g. if persons are listed on OFAC's Non-SDN lists then they still be allowed to access the U.S. financial system but with some strict limitations as opposed to blocking sanctions.
U.S. individuals may be restricted from activities involving people, goods, or services from specific regions or countries. This includes things like oil exports, entire economic sectors (like energy), or even all imports and exports to/from a particular country.
领英推荐
The key thing to know is that when an activity is prohibited by one of these non-blocking prohibitions, a U.S. business may not be required to block (freeze) any involved assets. However, they should not engage in that activity. For financial institutions, if they encounter a transaction related to a prohibited activity, they should reject that transaction and return the funds to the originator. Since non-blocking prohibitions take a variety of forms, compliance professionals should review the specific sanctions to understand exactly what is required.
Remember, with both types of sanctions —blocking and non-blocking— you cannot rely solely on screening your activities against the OFAC sanctions list to prevent violations. You should do your Due Diligence to understand potential exposure to a particular sanctions program and the specific prohibitions that may be implicated. Once you or someone at a financial institution or other organization identifies activity involving a person on one of OFAC's lists, or an entity owned 50% or more by a listed person, a sanctioned government, or a geographic location with broad prohibitions, appropriate actions must be taken.
Understanding the Difference Between SDN and Non-SDN with Sberbank Example:
The person or entity can be SDN only, Non-SDN only, or both SDN and Non-SDN. Let’s understand this with the example of Sberbank (TIN: 770708389), which is both, SDN and Non-SDN.
Identifying SberBank's Status
When you search for Sberbank, you will find two entries: one under the Specially Designated Nationals (SDN) list and another under the Sectoral Sanctions Identifications List (SSI). You can search for SberBank using the following links:
Non-SDN under Executive Order 13662:
Executive Order 13662, issued on March 20, 2014, under the program 'Blocking Property of Additional Persons Contributing to the Situation in Ukraine,' refers to blocking the property and interests in property of persons operating in specified Russian sectors such as financial services, energy, metals and mining, engineering, and defense and related material of the Russian economy.
Directive 1, issued on July 16, 2014, outlines specific restrictions on financial transactions or investments by U.S. persons or within the United States. These include prohibitions on transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity for these persons, their property, or their interests in property. These sanctions target specific financial activities and are categorized as non-SDN.
For example, if an American investor wants to purchase stocks or shares in Sberbank then they can't do so under this directive for periods longer than 90 days. The sanctions were imposed on a financial sector and not on the entire country. This restriction in EO 13662 was to limit certain financial activities involving entities contributing to the situation in Ukraine. Hence, categorized as non-SDN.
Non-SDN under Executive Order 14024:
Executive Order 14024, issued on April 15, 2021, under the program 'Blocking Property Related To Harmful Activities Of The Russian Government,' targets sectors like technology and defense. It orders the blocking and prohibition of property and interests in property that are in the United States, come within the United States, or are within the possession or control of any United States person, related to individuals and entities involved in harmful activities by the Russian Federation.
Directive 2 (CAPTA), issued on February 24, 2022, specifically targets Sberbank and extends sanctions to Russia’s financial services sector. The Executive Order directs U.S. financial institutions to prohibit the opening or maintenance of correspondent or payable-through accounts, and the processing of transactions for foreign financial institutions listed under these sanctions. This includes institutions operating in Russia's financial services sector or owned by such entities, effective from March 26, 2022, for listed institutions including Sberbank.
For example, an Entity 'A' must refrain from opening or maintaining correspondent or payable-through accounts and processing transactions for Sberbank, effective from March 26, 2022.
SDN under Executive Order 14024:
On April 6, 2022, in accordance with Executive Order 14024, the Treasury imposed full blocked sanctions on Russia for its harmful foreign activities, which included violations of core principles of international law, such as respect for the territorial integrity of other states. Treasury specifically designated 42 subsidiaries of Sberbank for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, Sberbank.
For example, U.S. bank cannot process payments or provide financial services to Sberbank or its subsidiaries or if Sberbank has funds or assets held in U.S. banks, these assets are frozen and cannot be accessed by Sberbank.
For further details refer to this press release.
Hence, Sberbank is currently subject to multiple sanctions, which are all in effect simultaneously:
Senior Principal Officer | Pubali Bank PLC
10 个月Splendid.... ??
AFC Professional II Specialist - Quality Assurance II Transaction Monitoring II SCB II Ex-EBL
10 个月Thank you Afifa Akkas Shahid for sharing this informative post about sanctions. Learned a lot about Sanctions! ??
Understanding the foundation of sanctions is crucial for Compliance Officers. Looking forward to reading your insights. ???♂? Afifa Akkas Shahid