US Sanctions: What You Need to Know

The US government has recently expanded its sanctions regime targeting Russia’s military-industrial base, imposing stricter measures on foreign financial institutions (FFIs) that engage in significant transactions with designated individuals or entities. In this article, we will outline the key points you need to know about these changes.

What Constitutes a “Significant Transaction”?

According to the Office of Foreign Assets Control (OFAC), a “significant transaction” is considered any transaction that meets certain factors, including:

• Size, number, and frequency of the transaction: The size or volume of the transaction, as well as its frequency, can be indicative of a significant transaction.
• Nature of the transaction: The type of goods or services involved in the transaction can also play a role in determining whether it is significant.
• Level of awareness by management: If senior management is aware of and actively participates in the transaction, it may be considered more significant.
• Nexus to sanctioned persons or activities: Transactions that have a direct connection to individuals or entities subject to sanctions are likely to be considered significant.
• Deceptive practices: If a transaction involves deceptive practices, such as hiding the true nature of the transaction or using shell companies, it may be deemed significant.
• Impact on US national security objectives: Transactions that could potentially harm US national security interests are also considered significant.

Consequences of Engaging in Significant Transactions

FFIs that engage in significant transactions with designated individuals or entities may face severe penalties, including:

• Prohibition on opening correspondent accounts or payable-through accounts in the United States: FFIs may be prohibited from opening or maintaining these types of accounts in the US.
• Blocking of all property and interests in property within the United States or under US control: The US government may block the assets of individuals or entities involved in significant transactions.

Best Practices for Compliance

To mitigate these risks, FFIs are advised to take additional measures beyond ordinary customer due diligence (CDD) procedures and anti-money laundering (AML) controls. These include:

• Reviewing existing customers and counterparties for exposure to specified sectors and items: FFIs should review their existing relationships to identify potential exposure to sanctioned individuals or entities.
• Communicating compliance expectations to customers and counterparties: Clear communication with customers and counterparties is essential to ensure that all parties understand the importance of complying with US sanctions regulations.
• Implementing heightened controls on high-risk activity or non-compliant transactions: FFIs should implement additional controls to monitor and mitigate high-risk activities or non-compliant transactions.
• Obtaining attestations from customers subject to heightened controls: Customers subject to heightened controls should provide written attestations confirming their compliance with US sanctions regulations.

OFAC Guidance on Best Practices

The OFAC has published guidance on best practices for risk-based sanctions compliance programs, emphasizing the importance of:

• Monitoring publicly available information: FFIs should regularly monitor public sources for information on sanctioned individuals or entities.
• Past transactions: FFIs should also review past transactions to identify potential connections to sanctioned individuals or entities.

Next Steps

In light of these developments, FFIs are advised to review their existing procedures and implement additional measures to ensure compliance with US sanctions regulations. If you have any questions or concerns, please do not hesitate to reach out to your usual Linklaters contacts.