With all the news surrounding the imposition of sanctions on Russia following the country’s February 2022 invasion of Ukraine, many questions abound as to what “being sanctioned” really means. This post will address the issues surrounding being named onto the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) list of Specially Designated Nationals and Blocked Persons (commonly referred to as the SDN list or the OFAC list).

My law firm Akrivis Law Group‘s recent success in securing the removal from the SDN List of two high profile Russian ex-bankers, Elena Titova and Andrey Golikov, has garnered quite a bit of coverage, not only in Russia but also by others such as Bloomberg. The delisting of the two former Otkritie Bank supervisory board members followed petitioning before federal authorities (OFAC and the State Department) and filing suit in the US District Court of the District of Columbia (DDC). Listings are exceptionally common, removals very much less so. But what does an SDN listing really involve? How does one get off the list?

Many may be familiar with embargo-style sanctions, so-called “country programs” like longstanding US sanctions on Cuba, Iran, North Korea, and Syria. Russia is still not under a comprehensive embargo, but the US restricts the exportation of many items to that country, ranging from luxury goods to “dual use” items are restricted, as well as many services, such as accounting and management consulting. Beyond these types of limitations are designation on the SDN List.

With the increasing use of sanctions against countries and particular sectors of those countries’ economies as a tool of US foreign policy, many natural persons (individuals) and legal persons (companies, organizations, etc.) are finding themselves on the SDN List (notably, the list also includes ships and aircraft). The reasons behind such listing can vary – having served an entity that is designated (e.g., being on the board of a company), assisting a foreign government in illicit activities, being the spouse or adult child of a sanctioned party. OFAC usually adds parties to the list under authority granted by the President pursuant to Executive Orders or regulations issued pursuant to Executive Orders under a handful of federal statutes, such as the International Emergency Economic Powers Act (IEEPA), or the Foreign Narcotics Kingpin Designation Act (FNKDA). In effect, Congress has empowered the President to engage in sanctioning under certain circumstances, and that ability is regularly delegated to agencies within the executive branch, including not just OFAC but for example, the US Department of Commerce’s Bureau of Industry & Security (BIS) (you may have heard of the Entity List, which includes companies such as Huawei).

Being named to the SDN list (which currently includes well above 15,000 names) is effectively a blacklisting from the US economy. With very rare exceptions, US persons (citizens and permanent residents, wherever located, individuals physically in the US, and US companies) cannot trade in goods, services, or technologies with entities on the list. If the designated party has assets subject to US jurisdiction (e.g., in the US or under possession of a US person) they effectively become blocked, such as bank accounts. In the case of other property, e.g., real estate or aircraft, etc., the sanctioned party cannot use the assets, and their monetization must be under an OFAC license, typically with the earnings going into a blocked account (effectively a custodial account) that the party cannot access. Subsidiaries owned 50% or more are generally considered “blocked” too, even if they are not separately named on the list.

Alas, one may ask, many if not most of these people, have no dealings with the US, so is being on this list even relevant or that big of a deal for those outside the US and having no assets or business here? The answer is yes, it certainly can. The United States and US persons are effectively ground zero for OFAC-blocked parties – assets get blocked, and US persons are barred from doing business with them. However, being on the SDN list often triggers a “domino effect” outside the United States, whereby parties in many countries, even those not necessarily legally bound by US sanctions, de-risk from the sanctioned party, what in present day parlance may be referred to as “canceling” – think of accounts in third countries getting blocked or closed, or individuals not being able to fly on some airlines or serve on company boards. Reasons for this can vary, but in the case of banking, it could be because the financial institution is a branch of a US company, under which it usually must be blocked. It could also be because the financial institution has agreements with corresponding banks in the US that it will comply with US sanctions. Alternatively, the financial institution just might be afraid, rightfully or not, depending on the legal authority, that it could face sanctions for serving the sanctioned party.

Following submission of a petition for removal, a questionnaire is generally sent to the petitioner within 90 days. The process can be a long one, and some have taken their cases to court, in part to speed up the process. OFAC’s stated policy on its website is that sanctions are not meant to serve as punishment, but are instead aimed to change behavior. As such, unless one’s strategy is to categorically deny the basis of the sanctioning, seeking removal from the list arguably requires a very serious approach and a willingness to remediate. In other words, one probably won’t be delisted just because they asked.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced scores of designations onto its List of Specially Designated Nationals and Blocked Persons (the “SDN List”). The 25 individuals and 29 entities had a nexus to 20 jurisdictions. This move is in conjunction with the U.S. Department of State, which has sanctioned certain parties today, and the U.S. Department of Commerce’s Bureau of Industry & Security (BIS) which added 28 entities to its Entity List (more on that below). While such widescale designations in one instance are an increasingly common occurrence, wherein an agency such as OFAC or the BIS may target an entire group of related parties (companies and individuals), the types of entities targeted today are particularly noteworthy, as is the interagency effort the action represents.

OFAC Designations

For those not familiar with the SDN List, this list, which includes over 10,000 entries, is effectively a financial ban vis-a-vis the U.S. economy, prohibiting most dealings with between parties on the list and “U.S. persons” – generally defined as U.S. legal (e.g., companies and organizations) or natural persons (citizens and permanent residents, as well as non-citizens and non-permanent residents physically in the United States). Due in part to the prominence of this list and more importantly the U.S. economy, companies outside the United States, from banks to logistics providers, often abstain from dealing with such parties, even if they are not prohibited from doing so under their country’s own laws.

The majority of parties designated by OFAC today are connected with Alisher Burhanovich Usmanov, a major Russian-Uzbek businessman who OFAC sanctioned in March 2022. Usmanov has holdings around the globe and has also been sanctioned in numerous other jurisdictions as well, including Canada, Japan, and the United Kingdom (notably, today’s move was also coordinated with the United Kingdom – you can see the UK Office of Foreign Sanctions Implementation (OFSI) notice here). These sanctioned entities are spread out globally in jurisdictions such as Cyprus, Switzerland, the UAE, and Russia.

Separate from the Usmanov designations, OFAC also targeted Seqouia Treuhand Trust Reg, a Liechtenstein-based trust services company for assisting sanctioned Russian businessman Gennady Timchenko (owner of the Volga Group) and his family. It also sanctioned individuals connected with the trust, including a Liechtenstein and Swiss dual national who serves as managing director of the trust who allegedly personally managed some of the properties of Usmanov, as well as other European nationals.

Lastly, certain parties in Russia, China, Turkiye, and the UAE have been designated for assisting Russia procure technologies in areas such as semiconductors, defense, and robotics. Also sanctioned were the International Investment Bank (IIB), a Hungary-based investment bank and JSC IIB Capital of Russia, as well as three executives tied to the bank.

What is significant here is that the move underscores that OFAC is not just designating major, well-known entities and their board members, but even related entities and parties who are assisting these primary actors, such as board members of foreign, non-Russian trusts.

BIS Entity List

As mentioned above, the BIS also added 28 parties to the Entity List today, in 10 countries, effectively for ties to export diversion and procurement related to Russia. Unlike the SDN List, the Entity List is not an outright financial ban on a party, but depending on the nature of the designation, it can prohibit the flow of any items or technologies subject to the U.S. Export Administration Regulations (EAR), which can include non-U.S. items physically in the United States, or items made outside the United States with certain U.S. origin content. The parties named today are in Armenia, China, Malta, Russia, Singapore, Spain, Syria, Turkiye, UAE, and Uzbekistan. The licensing policy (the standard of review for license requests to export EAR-controlled items to the named parties) for these entities varies across the board, reflecting grades of severity. In other words, for some there is a “presumption of denial” and for others the standard is less strict, with carveouts for food and medicine, for example.

State Department

The U.S. Department of State has similarly sanctioned a host of entities, including some related to Rusatom, part of Rosatom, the Russian state atomic energy corporation.

What today’s actions means

Today’s coordinated inter-agency (and arguably multilateral) effort in the United States reflects a trend we will likely see more of – increased coordination across agencies as well as with allied countries in trying to stem Russia’s military, energy, and financial sectors and other key economic players from access to global markets and finance. There are perhaps two key takeaways here. First, by targeting one individual’s financial empire, there will likely be a domino effect where this particular group would effectively be paralyzed internationally (if it hasn’t been already). As we have seen today that even executives and directors of such companies, including European nationals, have been sanctioned. This may cause remaining service providers such as non-U.S. banks, trust companies, entity maintenance companies, etc. outside the United States to reconsider some of their activities, further impairing the ability of the upstream sanctioned entity to conduct business outside Russia. More broadly, it may prompt some non-sanctioned parties to want to explore the possibility of measures aimed at preventing a designation, as preventing such a scenario is arguably easier than trying to correct it.

Inevitably, many of the sanctioned entities will likely want to consider delisting. This is certainly not impossible, but is an uphill battle that has to be handled correctly. Although OFAC blocking does not constitute forfeiture, and while parties can seek (and secure) removal from U.S. sanctions lists, it is often a very uphill, lengthy battle. It is not without precedent, however. As such, even an eventual removal will still mean that a party may find its assets subject to a de facto seizure for years, without any type of judicial case. That said, while removals may seem extremely challenging, even like moonshots, every case is different, and OFAC has been unequivocal on the emphasis on mitigation, with the Department of the Treasury restating even in today’s press release that “[T]he ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior.” A well-defined approach may help prevent a listing or could cause a removal.

My partner at Akrivis, Sam Amir Toossi, who heads the firm’s White Collar Defense and Commercial Litigation practice wrote this piece, which features on our firm’s website as well. Those of us in the sanctions regulatory and compliance field may have less appreciation for this as for those familiar with the regulations, the sanctions are very clear and self-evident on this issue – sanctions evasion and circumvention are prohibited whether by cryptocurrency or any other method. However, those in the enforcement space, including litigators such as Sam, a former federal prosecutor in the Eastern District of New York (EDNY), find the opinion of the District Court for the District of Columbia (DDC) very poignant and significant as it clearly ascertains the Department of Justice’s position on this issue. Expect to see a lot more on this in the coming months and years.

Following Russia’s invasion of Ukraine, the United States quickly imposed sweeping sanctions on Russian entities and individuals, which the Biden Administration immediately began to take steps to aggressively enforce.  The Department of Justice (DOJ) announced the formation of the KleptoCapture Task Force, an interagency law enforcement effort to enforce the sanctions and restrictions designed to punish Russia’s actions in Ukraine.

As news reports abounded of Russian efforts to evade the sanctions using cryptocurrency, the DOJ stated that part of the KleptoCapture’s mission would be to “target[] efforts to use cryptocurrency to evade US sanctions, launder proceeds of foreign corruption, or evade US responses to Russian military aggression.”  OFAC also issued guidance in an FAQ released on March 11, 2022, confirming that compliance with the Russian sanctions would be required “regardless of whether a transaction is denominated in traditional fiat currency or virtual currency,” pointing to its own October 2021 guidance on the use of cryptocurrency.  Now, a court sitting in the District of Columbia has weighed in and confirmed that the DOJ can pursue criminal charges against individuals that use cryptocurrency to evade U.S. sanctions.  This ruling not only confirms that the DOJ is pursuing sanctions violators criminally, but it also represents the first time that the federal courts have approved of such enforcement.

On May 13, U.S. Magistrate Judge Zia Faruqui, sitting in the United States District Court for the District Columbia (DDC), ruled that the DOJ could pursue a criminal action based on the use of cryptocurrency to evade U.S. sanctions.  In an opinion rich with pop-culture references (including Friday the 13^th, Silicon Valley, and Saturday Night Live), the Court stated that “[t]he question is no longer whether virtual currency is here to stay (i.e., FUD) but instead whether fiat currency regulations will keep pace with frictionless and transparent payments on the blockchain.”  The Court ultimately relied heavily on OFAC’s recent guidance from October 2021, which determined that “sanctions compliance obligations apply equally to transactions involving virtual currencies and those involving traditional fiat currencies.” (quoting OFAC, Sanctions Compliance Guidance for Virtual Currency (“OFAC Guidance”), at 1 (Oct. 2021),

https://home.treasury.gov/system/files/126/virtual_currency_guidance_brochure.pdf  see also U.S. Dep’t of the Treasury, Questions on Virtual Currency (Mar. 19, 2018),

https://home.treasury.gov/policy-issues/financial-sanctions/faqs/560.

Notably, the Court also cited with approval recent enforcement actions involving cryptocurrency.  Prominent payment platforms such as BitGo and BitPay had to settle sanctions violations with OFAC earlier this year due to deficiencies in internal controls and screening procedures aimed at detecting prohibited transactions on their platforms. BitGo was found to have violated OFAC regulations because it allowed transactions between buyers in a sanctioned country and businesses in the United States and elsewhere exchanging digital currency on its platform, even though the platform provider had Internet Protocol (IP) addresses and other location data about the buyers prior to processing the transactions.

There are several key takeaways from Judge Faruqui’s opinion.  First, while it is unknown which sanctioned country was involved in the transactions at issue, the DOJ has been clear that it intends to pursue sanctions violators criminally.  As Deputy Attorney General Lisa Monaco recently said, “sanctions are the new FCPA.”  And the opinion reveals that the DOJ is now pursuing sanctions violations using cryptocurrency criminally.  Second, it is unusual that the opinion is even available to the public.  The case remains under seal, and the Court redacted the name of the defendant and the sanctioned country at issue.  And yet the Court nonetheless published the opinion on its website, seemingly as a warning that not only does the executive branch (e.g., DOJ and OFAC) view cryptocurrency as subject to sanctions regulations, but the judiciary does now as well.  Indeed, there is now clear judicial precedent for the proposition that the use of cryptocurrency is subject to U.S. sanctions.  As Judge Faruqui stated in his opinion, “The [DOJ] can and will criminally prosecute individuals and entities for failure to comply with [sanctions] regulations, including as to virtual currency.”

It’s been a long time since I wrote about this topic, but it remains one of perennial interest for many. Unlike many developing countries, Iran is a perhaps a net sender rather than receiver of family remittances. This therefore constantly begs questions by people in the United States as to how they can obtain money from Iran, whether it’s gifts from parents and grandparents, inheritance, or the sale of their own property. The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), which has jurisdiction over most individual transactions involving the U.S. and U.S. persons and Iran, regularly issues new regulations and statements on a wide range of sanctions programs. In studying this particular issue, however, the Iranian Transactions and Sanctions Regulations, 31 CFR Part 560 (the ITSR) is arguably the cornerstone regulatory framework.

Below are a few things to consider when looking at the legal issues surrounding the receipt of family remittances from Iran.

1. Does it need an OFAC license? Many think you generally need an OFAC license to receive Iranian-origin money, or that money under some given threshold does not need a license (this may be the result of hearsay and a rumor mill). The reality is that the actual amount at issue is not what determines whether you need a license. There is no magical threshold – in other words, transfers of all sizes fall under OFAC’s jurisdiction. Furthermore, licenses, where applicable, are not necessarily just for bringing money – oftentimes, the actual transaction that gives rise to the money needs a specific license. If you think a general license applies, meaning you will not need to apply for a specific license, then make sure your analysis is correct and true to the letter of the law.
   
   Therefore, determining whether a specific license is needed is extremely fact specific, and can depend on a slew of factors – for example, if there is an asset involved, does it need an OFAC license to be sold? Who are the parties involved? What are the source of funds? Are these funds in an Iranian bank subject to blocking? Are any parties designated by OFAC as Specially Designated Nationals (SDNs) involved at any stage of the transaction? Does the money movement have a weird step? These are just a few.
   
2. Have you checked the logistics of sending and receiving the funds? Your compliance obligations do not stop when the funds leave your (or your relative’s) hands in Iran. Ensuring funds are sent in a manner compliant with OFAC regulations is critical – certain entities (e.g., certain banks and exchangers, be they in or outside Iran) cannot be used or dealt with without a specific OFAC license. Certain methods of transfer (e.g., hawala between individuals in Iran and the US) are generally prohibited.
   
3. Does your bank know about the transfer? As many know, funds bound for the US from Iran do not get wired from Iran to the US, rather they get wired from third country banks, e.g., in jurisdictions like Turkey or Malaysia. This may look suspicious to your bank, and banks know Iran relies heavily on third country exchangers for procuring certain goods and services that are blocked by sanctions. As such, banks often reject such wires as such transfers could look like sanctions violations. The onus is arguably on the customer (the recipient) to communicate that to the bank. This is something certain counsel often do – providing documents to a bank’s compliance department to support the argument that their client’s transfer is lawful. While this is not required by law, banks generally want these documents and they can help prevent an erroneous rejection of a wire, or an closure of a client’s account due to a misperceived level of risk.
   
4. Are you otherwise complying with OFAC’s regulations? OFAC regulations are broad and cover a wide host of activities, and it’s therefore critical to ensure that all rules are being followed. There are also bank policies – banks often embrace positions more conservative than what is required by the sanctions. As such, your goal is effectively to make everyone happy. Also, among other things, there are recordkeeping requirements for transactions involving Iran – make sure not to forget those.

The bottom line is that laws and regulations constantly evolve, and the issue of remittances brings forth two issues – not just law but also logistics – even if the law does not change, bank risk preferences can change and de facto “best practices” can and have evolved. Again, in other words, you have to keep everybody happy – not just the government but also your bank. Iran was (at least until late February when Russia invaded Ukraine) the largest sanctions program maintained by the US in its history. Accordingly transactions involving Iran should be seen for what they are – dealings in a country under comprehensive sanctions and in an adversarial relationship with the United States. Accordingly, even transactions that may seem innocuous should be afforded diligence and care to follow the law – Iran is not Japan or Switzerland, and certainly not under the eyes of US law.

The Biden Administration today swiftly implemented broad-reaching sanctions on what it referred to as the “so-called” Donetsk and Luhansk People’s Republics (the DNR and LNR) within Ukraine, hours after Russia recognized these two pro-Russian regions of the country. Specifically, a new Executive Order imposes a near total embargo on these regions akin to what the Obama Administration did with the Crimea following Russia’s invasion in 2014.

The new Executive Order prohibits broad swaths of the two territories and allows for blocking of large groups of people connected with the region.

Following this move, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued 6 new “General Licenses,” or “GLs”authorizing activities such as the sale of agricultural commodities to the two regions as well as continued provisions of internet connectivity and mail services by U.S. persons. General licenses are self-executing, meaning permission for the authorized activities does not require specific licenses from OFAC so long as all activity falls within the rubric of the GL. Nonetheless, those entities operating under the authority of these GLs should exercise caution and vigilance to ensure compliance.

We all watched the events of these past weeks in Afghanistan take place in rapid succession. Then Sunday, the Taliban overran the roughly 20-year old, U.S.-supported government last headed by Ashraf Ghani, forcing him into exile. While U.S. contractors have largely left the country, it is still noteworthy that Afghanistan is now ruled by an OFAC-designated group. This makes virtually all interactions with the new leaders in Kabul prohibited (well, dealings with the Taliban have been prohibited for quite a long time, but now they run the country).

Specifically, the Taliban is designated by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) under the Global Terrorism Sanctions Regulations, 31 CFR Part 594 (the “GTSR”). This means that they are on OFAC’s list of Specially Designated Nationals and Blocked Persons (the “SDN List”, sometimes called the OFAC “blacklist”).

Dealings with such parties by U.S. persons (i.e., U.S. citizens and permanent residents wherever they reside, and U.S. companies or companies owned by them) are almost entirely prohibited, with very limited exception. This covers the importation and exportation of goods and services (which can include matters like receiving permits to operate on the ground in Afghanistan, etc.), and other issues. This means that a lot of dealings with Afghanistan’s government that did not require OFAC licensing effectively now do. Naturally, it can have tremendous effects on media, non-governmental organizations working in Afghanistan, and other charitable providers, as well as on even non-U.S. parties such as banks, money remitters, etc.

Given the freshness of these events, OFAC might not have had the chance to issue new regulations, guidance, and or clarifications on this issue, but don’t be surprised if it does in the coming days (Reuters reported today that the UK has indicated new sanctions). Also note that a number of other entities in Afghanistan are SDGTs.

This isn’t the first time a country is headed by a U.S. sanctioned-party – Iran’s new president Ebrahim Raissi is himself an SDN, and many members of Iran’s regime are SDNs. Similarly Bashar Assad of Syria and some in his government are also sanctioned by OFAC.

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced a settlement yesterday with a U.S.-based company Alfa Laval Inc. (“Alfa Laval U.S.”) and a Dubai-based affiliate company Alfa Laval Middle East Ltd. (“Alfa Laval Middle East”) today over potential civil charges for conspiracy to ship goods to the U.S. goods to Iran and facilitating a transaction to ship U.S. goods to Iran, respectively.

Alfa Laval U.S., based in Richmond, is a subsidiary of Alfa Laval AB, a Swedish-based company that exports storage tank cleaning units worldwide.  The U.S. operation has a subsidiary company in Exton, Pennsylvania called Al Laval Tank, Inc. (“Alfa Laval Tank”), which was the subject of this action. In 2015, Alfa-Laval Tank received an email from Alborz Pakhsh Parnia Company, an Iranian party requesting a shipment of cleaning products to Iran.  A representative of Alfa Laval Tank provided pricing and other information, and then forwarded the communication to an affiliate operation in Denmark, which then referred the matter to Alfa Laval Middle East, the UAE-based sister company.  Those of you who know your sanctions laws may immediately think this is a prohibited facilitation under the Iranian Transactions and Sanctions Regulations, 31 CFR Part 560 (the “ITSR”), as it is, even if it is a bit more tenuous than a text-book facilitation case.  However, there’s more. 

As Alfa Laval Middle East and the Iranian customer devised a plan by which AL Middle East would ship U.S. goods to the Iranian customer, it copied the U.S.-based Alfa Laval Tank on the emails. Working with Alfa Laval AB’s Iran operations, Alfa Laval Middle East and the Iranian customer formed a conspiracy to commit sanctions violations, drawing in part on a memo provided by Alborz on how to route the transactions to make them appear to be shipments destined for Dubai end use. They did not include Alfa Laval Tank on any emails that stated they planned to commit sanctions violations. They did, however include Alfa Laval Tank on an email with a subject line “Gamajet for [Iranian customer’s name],” with Gamajet as the name of the cleaning product to be shipped. As a result, Alfa Laval could have been penalized for not only facilitating a transaction that would have been prohibited if performed by a U.S. person under the ITSR but for basically indirectly exporting to Iran as it failed to heed or largely ignored several warning signs that its goods were at risk of diversion to Iran.

OFAC deemed the Alfa Laval U.S.’s failure on behalf of its subsidiary a non-egregious violation of the ITSR, resulting in a $18,750 penalty from OFAC. The ultimately settled amount of $16,875 with OFAC reflects various aggravating and mitigating factors listed here. The Dubai company that settled with OFAC, Alfa Laval Middle East, is a subsidiary of Alfa Laval AB and faced a penalty for conspiracy and completion of sanctions violations under the ITSR. After Alfa Laval Middle East received an email from AL Tank referring an Iranian customer that wanted a shipment from Alfa Laval Tank, the Dubai-based operation fabricated a conspiracy by which Alfa Laval Tank would unwittingly ship U.S. goods to Iran.  The plan, concocted with the Iranian customer, entailed listing a Dubai distributor with whom Alfa Laval Middle East did business as the end-user for the shipment from Alfa Laval Tank on its export forms. It did not tell Alfa Laval Tank that it had falsified the end-user on export forms.  When Alfa Laval Tank shipped items to the “Dubai-based company,” Alfa Laval Middle East arranged for the items to, in fact, go to the customer in Iran. It ultimately enabled the shipment of $18,585 of U.S. goods to Iran and Alborz sought products to the tune of $181,453 in totality. For this conspiracy and commission of sanctions violations, Alfa Laval Middle East faced a penalty of $615,844 from OFAC. Its large settlement amount of $415,695 is the result of not just aggravating factors, but also significant mitigating factors.

Interestingly, this case ensued from a U.S. Department of Commerce Bureau of Industry & Security (BIS) Post-Shipment Verification of Alfa Laval Tank’s shipment to Dubai, with the verification concluding that the items had been reshipped from Dubai to Iran. The size of the penalty against the Dubai company is significant as it, like cases before it, drives home the substantial liability non-U.S. companies are exposed to for U.S. sanctions violations, and the magnitude of the penalties that could arise from a fairly modest shipment value – less than $18,600 here.