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New Sanctions Prohibit Providing Accounting, Trust and Corporate Formation, and Management Consulting Services to Russia

On May 8, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control ("OFAC") announced a new round of sanctions in response to the Russian invasion of Ukraine targeting accounting, trust and corporate formation, and management consulting services (collectively, the "Specified Services"). Effective immediately, the specified services are prohibited for persons subject to list-based OFAC-blocking sanctions. Effective June 7, 2022, all U.S. persons will be banned from providing the Specified Services to any person located in the Russian Federation.  

These new OFAC sanctions align with measures previously announced by the United Kingdom ("UK") on May 4, 2022, and the European Union ("EU") on May 6, 2022, banning the provision of management consulting, accounting, and Public Relations ("PR") services to persons in the Russian Federation.  

What Specified Services are affected?

According to OFAC FAQ 1034:

  1. Accounting services– includes services related to the measurement, processing, and transfer of financial data about economic entities. Note that OFAC has issued General License 35, authorizing the provision of audit and credit rating services.
  2. Trust and corporate formation services – includes services related to assisting persons in forming or structuring legal persons, such as trusts and corporations; acting or arranging for other persons to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts. OFAC noted that these are common activities of trust and corporate service providers, although they may be provided by other persons.
  3. Management consulting services – includes services related to strategic advice; organizational and systems planning, evaluation, and selection; marketing objectives and policies; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.

In contrast to the EU and UK actions, the OFAC sanctions do not explicitly address PR services - although the definition of management consulting includes elements that appear to include services frequently provided by PR firms.  

What do these sanctions mean for Specified Services providers?

Effective immediately, pursuant to E.O. 14024, U.S. persons are prohibited from providing the Specified Services to any individual, entity, or organization on OFAC’s List of Specially Designated Nationals ("SDNs"). This sanction is relatively straightforward, as it prohibits providing services to a list-defined class of SDNs - who already were subject to financial blocking sanctions. Assuming Specified Services providers conduct SDN screening, the marginal effect of the additional ban on the Specified Services should be relatively limited. 

Beginning on June 7, 2022, pursuant to E.O. 14071, U.S. persons, wherever located, will be prohibited from providing the Specified Services to any person located in the Russian Federation. The effective date(s) for the EU and UK bans are not yet specified, but presumably will be around the same time. These sanctions will have a greater effect, as they apparently will be applicable to any Specified Services performed for a person located in the Russian Federation - a broad, amorphous, and potentially changing prohibited population. Individuals and organizations that provide (or may provide) Specified Services will need to address several questions to define risk and implement appropriate controls. For example:

  • Who in your organization may be affected? While the obvious target of these sanctions are professional and financial services firms, it is important for companies, organizations, and institutions to also consider in-house functions that may present risk touchpoints.
  • What touchpoints does your organization or business have with persons in the Russian Federation? It is important to consider not just direct or obvious links.  What about customers, partners, subsidiaries, and JVs?  
  • If you have continuing business in the Russian Federation, how will these sanctions affect you and your colleagues?  What provision do you need to make to seek licenses or clarification from relevant regulators? 
  • What additional Know Your Customer ("KYC"), diligence, contractual, and compliance measures do you need to implement to identify and appropriately mitigate risk?  
  • What is your plan to review existing third-party relationships to identify and mitigate risk? 
  • How will you communicate these new sanctions to your personnel, customers, and partners?  
  • What impact do these sanctions have on your business strategy and operations?

How Ankura Can Help

Ankura integrates cross-discipline expertise to help clients navigate the current risk environment. Our team has deep experience designing and deploying effective, integrated economic sanctions and export control compliance programs. Our seasoned professionals have served as senior OFAC, national security agency, and law enforcement officials; as trusted strategists and policy advisors; and as compliance executives and leaders within global enterprises. We understand how to help organizations of all sizes adapt to the changing environment with risk-appropriate and effective strategies and compliance programs.

© Copyright 2022. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.

Tags

risk & compliance, c-russia, compliance & ethics, conflict, economic sanctions, foreign investment advisory, f-conflict, f-risk, memo

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