The practical effect of the new designations is that “US Persons”, including US nationals, US entities and any entities within the US effectively cannot do business with any of the specifically listed individuals or companies, and should quickly divest of any positions (see below). All non-US persons should also ensure any business with a US nexus (including utilising US dollars) does not involve one of the listed individuals or entities.
The new designations have ramifications for US nationals who are employed by, or who act as directors or advisors for any designated entity. They may also have ramifications for anyone that currently engages, or in the future intends to engage in, business with any companies associated with any of the individuals listed. However, it should be noted that the level of sanctions risk will be fact specific, and just because a company is associated with a designated entity does not mean that company is itself a designated entity (unless specifically listed).
Employment and contracts for goods and services
OFAC has issued time limited authorisations for the “winding down of operations, contracts or other agreements that were in effect prior to April 6 2018”. As such, under General License 12, anyone employed by or in a contractual relationship with any of the designated entities has until 5 June 2018 to exit or be in breach of their sanctions obligations.
One result of this general licence is that, if a US company has already entered into a contract for the delivery of goods from a designated entity, the goods may only be accepted if delivery occurs before the 5 June 2018 deadline, and any outstanding payments must be placed in a blocked account of a US bank.
It is expected that any US person employed by, or sitting on any board of a designated entity will resign from this position before the deadline. Alternatively, a specific license could be sought from OFAC in exceptional circumstances.
Debt, equity and other holdings
General License 13 allows US persons to sell any debt, equity or other holdings of the newly designated entities by a final deadline of 7 May 2018. These cannot however be sold to anyone themselves listed on the SDN list.
If any of the designated entities hold ownership of a US company, that US company should seek immediate legal advice and is encouraged to contact OFAC. As long as the ownership is less than 50 per cent then the US company itself will not be blocked, but the company must not make any payments, disbursements or dividends to the designated entity apart from to a blocked account in a US bank.
Non US entities
Section 228 of CAATSA includes sanctions restrictions on non-US entities that US authorities determine have facilitated significant transactions for or on behalf of any person subject to the US sanctions regime, which will include these newly designated individuals and entities. However, this will not apply for those engaged in transactions to wind down or divest of positions in accordance with the general licenses mentioned above.