On September 15, 2022, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued (i) two new Determinations under Executive Order (“EO”) 14024; (ii) two new Russia-related General Licenses (“GLs”); (iii) seven new Frequently Asked Questions (“FAQs”) and (iv) five amended FAQs. A press release was issued in tandem with these actions.
New Determinations under EO 14024
- The new Determination Pursuant to Section 1(a)(i) of Executive Order 14024 expands authorities for the imposition of blocking sanctions against any person identified by the Secretary of the Treasury, in consultation with the Secretary of State, as operating in the quantum computing sector of the Russian economy. A similar Determination was issued in March 2022 targeting Russia’s aerospace, electronics, and marine sectors. Our blog post on that Determination can be found here.
- The new Determination Pursuant to Section 1(a)(ii) of Executive Order 14071 expands restrictions of Section 1(a)(i) of EO 14071 to Russia’s quantum computing sector. With this addition, the Determination prohibits the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of quantum computing services to any person located in the Russian Federation. This prohibition will take effect beginning at 12:01 a.m. eastern daylight time on October 15, 2022. A similar Determination was issued in May 2022 targeting accounting, trust and corporate formation, or management consulting services. Our blog post on that Determination can be found here.
Amended Frequently Asked Questions
FAQs 1,033, 1,034, 1,059, 1,061, and 1,062 were all amended to reflect that the scope of targeted sectors now include quantum computing services. No other substantial amendments were made to these FAQs.
New General Licenses
Subject to conditions, GL 51, “Authorizing the Wind Down of Transactions Involving Limited Liability Company Group of Companies Akvarius,” authorizes the wind down of any transaction involving Limited Liability Company Group of Companies Akvarius (“Aquarius”), or any entity in which Aquarius owns, directly or indirectly, a 50 percent or greater interest, that are prohibited by Executive Order (E.O.) 14024, are authorized through 12:01 a.m. eastern daylight time, October 15, 2022. These transactions are authorized provided that that any payment to a blocked person must be made into a blocked account.
Subject to conditions, GL 52, “Journalistic Activities and Establishment of News Bureaus,” authorizes news reporting organizations that are US persons, and individual US persons who are journalists (including photojournalists) or broadcast or technical personnel to engage in transactions related to: compensating support staff; leasing or renting office space; purchasing, leasing, or renting goods and services; and paying for all other expenses ordinarily incident and necessary to journalistic activities, including sales or employment taxes.
New Frequently Asked Questions
OFAC issued seven new FAQs regarding the new Determinations, among other items. Summaries of key FAQs are as follows:
FAQ 1,080 outlines the process of unblocking accounts with Russian financial institutions blocked under EO 14024. GL 50, which was issued in August 2022, authorizes transactions ordinarily incident and necessary to close such accounts and also authorises the unblocking and lump sum transfer to the account holder of all remaining funds and other assets in the account at the blocked financial institution, including to an account held at a non-blocked financial institution. Individuals who have filed a blocking report with OFAC and are availing themselves of GL 50 must file an unblocking report with OFAC within 10 business days of the unblocking.
FAQ 1,081 states that individuals with accounts at Russian financial institutions blocked pursuant to EO 14024 are not required to show documentation that their account at a blocked financial institution has been closed when utilizing GL 50.
FAQ 1,082 confirms that non-US financial institutions risk secondary sanctions exposure for contracting or otherwise dealing with the National Payment Card System Joint Stock Company (“NKPK”), the operator of Russia’s MIR National Payment System, which clears and settles payments between consumers, merchants, and banks for debit and credit card payments, primarily in the Russian Federation. While NSPK is not, itself, a blocked entity, the FAQ states that OFAC views non-US financial institutions entering into new or expanded agreements with NSPK as a risk in supporting Russia’s efforts to evade US sanctions.
FAQ 1,084 provides that OFAC anticipates publishing regulations defining the term “quantum computing services” to include any of the following services when related to quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing: “infrastructure, web hosting, or data processing services; custom computer programming services; computer systems integration design services; computer systems and data processing facilities management services; computing infrastructure, data processing services, web hosting services, and related services; repairing computer, computer peripherals, or communication equipment; other computer-related services; as well as services related to the exportation, reexportation, sale, or supply, directly or indirectly, of quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing to any person located in the Russian Federation.”
FAQ 1,085 clarifies that the Determination Pursuant to Section 1(a)(i) of EO 14024 authorizes the imposition of economic sanctions against persons that operate or have operated in the quantum computing sector of the Russian Federation economy and that not all persons operating in the quantum computing sector are sanctioned by OFAC. A determination exposes persons that operate or have operated in an identified sector to sanctions risk; however, a sector determination does not automatically impose sanctions on all persons who operate or have operated in the sector. Only persons determined, pursuant to EO 14024, by the Secretary of the Treasury in consultation with the Secretary of State, or by the Secretary of State in consultation with the Secretary of the Treasury, or their delegates, to operate or have operated in the above-identified sectors are subject to sanctions.
FAQ 1,086 states that OFAC interprets the term “quantum computing sector of the Russian Federation economy” to include activities related to products and services in or involving the Russian Federation in research, development, manufacturing, assembling, maintenance, repair, sale, or supply of quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing. OFAC also interprets the term “quantum computing sector of the Russian Federation economy” to include any of the following services when related to quantum computing: “infrastructure, web hosting or data processing services; custom computer programming services; computer systems integration design services; computer systems and data processing facilities management services; computing infrastructure, data processing services, web hosting services, and related services; repairing computer, computer peripherals, and communication equipment; other computer-related services; as well as the exportation, reexportation, sale, or supply, directly or indirectly, of quantum computing, quantum computers, electronic assemblies thereof, or cryogenic refrigeration systems related to quantum computing to or from the Russian Federation.”
The authors acknowledge the assistance of Ryan Orange with the preparation of this blog post.
