On June 6, 2022, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC“) published new and amended Frequently Asked Questions (“FAQs “) regarding the Russian investment ban imposed under Executive Orders 14066, 14068, and 14071 (collectively, the “Investment Ban EOs“). Our prior blog posts on these Investment Ban EOs can be found here and here. These new and amended FAQs define the term “new investment” used in the Investment Ban EOs and provide guidance on activities that are prohibited, and those that are outside the scope of the prohibitions, under the Investment Ban EOs. Below we summarize the key take-aways for each of these FAQs.
- FAQ 1049 clarifies that OFAC views the term ” investment” as the commitment of capital or assets for the purpose of generating returns or appreciation and interprets the term “new” as such a commitment made on or after the respective effective dates of the Investment Ban EOs, i.e., March 8, March 11, and April 6, 2022 (collectively, the “Cutoff Dates“). This includes commitments (1) entered into on or after the Cutoff Dates and (2) made on or after the Cutoff Dates by exercising rights under an agreement concluded before the Cutoff Dates. The “maintenance” of an investment in Russia made before the Cutoff Dates does not constitute a new investment. This FAQ also includes a list of transactions that OFAC considers to be “new investments” and a list of activities that OFAC does not consider to be “new investments.”
- FAQ 1050 provides guidance on the meaning of “maintenance of investments” and includes a list of activities that are considered maintenance of investments and thus not subject to the prohibitions under the Investment Ban EOs. Generally, “maintenance” includes all transactions (including performing under or modifying pre-existing agreements and entering into new agreements) that are ordinarily incident to performing under an agreement in effect prior to the Cutoff Dates (“Pre-Existing Agreement“). In contrast, expansion of Pre-Existing Agreements would not be considered “maintenance.”
- FAQ 1051 clarifies that the Investment Ban EOs do not prohibit the export or import of goods, services, or technology, or related sales or purchases, to or from Russia, provided that such transactions follow ordinary commercial sales terms. Furthermore, traditional trade finance products (e.g., commercial letters of credit and documentary collections) may be used in support of such transactions.
- FAQ 1052 confirms that US persons may continue to fund their subsidiaries and affiliates in Russia for “maintenance” purposes.
- FAQ 1053 provides that the Investment Ban EOs do not prohibit transactions related to the divestment or the facilitation of divestment of pre-existing investments in Russia. US persons (e.g., financial institutions) may also facilitate a seller to wind down or divest its pre-existing investment in Russia, but are prohibited from facilitating the acquisition of an equity interest in an entity located in Russia.
- FAQ 1054 clarifies that US persons are prohibited from purchasing both new and existing debt and equity securities issued by Russian entities but are not required to sell or divest such debt and securities. Further, US persons are not prohibited from investing in a US fund that contains debt or equity securities issued by Russian entities, so long as these holdings do not constitute a predominant share by value of debt or equity securities issued by Russian entities.
- FAQ 1055 clarifies that the Investment Ban EOs do not prohibit US persons from lending funds to, or purchasing an equity interest in, non-Russian entities, provided that (1) the funds are not specifically intended for new projects or operations in Russia and (2) the non-Russian entity’s revenues are not predominantly derived from its investments in Russia.
- The old FAQ 1019 outlined the scope of the energy sector investment ban under EO 14066 by defining the term “new investments in the energy sector in the Russian Federation.” The amended FAQ 1019 deletes the definition of this term and directs the public to FAQs 1049 – 1055 for guidance on new investment related prohibitions under the Investment Ban EOs.
- FAQ 1005 mainly addresses the scope of Directive 4 under Executive Order 14024. OFAC amended FAQ 1005 by adding a sentence about the prohibition under the Investment Ban EOs on US persons’ purchase of debt or equity securities issued by Russian entities.