On November 21, 2024, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) designated dozens of Russian banks, including Gazprombank and other Russian banks, securities registrars, and finance officials, to the List of Specially Designated Nationals and Blocked Persons (“SDN List”). The full SDN designation of Gazprombank, the largest remaining Russian bank, is particularly notable given its role in supporting gas flows between Russia and remaining European and other customers.
On the same day, OFAC issued two new Russia-related general licenses (“GLs”) and amended two existing Russia-related GLs authorizing limited transactions involving the designated financial institutions. OFAC also issued two new Russia-related frequently asked questions (“FAQs”) and three amended Russia-related FAQs. Additionally, OFAC issued an alert describing sanctions risks related to Russia’s System for Transfer of Financial Messages (SPFS). We summarize these developments below.
SDN Designations
According to OFAC’s press release, the primary goal for the additional SDN designations is to curtail Russia’s use of the international financial system to further its war against Ukraine.
This round of designations includes the designations of:
- Gazprombank Joint Stock Company (“Gazprombank”) and its foreign subsidiaries;
- More than 50 internationally connected Russian banks;
- More than 40 Russian securities registrars; and
- 15 Russian finance officials
As a result of these designations, US Persons are generally prohibited from dealing directly or indirectly with SDNs, entities that are owned 50% or more by one or more SDNs, and their property or property interests. Non-US persons can be held liable for “causing” violations by US Persons involving transactions with SDNs, in addition to being subject to secondary sanctions risks (which would include, in particular, the risk of designation as an SDN themselves) for providing “material support” to SDNs.
New and Amended Russia-Related GLs
OFAC issued two new Russia-related GLs authorizing wind-down transactions and divestment activities involving Gazprombank and other designated financial institutions, as follows:
- GL No. 113 authorizes for one month all transactions prohibited by EO 14024 that are ordinarily incident and necessary to the wind down of transactions involving the blocked persons listed in the Annex to this GL, and any entity 50% or more owned by one or more of those blocked persons, provided that any payment to a blocked person is made into a blocked account in accordance with the Russian Harmful Foreign Activities Sanctions Regulations (“RuHSR”). The list of blocked persons listed in the Annex to GL 113 includes Gazprombank and various other Russia-based banks such as Aktsionernoe Obshchestvo Bank Agroros, Bank Iturup LLC, BBR Bank Joint Stock Company, and BCS Bank AO.
This GL does not authorize (1) any transactions prohibited by Directive 2 under EO 14024; (2) any debit to an account on the books of a US financial institution of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation; or (3) any transactions otherwise prohibited by the RuHSR. This GL expires on December 20, 2024 at 12:01 a.m. eastern standard time.
- GL No. 114 authorizes all transactions prohibited by EO 14024 that are ordinarily incident and necessary to:
- (1) The divestment or transfer, or the facilitation thereof, of debt or equity issued or guaranteed by (a) Gazprombank, (b) Interstate Bank, or (c) any entity 50% or more owned by (a) and/or (b) (“Covered Debt or Equity”) to a non-US person;
- (2) Facilitating, clearing, and settling trades of Covered Debt or Equity that were placed prior to 4:00 p.m. eastern standard time, November 21, 2024; and
- (3) The wind down of derivative contracts entered into prior to 4:00 p.m. eastern standard time, November 21, 2024 that:
- Include as a counterparty (a) Gazprombank, (b) Interstate Bank, or (c) any entity 50% or more owned by (a) and/or (b); or Are linked to Covered Debt or Equity.
Any payments to a blocked person must be made into a blocked account in accordance with the RuHSR. This GL does not authorize any transactions prohibited by Directives 2 or 4 under EO 14024 or transactions otherwise prohibited by the RuHSR. This GL also expires on December 20, 2024 at 12:01 a.m. eastern standard time.
Note that OFAC did not add Gazprombank to GL 8K, which otherwise authorizes transactions related to energy involving certain SDN banks for a longer period until April 30, 2025.
OFAC did, however, amend two existing Russia-related GLs, GL No. 53 and 55, to ensure that diplomatic banking activities and the Sakhalin-2 project involving Gazprombank are not disrupted:
- GL No. 53A, which replaces and supersedes GL No. 53, expands the existing GL to authorize US Persons to engage in all transactions prohibited by EO 14024 and involving Gazprombank or any entity 50% or more owned by Gazprombank, or by Directive 4 under EO 14024 that are ordinarily incident and necessary to:
- (1) The official business of diplomatic or consular missions of the Russian government (“Russian missions”); or
- (2) The compensation of employees of Russian missions, including payment of salaries and reimbursement of expenses.
This GL does not authorize (1) any debit to an account on the books of a US financial institution of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation; or (2) any transactions otherwise prohibited by the RuHSR.
- GL No. 55C, which replaces and supersedes GL No. 55B, expands the existing GL to authorize all transactions prohibited by EO 14024 involving Gazprombank or any entity 50% or more owned by Gazprombank that are related to the Sakhalin-2 project, including transactions involving Sakhalin Energy LLC.
This GL does not authorize any transactions prohibited by Directive 2 or 4 under EO 14024 or transactions otherwise prohibited by the RuHSR. This GL expires on June 28, 2025 at 12:01 a.m. eastern daylight time.
New and Amended Russia-Related FAQs
- FAQ 1201 explains the scope of the GLs related to US and third-country diplomatic or consular missions operating in Russia and Russian diplomatic or consular missions operating abroad.
- FAQ 1202 clarifies that personal, non-commercial remittance are not the target of the US sanctions against Russia and that financial institutions may continue to process personal non-commercial remittances that do not involve blocked persons and are not otherwise prohibited by OFAC.
- FAQ 976 and FAQ 1096 were amended to reflect the scope of the revised Russia-related GL 55 and GL 53 respectively, and FAQ 1197 was amended to reflect the new designations of the 40 local Russian registrars.
OFAC Alert on the Russia’s System for Transfer of Financial Messages
OFAC also issued an alert warning foreign financial institutions about the sanctions risks for joining Russia’s System for Transfer of Financial Messages (“SPFS”), which is a system Russia has used to maintain international financial connectivity, evade sanctions, and fund its war effort.
The alert states that SPFS is part of Russia’s financial services sector because of its role facilitating communications between financial institutions within Russia’s financial system. This means that any foreign financial institutions that joins or has already joined SPFS may be designated for operating or having operated in the financial services sector of the Russian economy pursuant to EO 14024.
OFAC views joining SPFS after publication of this alert as a red flag and is prepared to more aggressively target foreign financial institutions that joins SPFS. OFAC also urges foreign financial institutions to review their exposure to institutions that have joined SPFS, as such banks may be conduits for Russian sanctions evasion.
