Sanctions Update - August 13, 2014 (with Turza Comment)
On August 13, 2014, the Office of Foreign Assets Control ("OFAC") issued revised guidance applicable to its economic sanctions programs, including those related to Ukraine. In particular, OFAC clarified the application of rules related to the blocking of property in which more than one blocked person has an interest.
According to OFAC's previously issued guidance, the property of a blocked person is itself blocked by operation of law if the blocked person owns, directly or indirectly, a 50% or greater interest in the property. Thus, for example, a company in which an individual or entity named on OFAC's Specially Designated Nationals ("SDN") list owns a 51% stake would be blocked under OFAC's 50 Percent Rule. In contrast, a company in which an SDN owns a 49% stake would not be blocked.
The revised guidance issued on August 13, 2014 clarifies the impact of aggregated ownership interests by multiple blocked persons, stating that "any entity owned in the aggregate, directly or indirectly, 50 percent or more by one or more blocked persons is itself considered to be a blocked person." Thus, if two blocked persons each own a 30% interest in a company, their combined 60% ownership interest would result in the company's being considered a "blocked" entity.
In a series of Frequently Asked Questions ("FAQs") issued along with the revised guidance, OFAC states that this aggregation rule does not apply to "control" over property. That is, an entity over which two SDNs, in aggregate, exercise "control," would not automatically be blocked by operation of law. OFAC "urges caution," however, with respect to entities over which blocked persons may exercise aggregate control, as such entities "may become the subject of future designations or enforcement actions by OFAC." (See FAQ 398)
Finally, the FAQs also make clear that OFAC's ownership aggregation rule applies to SDNs designated under different sanctions programs. For example, a company would by blocked if an individual designated under the Ukraine sanctions program owned a 30% stake, and an individual designated under the North Korean sanctions program owns another 30% stake. (See FAQ 399).
Turza Comment: While many questions remain with respect to the application and enforcement of OFAC's sanctions programs, issuance of the revised guidance clarifies one longstanding area of ambiguity. This is particularly important in the context of the Ukraine sanctions program, which has targeted a number of closely related individuals and entities-including, for example, the brothers Arkady and Boris Rotenberg-that may have ownership interests in the same property.
See: Revised Guidance; OFAC Previously Issued Guidance; FAQ.Related news: Sanctions Summary - Week of August 4 (August 8, 2014); Sanctions Summary - July 31 (with Turza Comment) (July 31, 2014).See also the Cabinet Sanctions Page (some materials are accessible to Cabinet subscribers only). For more information, please contact Dale Turza, James Treanor or Keith Gerver.