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OFAC Offers Guidance on Avoiding Transactions Seeking to Evade Crimea Sanctions

Monday, August 10, 2015
Sandler, Travis & Rosenberg Trade Report

The Treasury Department’s Office of Foreign Assets Control has issued an advisory that highlights some of the practices that have been used to circumvent or evade U.S. economic sanctions imposed to address the Russian occupation of the Crimea region of Ukraine as well as steps that can be taken to avoid such transactions. OFAC states that U.S. persons and persons conducting business in or through the U.S. should be aware of these practices in order to implement appropriate controls to ensure compliance with their OFAC obligations.

Evasive Practices. Practices that OFAC has encountered include the omission or obfuscation of references to Crimea and locations within Crimea in documentation underlying transactions involving U.S. persons or the U.S., and they apply to a range of activities involving both the financial services and international trade sectors.

In the international trade context, references to Crimea have been obscured in trade transactions and associated agreements and documentation. In particular, certain individuals and entities list Crimean counterparties on financial and trade documents as being located in Russia rather than in Ukraine. For example, a U.S. company may have executed a distribution agreement with a third-country company that authorizes the distributor to sell U.S. products to Russia. The third-country distributor may be unaware that the U.S. does not recognize Crimea as a part of Russia or may intentionally exploit any confusion over this fact to sell the U.S. company’s products to Crimean individuals or entities.

In the context of financial transactions, certain individuals or entities have engaged in a pattern or practice of repeatedly omitting originator or beneficiary address information from Society for Worldwide Interbank Financial Telecommunications messages involving individuals ordinarily resident in, or entities located in, Crimea. Some SWIFT messages omit all originator or beneficiary address information while others contain only partial address information for Crimean individuals or entities (e.g., a street address but no reference to a town, city, region or country). OFAC urges caution when processing payment instructions lacking complete address information when such transactions involve an individual or entity that has previously omitted partial or complete address information of Crimean individuals or entities.

Mitigating Risk of Violative Transactions. OFAC states that the risk of processing transactions in apparent violation of the Crimea sanctions can be mitigated by implementing the following types of measures, although parties should always tailor specific compliance measures to their own risk profile.

- ensuring that transaction monitoring systems include appropriate search terms corresponding to major geographic locations in Crimea and not simply references to “Crimea” (e.g., payment instructions or trade documents may reference major cities or ports located in Crimea, and interdiction filters may not flag such transactions for review if the filters do not include an appropriately expansive list of search terms)

- requesting additional information from parties (including financial institutions, corporate entities and individuals) that previously have violated or attempted to violate U.S. sanctions on Crimea (e.g., by routing transactions to or through U.S. financial institutions with inaccurate or incomplete address information for Crimean individuals or entities)

- clearly communicating U.S. sanctions obligations to international partners (in both the financial and trade sectors) and discussing OFAC sanctions compliance expectations with correspondent banking and trade partners (e.g., by including a description of the prohibition on the direct and indirect exportation or reexportation of goods, technology and services (including financial services) from the U.S. to Crimea)

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