Posted on: May 19, 2022
Nearly three months have passed since Russia invaded Ukraine. In response, the United States and its allies initiated unprecedented sanctions against Russia, its financial institutions, and politically exposed persons to put economic pressure on the nation in an effort to stop the war. And more recently, additional sanctions have been issued that directly target professional services teams.
New Sanctioned Entities
As the Ukraine-Russia war continues on, the United States and its allies have taken additional measures to make it more difficult for sanctioned parties to circumvent the restrictions to gain access to funds to fuel the war. On May 8, 2022, the United States Treasury Department’s OFAC (Office of Foreign Assets Control) issued another round of sanctions that apply to:
- Board members of two of Russia’s most important banks (Sberbank and Gazprombank),
- A Russian state-owned bank (Moscow Industrial Bank) and 10 of its subsidiaries,
- A state-supported weapons manufacturer (Promtekhnologiya), and
- Three of Russia’s state-controlled television stations (joint-stock company Channel One Russia, television station Russia-1, and joint-stock company NTV Broadcasting Company) that generate revenue for the state
Professional Services Limitations
Concurrently, OFAC announced new restrictions on certain types of professional services. The announcement precludes direct export, re-export, sale, or supply of the following types of professional services: accounting, trust, and corporate formation and management consulting services to any person in Russia.
The updated sanctions exclude services provided to entities in Russia that are owned or controlled by a U.S. person, or any services provided to help wind down or divest an entity located in Russia that is not under Russian ownership.
Of note, the term “management consulting services” is broadly defined by OFAC and includes “services related to strategic advice; organizational and systems planning, evaluation and selection; marketing objectives and policies; mergers, acquisitions and organizational structure; staff augmentation and human resources policies and practices.”
Considering the broad definition, organizations that may not fit squarely in a professional services box but that have complementary consulting groups in their portfolios (such as SaaS-based technology companies) should regroup with their trade compliance counsel to determine if these new requirements apply to their business. It is imperative to act quickly to evaluate the new requirements because the consequences for sanctions violations can be severe. While they can lead to legal consequences, these types of violations can also be damaging to firms’ reputations and erode trust with other customers and prospects.
According to an update published by the law firm Winston & Strawn, OFAC has broad discretion in pursuing enforcement actions for sanctions violations. Their update states that: “In addition, OFAC expects U.S. Persons and non-U.S. Persons conducting business in the United States to maintain risk-based sanctions compliance policies and procedures. Thus, internal sanctions-related policies and procedures should be updated to account for new risks related to such services and mitigating actions should be taken as appropriate.”
Tips for Success
There are some tips that professional services firms can use to help define a risk-based sanctions approach that OFAC expects. These include:
- Remember to build a resilient culture; it is not enough to just check the box. You will need to ensure that your organization’s leadership is on board and that every employee has a shared sense of responsibility.
- Leverage technology to help you define your risk assessment and resiliency methodology. The ability to view your data in one place will enable you to have better insights into where you need to improve your program design. Having clearly defined programs and technology that supports them can help you build a defensible program.
- Update your policies and procedures to include the new OFAC requirements and expand your third-party risk screening and continuous monitoring to include customers if you are not already doing so.
- Keep your trade-compliance attorneys on speed-dial. Navigating export restrictions can be tricky, and it is always best to seek out legal advice that applies to your business.
- To facilitate discussion with your counsel, you should consider bringing a map of any potential touchpoints that your professional services teams may have with customers based in Russia and Belarus.
- Be prepared to discuss how to best unwind the services that you are offering in Russia and Belarus by the June 7, 2022 deadline.
- Evaluate whether any of the exclusions to the sanctions apply to your professional services offerings that would enable you to continue your business operations lawfully.