Now that the United States and its allies have deployed many of their available financial and trade weapons in support of Ukraine against Russia’s invasion, what happens next?
Perhaps more than any other U.S. sanctions program, the one currently imposed against Russia reflects a “whole of government” approach involving many federal agencies. This alert summarizes the U.S. government’s enforcement tools that can be used to encourage compliance with the sanctions imposed against Russia. It also provides U.S. companies and individuals (“U.S. persons”) with guidelines to use in establishing and monitoring their own compliance activities.
1. The Office of Foreign Asset Control and Bureau of Industry and Security
The most prominent tools are those available to the Office of Foreign Assets Control (OFAC), a unit of the U.S. Treasury Department responsible for enforcing the U.S. economic sanctions programs, and the Bureau of Industry and Security (BIS), the part of the U.S. Department of Commerce that is responsible for overseeing the U.S. import and export restrictions. These agencies have strong civil enforcement authority that includes, but is not limited to, large fines, suspension from exporting, and referral to other agencies for parallel civil and criminal enforcement actions (see the table below). In particular, OFAC violations frequently involve multiple federal (and state) agencies and are predicate offenses to a number of other crimes. For example, a violation of the International Emergency Economic Powers Act (IEEPA), the statute underlying most economic sanctions programs, is a predicate offense to the crime of money laundering. 18 U.S.C. § 1956(c)(7). Both OFAC and BIS websites should be monitored regularly (if not daily) for publication of executive orders, regulations, directives, and general licenses; sanctions enforcement information that indicates prudent changes in compliance policies and procedures; and related information.
The documents governing the OFAC and BIS regimes—and the private sector’s compliance activities—will change frequently as the government gains more experience with each program and seeks to increase pressure on Russia while minimizing harm to U.S. industry and individuals. For example, on March 11, 2022, the President expanded the financial and trade sanctions on Russia just three days after he increased sanctions in place since March 6, 2014. OFAC lists its publications on its “recent actions” landing page and on the web pages devoted to impacted programs, such as the Russian Harmful Foreign Activities Sanctions, Ukraine-/Russia-related Sanctions, Belarus Sanctions, Global Magnitsky Sanctions, the Magnitsky Sanctions, and Countering America’s Adversaries Through Sanctions Act (CAATSA) pages. Trade sanctions releases for programs administered by the Commerce Department may be found on the BIS newsroom press release page.
U.S. Government Entities Responsible for Sanctions Enforcement, by Business Sector
See glossary of acronyms at the end of this article for more information on the entities listed above.
2. Enforcement by Other U.S. Agencies, Divisions, and Units
The U.S. pressure on Russia, however, is broader than just traditional financial and trade sanctions. The comprehensive actions against the Russian government, Russian elites, and Russian companies are being enforced under several laws beyond those administered by OFAC and BIS. U.S. persons should conduct strong counter-party due diligence to avoid interacting with sanctioned entities and individuals seeking to evade U.S. laws restricting Russian activities in the United States across a wide range of sectors. Several actions by the U.S. government illustrate this point.
On March 2, 2022, the U.S. Department of Justice (DOJ) established Task Force KleptoCapture. This interagency body, run out of the Office of the Deputy Attorney General, will be forward-leaning in seeking to prosecute violations of economic sanctions. It will draw on assets from throughout DOJ and law enforcement, and it will work with the transatlantic task force announced on February 26 by the United States, EU, UK, and Canada. In addition to prosecuting offenders, the task force is focusing on asset seizures and civil forfeitures of unlawful proceeds—including personal real estate, financial, and commercial assets—to deny resources that enable Russian aggression.
Within the DOJ, the Foreign Agents Registration Act (FARA) Unit, part of the National Security Division, has already increased its enforcement activities. FARA requires any person who acts with the purpose of influencing U.S. policy toward a foreign government for or at the direction of a foreign government, political party, or entity to register with the FARA Unit. Failure to do so may subject the violator to civil and criminal fines, as well as prison time. The FARA Unit is actively seeking out individuals and entities that attempt to influence U.S. policy toward Russia.
Most recently, DOJ revealed a criminal complaint on March 8, 2022 against a dual U.S.-Russian national for acting illegally in the United States as an undisclosed agent for President Putin’s regime. The complaint alleges that she took tens of thousands of dollars—as well as direction—from the Russian government to establish a Russian propaganda center in New York City, arranged for Russian officials to meet with U.S. government officials, and conducted propaganda campaigns. The lesson from this case is that U.S. persons should be alert to Russian influence campaigns being run inside the United States and take steps to avoid being conned into unwitting participation that could potentially lead to civil or criminal exposure.
The DOJ’s Computer Crime and Intellectual Property Section (CCIPS) of the Criminal Division is focusing on preventing Russia and Russian agents from using cryptocurrency to evade economic sanctions. With the help of the FBI, Secret Service, Financial Crimes Enforcement Network (FinCEN), and financial institutions, CCIPS is working to uncover Russia’s attempts to move money from blocked locations and accounts into crypto accounts and crypto wallets in the United States. CCIPS was recently part of an international operation that resulted in the prosecution of a man with ties to Russia-based actors for ransomware attacks against multiple victims in the United States, per a March 9, 2022 announcement. The lesson from this is the same: U.S. persons should be careful in conducting cryptocurrency exchanges with individuals with whom they do not have an ongoing relationship.
Returning to the Treasury Department, FinCEN—the agency that enforces U.S. anti-money laundering (AML) laws—has encouraged all financial institutions to be “vigilant against potential efforts to evade the expansive sanctions and other U.S.-imposed restrictions implemented” in connection with Russia’s invasion of Ukraine. While the release encourages compliance, failure to heed FinCEN’s warning that it is “vitally important for U.S. financial institutions to be vigilant” about Russian sanctions evasion by “state actors and oligarchs” will be met with substantial fines and penalties.
Reminder: The AML laws apply to all financial institutions, which include banks; credit unions; securities houses; futures commission merchants; money transmitters; dealers in convertible virtual currencies (CVCs), precious metals, stones, or jewels; loan or finance companies; casinos; operators of credit card systems; and mutual funds. As for the Russian sanctions, compliance with both the beneficial ownership rule and Geographic Targeting Orders (concerning cash purchases of residential real estate) should be key parts of an AML compliance program.
FinCEN’s intelligence and enforcement activities, like those of every other U.S. government agency involved in enforcing sanctions against Russia, are augmented not just by the U.S. intelligence community (IC), but also by a strong network of international bodies. In the AML world, the Financial Action Task Force (FATF) and the Egmont Group provide policy and operational coordination around the world. The United States participates (and frequently takes a leading role in) a number of other, similar organizations. For example, the SEC is very active in the International Organization of Securities Commissions (IOSCO). The point here is to illustrate the breadth of international cooperation being brought to bear to enforce the sanctions against the Russian government, companies, and individuals named by the United States and the developed countries around the world.
To help prevent illegal investment in the United States by Russian entities and individuals, the Committee on Foreign Investment in the U.S. (CFIUS) will no doubt strengthen its examinations of in-bound investors and the origin of investment funds. CFIUS is an “interagency committee authorized to review certain transactions involving foreign investment in the United States and certain real estate transactions by foreign persons, in order to determine the effect of such transactions on the national security of the United States.” It is composed of members (secretaries of the Departments of the Treasury, Justice, Homeland Security, Commerce, Defense, State, and Energy, and Offices of the U.S. Trade Representative and Science & Technology Policy), observers (heads of the Office of Management and Budget, Council of Economic Advisors, National Security Council, National Economic Council, and Homeland Security Council), and ex-officio members (Director of National Intelligence and the Secretary of Labor). An unfavorable determination by CFIUS can completely halt a project funded by foreign investors.
Finally, the private sector should be alert to the role of the Department of Homeland Security (“DHS”) in coordinating domestic preparedness and response efforts related to the current Russia-Ukraine crisis. Keeping the U.S. economy running requires vigilance by all participants, particularly with regard to cybersecurity and protecting critical assets. DHS will publish updated guidance on its “ShieldsUp” web page, which should be monitored regularly.
Prior alerts by the Financial Services Practice concerning sanctions against Russia may be found here (March 26, 2014; February 22, 2022; March 2, 2022; and March 8, 2022). For additional information on the topic of this alert, please do not hesitate to contact the authors.