U.S. Steps Up Enforcement of Russia Sanctions in 2023: Tips for a Corporate Compliance Response Plan

By Ben Knuth | LexisNexis Subject Matter Advisor, Securities and M&A

The wave of sanctions that were applied against Russia for its invasion of Ukraine in early 2022 created a sudden new mandate for compliance departments last year: Keep track of fast-changing requirements and implement the necessary controls to ensure your organizations are abiding by the various sanctions issued by multiple jurisdictions around the world.

Admonitions from experts and rumblings from governments around the world suggest that it will be one of the top compliance trends to monitor in 2023 as well.

It started last February, when various types of economic and trade restrictions were levied on major financial institutions, business entities, government-owned funds, technology and individuals—including President Vladimir Putin, his family and members of his inner circle—by the U.S., the U.K., the E.U. and other nation states.

Then a series of additional sanctions were rolled out over the course of the next several months.

“The United States and our allies and partners are committed to supporting Ukraine and ensuring the Russian government feels the compounding effects of our latest actions,” said the White House in a statement released last summer.

Brian Benjet, partner and co-head of global compliance at DLA Piper, told Law360® news service that the evolution of these sanctions will likely continue in 2023.

“The geopolitics around that aren’t changing in the near future,” he said, adding that Iran is another area to watch for sanctions concerns.

Benjet noted that the wave of sanctions in 2022 forced chief compliance officers to immediately implement changes without much lead time, leading to a lot of work and stress on compliance programs.

Practical Guidance has published a checklist to help corporate compliance professionals be better equipped to respond to evolving economic sanctions and trade restrictions imposed on Russia in 2023. The checklist notes that an effective sanctions compliance response plan must include five key elements:

1. Management Commitment
2. Risk Assessment
3. Internal Controls
4. Testing and Auditing
5. Training

Beyond these required elements, corporate compliance professionals should look to incorporate the Russian sanctions into a broader organizational sanctions compliance response plan. This should include:

• Perform a review of products and services in sanctioned countries. Investments and transactions involving sanctioned parties and entities must be voided or wound-down within the applicable timelines contained in the above directives, unless permitted under a specific or general license.
• Review sanctions and amend sanction screening filters to reflect Specially Designated Nationals (SDN) List, including geo-location information and accounting for common misspellings.
• Review sanctions and amend sanction screening filters to account for the Bureau of Industry and Security (BIS) Entity List and other lists as applicable.
• Run customer base/counterparties against updated filter to identify risk exposure.
• Assess and investigate potential matches.
• Identify the need to apply for specific licenses or utilize general license. The institution must comply with the terms and conditions set out in the license.
• Report blocked/unblocked assets to the Office of Foreign Assets Control (OFAC).

U.S. institutions are required to block the assets and accounts of sanctioned Russian entities, or individuals when such property is located in the United States, is held by U.S. individuals or entities, or comes into the possession or control of U.S. individuals or entities. Prohibited transactions must also be blocked (if there are assets) or rejected if they are made on behalf of a blocked entity, go to or through a blocked entity, or are in connection with a transaction in which a blocked entity has an interest.

A report of any blocked transactions must be reported within ten business days. These blocking reports must include: description of the owner and of the blocked property; the actual or estimated value of the property in U.S. dollars; the date the property was blocked; the name and address of the holder of the blocked property; the name, telephone number and email address for any person who can provide additional information; description of any transaction associated with the blocking; and various information to explain the legal authorities involved, actions taken, copy of relevant documentation, etc.

Moreover, U.S. institutions are required to reject a prohibited transaction, even when there is no interest or asset to block in the transaction. These rejected transactions must also be reported with 10 business days, following a specific set of reporting requirements.

It is essential for chief compliance officers to stay abreast of the evolving Russian sanctions mandates. Corporate compliance professionals can ensure they are up-to-date on these regulatory duties by leveraging the power of the Lexis+® Corporate Compliance Suite.

This all-in-one platform enables compliance teams to spot potential issues in advance, alert in-house counsel, provide comprehensive briefings on the scope of any regulatory changes, and assist the executive team in drafting compliance policies that mitigate financial and reputational risk. Click here for more information about a free trial of Lexis+ Corporate Compliance Suite.