May 7, 2015

Clarification and Addition to Ukraine-Related Frequently Asked Questions

by Jeremy Paner

Following months of calls to the OFAC hotline and Compliance Division from frustrated financial institutions, OFAC provided revisions to FAQs 395 and 419 and issued a new FAQ regarding General License 6 under the Ukraine-related program. Although this guidance will undoubtedly be welcomed by banks around the world, I suspect OFAC will continue to issue further clarification on the debt and credit prohibitions accompanying Sector Sanctions Identification (SSI) listings.

Prohibitions on letters of credit

The revised FAQs reiterate the Directives 1, 2, and 3 prohibitions on the extension of credit to SSI List entities. U.S. entities can act as the advising or confirming bank, as the applicant, or even process transactions under a letter of credit in which an SSI entity is the beneficiary. None of these letter of credit services are a prohibited extension of credit to an SSI entity.

All three elements must be met for a letter of credit to represent a prohibited extension of credit:

  1. The letter of credit was issued on or after the sanctions effective date (the date the subject entity was placed on the SSI List);
  2. The letter of credit carries a term longer than 30 or 90 days (depending on the Directive the entity is listed under); and
  3. An SSI entity is the applicant of the letter of credit (an extension of credit to an SSI entity).


When does the clock start running?

The revisions also explain the calculation of the 30- and 90-day debt prohibitions under Directives 1, 2, and 3 in the following instances:

  1. Sale of goods to an SSI entity – time begins to run when title or ownership is transferred to the SSI entity
  2. Provision of services to and subscription arrangements involving SSI entities – time begins to run when the final invoice, or each final invoice is issued
  3. Progress payments for long-term payments – time begins to run when the final invoice, or each final invoice is issued

Ukraine-related General License 6

Lastly, the newly issued FAQ 453 clarifies that General License 6 authorizes U.S. depository institutions, U.S.-registered securities brokers and dealers, and U.S.-registered money transmitters to process noncommercial, personal remittances regardless of whether the originator or the beneficiary is a U.S. person.