As CSI’s data services manager and resident watch list expert, I do everything I can to stay on top of the latest updates to the OFAC SDN and restricted party watch lists. And with no sign of the Ukrainian crisis letting up, I sat down with Doug Jacobson, an international trade attorney in Washington, D.C. who specializes in sanctions and export controls. He gave us an update on the U.S. sanctions on the Crimea region—and what this means for financial institutions and other companies.
Here’s what Doug had to say:
- How did Crimea end up on the watch list?
Russia annexed the Crimea region of Ukraine in March 2014. Shortly thereafter, the U.S., the EU and other countries imposed various types of sanctions on individuals in Russia and on various sectors of the Russian economy. Certain companies located in the Crimea region also were added to OFAC's SDN List and the BIS Entity List.
Because these initial efforts to deter Russia's annexation were unsuccessful, the U.S. and EU ramped up their efforts by imposing sanctions on the entire Crimean Peninsula. Specifically, on Dec. 19, 2014, President Obama issued Executive Order 13685, which prohibited nearly all transactions by U.S. financial institutions and companies involving the Crimea Peninsula, including payments, exports, imports and investments.
- What makes the Crimean sanctions different from other U.S. sanctions?
The sanctions on the Crimea region are unique from an OFAC perspective because they’re focused on a particular region of a country rather than an entire country. Other than the current sanctions on North Sudan, which allow certain transactions in specified areas of North Sudan, OFAC sanctions prohibiting activity involving a specific region in a disputed territory are highly unusual.
- Why are the Crimean sanctions so challenging for U.S. businesses?
The Crimea sanctions are difficult to comply with compared to other OFAC sanctions because they involve transactions with a specific region that is claimed by two countries, Ukraine and Russia. In many cases, it’s unclear whether a particular person or company is located in a permissible area of Ukraine or Russia or if they’re located in the prohibited Crimea region.
- What can financial institutions and other companies do to help ensure compliance with Crimea sanctions?
Because traditional watch list screening, which uses individual or company names, will not capture the location of the person or company, financial institutions and other companies should look for restricted party screening solutions that screen parties using objective data.
The Crimea region has been an autonomous region of Ukraine, so the cities and towns in the Crimea region have specifically identified postal codes (similar to zip codes). This means, as long as the postal code is known, it can be determined whether the party is located in the Crimea region or not.
CSI incorporated this methodology into its watch list screening solution—WatchDOG® Elite. This is an effective approach that I’m not sure any other restricted party screening provider has adopted.
- How do restricted party screening solutions take an objective approach to screening?
Take Sevastopol for example. It’s well known that Sevastopol—one of the largest cities in the region—is located in Crimea. But when you’re making a transaction outside of one of the larger cities in Crimea (or nearby), it would be recommended—from a compliance perspective—to take additional steps to determine if the location is in the prohibited Crimea region or not.
Using a restricted party screening solution like CSI’s, you can take all of the postal codes for Crimea and link those to various cities and towns within the country. This allows companies and financial institutions to screen parties in an objective matter.
- Do we anticipate more sanctions involving Russia and Ukraine?
More sanctions are possible if Russia takes additional actions in Ukraine. These sanctions could include additional sectors of the Russian economy under the current executive orders. And other Russian parties and individuals could be added to OFAC's SDN or sectoral sanctions lists.
Of course, the U.S. and EU are mindful of the implications these sanctions have had and will continue to have on U.S. and European companies, particularly in the oil and gas sectors.
- How long do we anticipate the sanctions involving Crimea, Russia and Ukraine will last?
It’s impossible to predict how long these sanctions are going to last. Any easing or further imposition of sanctions is entirely dependent on the actions taken by the Russian government. This is a very complex part of the world, and the end game is unclear. As a result, compliance professionals must continue to closely monitor the situation and pay careful attention to all transactions involving Ukraine and Russia.
Want to learn more about sanctions compliance and what's new in watch list screening? Check out our free on-demand webinar.
Ronnie Wylie, data services manager, with CSI Regulatory Compliance, oversees the company’s watch lists, list update process and the Data Services department. Ronnie has been with the regulatory compliance team for more than seven years, and he also is a member of ACAMS.
Douglas N. Jacobson is a Washington, D.C.-based international trade attorney with Jacobson Burton PLLC who specializes in export controls and sanctions compliance matters. He works with a wide variety of companies and financial institutions in compliance and enforcement matters involving OFAC, BIS and other U.S. government agencies. Doug can be reached at (202) 431-2407 or firstname.lastname@example.org.