Introduction

This Article is designed to summarize key aspects of the ban on US. persons providing accounting, trust and corporate formation services, and management consulting services to persons located in the Russian Federation per the latest set of U.S. sanctions relating to Russian aggression against Ukraine.
On May 8, 2022 the United States Department of the Treasury Office of Foreign Asset Control (OFAC) banned U.S. persons (i.e., US citizens, permanent residents, entities organized under the laws of the US, or any individual/entity physically located in the US) from providing accounting, trust and corporate formation services, and management consulting services to persons located in the Russian Federation (not to be confused with “Russian persons” discussed later), pursuant to the earlier Executive Order (EO) 14071, which, among other things, prohibited the “exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of any category of services as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State, to any person located in the Russian Federation.” These sanctions will take effect beginning 12:01 a.m. eastern daylight time on June 7, 2022.

Prohibited Services Defined
The prohibited services were clarified in OFAC FAQ 1034 to mean:

• “Accounting services” – include services related to the measurement, processing, and evaluation of financial data about economic entities.  Please note that OFAC has issued General License 35 to authorize certain transactions ordinarily incident and necessary to the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of credit rating or auditing services to any person located in the Russian Federation through 12:01 a.m. eastern daylight time, August 20, 2022.  See FAQ 1035.
• “Trust and corporate formation services” – include services related to assisting persons informing or structuring legal persons, such as trusts and corporations; acting or arranging for other persons to act as directors, secretaries, administrative trustees, trust fiduciaries, registered agents, or nominee shareholders of legal persons; providing a registered office, business address, correspondence address, or administrative address for legal persons; and providing administrative services for trusts.  Please note that all of these activities are common activities of the trust and corporate service providers (TCSPs), although they may be provided by other persons.
• “Management consulting services” – include services related to strategic business advice; organizational and systems planning, evaluation, and selection; development or evaluation of marketing programs or implementation; mergers, acquisitions, and organizational structure; staff augmentation and human resources policies and practices; and brand management.

Furthermore, FAQ 1038 gave notice that OFAC will soon be placing certain Russian persons (including both individuals and entities) involved in the above-defined service industries on the Specially Designated Nationals (SDN) list. Which would block (freeze) such person’s assets under U.S. control and block all transactions between such person and any U.S. persons.
At this time, U.S. officials have stated that legal services are not prohibited, but that OFAC may reconsider this position soon.

Summary of the Ramifications
The following is a summary of the key ramifications of the latest set of U.S.  sanctions:

• As with the previous sanctions, no U.S. person can provide any services to persons on the SDN List, unless OFAC has provided a general license for certain services or the U.S. person has obtained a specific license from OFAC for the provision of certain services. For example, OFAC has provided a general license for the provision of legal representation to persons on the SDN List aimed at challenging a designation of a person on such list, however, the attorneys must obtain a separate specific license to receive payment for such services.
• U.S. persons, including attorneys, may not provide any of the services discussed above (i.e., accounting, trust and corporate formation services, and management consulting services) to persons located in the Russian Federation after June 7, 2022.
• The legality of the provision of legal services by U.S. persons to persons located in the Russian Federation has been somewhat unclear. A White House spokesperson in a background press call discussed the decision to hold off prohibiting legal services related to the ability to “seek due process through a US lawyer.” This may be an area where OFAC may offer additional clarification as to what is prohibited as currently, some legal services fall in the banned services categories (e.g., brand management, etc.).
• Based on the current language and available information, it appears that the application of these prohibitions to “persons located in the Russian Federation” would only apply to the physical location of the person (i.e., the place where the person is currently residing) rather than citizenship or tax residency. By way of example, if a Russian citizen (not on the SDN List) has left Russia and is now living somewhere in Europe, based on the current language, it does not appear that a U.S. person would be prohibited from continuing to provide services to such Russian citizen. However, if a Russian citizen merely crosses the border into Belarus for a few days, such temporary travel is unlikely to be sufficient in arguing that the person is not located in the Russian Federation – although there is no definitive rule on what constitutes “located.”
• Based on the “directly or indirectly” terminology utilized by OFAC as related to the banned services, it is logical to assume that U.S. companies, owned or controlled by persons located in the Russian Federation would fall in the category of the entities to which the ban described above is applied. Thus, by way of example, if the owners (non-U.S. persons) of an existing U.S. company are located in the Russian Federation, then, beginning June 7, a U.S. person would be prohibited from providing accounting or management consulting services to such U.S. company.
  • It is not clear if providing services to U.S. companies where a minority stake is held by persons located in the Russian Federation, is prohibited. However, it is our interpretation that most likely, it is not, otherwise, as an example, the fact that some persons located in the Russian Federation own a few shares in Apple would prohibit any U.S. management consultants or accountants from providing services to Apple. This is merely an interpretation and should not be considered legal advice.

Exceptions

• At this time, U.S. attorneys may continue to provide legal services to persons (non-SDN list) located in the Russian Federation, other than corporate formation services, including, but not limited to, registered agent services. As mentioned above, attorneys do also have a general license to represent persons on the SDN List for the purpose of challenging such listing.
• Per the clarification in OFAC’s FAQ 1034, the following services are not prohibited: (1) any service to an entity located in the Russian Federation that is owned or controlled, directly or indirectly, by a United States person; and (2) any service in connection with the wind down or divestiture of an entity located in the Russian Federation that is not owned or controlled, directly or indirectly, by a Russian person (OFAC anticipates publishing regulations defining the term “Russian person” to mean an individual who is a citizen or national of the Russian Federation, or an entity organized under the laws of the Russian Federation).

Not Legal Advice
The website and any materials published herein contain general information about legal issues. Such information is not legal advice nor counsel on any specific legal matter. Communications through the website do not impose any obligation on the firm and should not be relied upon in lieu of legal counsel.