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On 8 May 2022, OFAC issued a determination (Determination) pursuant to Executive Order (E.O.) 14071 (issued on 8 April 2022), “Prohibitions Related to Certain Accounting, Trust and Corporate Formation, and Management Consulting Services,” prohibiting:
“The exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of accounting, trust and corporate formation, or management consulting services to any person located in the Russian Federation.”
The Determination is also applicable to transactions denominated in US Dollars but excludes (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.
In particular “Trust and corporate formation services” includes “…services related to assisting persons in forming 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”. This is squarely aimed at the corporate services sector as OFAC itself acknowledges by stating “please note that all of these activities are common activities of trust and corporate service providers (TCSPs), although they may be provided by other persons”.
The Determination does not only prohibit the setting up of new special purpose vehicles (SPVs) or trusts on behalf of Russian persons but “acting” implying that continuing to act for these and providing services to already established SPVs and/or trusts would also be prohibited.
However, what is currently unclear is how widely OFAC would construe the provision of ‘indirect’ services. For instance, if a TCSP is providing its services to an orphan SPV outside of Russia but the overall structure was set-up to allow funding to flow to or to otherwise benefit a Russian person, there appears to be a risk that this could also be prohibited by the Determination. Each structure and the role of the TCSP will need to be analysed individually to determine a course of action going forward.
In addition, other services provided by TCSPs could be captured as “Accounting services” including “ ….services related to the measurement, processing, and evaluation of financial data about economic entities”, and “Management Consulting services” “…includes strategic business advice; organizational and systems planning, evaluation, and selection…”. The broad nature of ‘management consulting services’ in particular means that careful thought should also be given to any discussions on exploring alternative solutions for existing transactions (such as restructuring existing payment mechanics) that may be subject to the Determination as these could themselves be prohibited.
The prohibition is to take effect from 7 June 2022. However, OFAC has issued under a General Licence 34 “….all transactions ordinarily incident and necessary to the wind down of the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a United States person, wherever located, of accounting, trust and corporate formation, and management consulting services to any person located in the Russian Federation” may be undertaken until 7 July 2022.
Even once a TCSP has decided to resign from its role, the basis for such action, its timing in light of relevant notice periods and the position of the directors of any SPV will itself need to be carefully considered.