On July 3, 2024, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) announced that it had amended entries for a multitude of entities sanctioned under the Treasury’s Russian Harmful Foreign Activities Sanctions regime.

The updated designations for the entities—all of which are referenced on either OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”) or the Sectoral Sanctions Identifications List (“SSI List”)—have now been amended to include an explicit reference to “secondary sanctions risk” pursuant to recently revised Section 11 of Executive Order 14024 (“E.O. 14024”) (as amended by Executive Order 14114) promulgated by President Joseph R. Biden, Jr. in December 2023. While OFAC offered no additional explanation for its latest activity, the move follows several coordinated actions taken by that agency to obstruct evasion of sanctions by foreign actors—including the issuance of agency guidance that attempts to dissuade foreign financial institutions (“FFIs”) from continuing to conduct commercial activity with sanctioned parties.

While exposure to secondary sanctions is still relatively rare, the July 3 designations make it clear that OFAC is poised to vigorously enforce the provisions of E.O. 14024 as they pertain to FFIs that continue to undertake “significant transactions” with any party sanctioned under Treasury’s Russian Harmful Foreign Activities program. According to an FAQ published by OFAC in mid-June, Treasury will consider a variety of factors when discerning whether a particular transaction or series of transactions meet the “significant transactions” threshold. These include, but are not limited to: (1) the size, number, and frequency of the transaction(s); (2) the underlying nature of the transaction(s); (3) the level of awareness of management and whether the transaction(s) are part of a pattern of conduct; (4) the nexus of the transaction(s) to persons sanctioned pursuant to E.O. 14024 or to persons operating in Russia’s military-industrial base; (5) whether the transaction(s) involve deceptive practices; and (6) the impact of the transaction(s) on U.S. national security objectives. Significantly, the prohibitions with respect to FFI commercial dealings with designated parties apply regardless of whether the transaction is conducted in U.S. Dollars or in a foreign currency.

The real threat of exposure to secondary sanctions activity makes compliance with OFAC regulations an imperative for FFIs—particularly those FFIs that maintain correspondent banking relationships with financial institutions located in the United States. As OFAC warned in mid-June, any FFI that continues to conduct or facilitate a significant transaction with a blocked party risks being exposed to “full blocking sanctions” themselves, or at a minimum, a prohibition or restriction on maintaining correspondent accounts in the United States.

To effectively mitigate this risk, FFIs should evaluate their current sanctions compliance programs to ensure that their current Know-Your-Customer (“KYC”) protocols and sanctions screening activities are capable of accounting for interactions with blocked parties and preventing the facilitation of impermissible transactions. Where even the slightest doubt exist as to the nature of a customer’s business activities, FFIs should rely on supplemental information requests—along with open-source data and records of previous financial activity—to inform risk mitigation efforts. In some cases, a formal attestation from the customer may be sufficient to mitigate secondary sanctions exposure, while in others, more aggressive measures such as restricting account activity or terminating an existing relationship altogether, may be in order. Finally, FFI risk assessments should include the evaluation of industry and jurisdictional-specific exposure to potential sanctions regimes as well as trade controls.