As of June 7, US companies and individuals will be prohibited from providing services to anyone located within the Russian Federation, including US citizens living in Russia.

Background

On April 6, 2022, President Biden signed Executive Order 14071, prohibiting new investment and services to those inside the Russian Federation, in response to “Continued Russian Aggression.” Then, on May 8, 2022, the Department of Treasury’s Office of Foreign Assets Control (OFAC) issued additional guidance related to the order.

Details

  1. Who is prohibited from providing services?
    • US  Citizens and lawful permanent residents
    • Companies and entities organized under US laws or jurisdictions (including foreign branches)
    • Any person in the United States
      ,
  2. Which services are prohibited?
    Per Executive Order Section 1(a)(ii):
    (ii) 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 (emphasis added).

    OFAC defines “any category of services” as “accounting, trust and corporate formation, and management consulting services to any person located in the Russian Federation.” As indicated in the OFAC announcement,

    Today’s action means that the Russian Federation and Russian elites will no longer benefit from U.S. companies’ valuable accounting, trust and corporate formation, and management consulting services.

  3. Who qualifies as “any person located in the Russian Federation”?
    Services cannot be provided to anyone located in the 22 republics that constitute the Russian Federation: 1. Adygea, 2. Altai, 3. Bashkortostan, 4. Buryatia, 5. Chechnya, 6. Chuvashia, 7. Crimea, 8. Dagestan, 9. Ingushetia, 10. Kabardino-Balkaria, 11. Kalmykia, 12. Karachay-Cherkessia, 13. Karelia, 14. Khakassia, 15. Komi, 16. Mari El, 17. Mordovia, 18. North Ossetia–Alania, 19. Sakha, 20. Tatarstan, 21. Tuva, 22. Udmurtia.

    Services cannot be provided to: 

    • Individuals, regardless of citizenship, residing in any of the 22 republics
    • Companies, regardless of ownership, located in any of the 22 republics
    • Sanctioned individuals and executives related to Russian banks, companies, and political figures, regardless of location of residence
    • Certain specifically listed companies, subsidiaries, financial organizations, media organizations, etc., with Russian ties

    Services can be provided to: 

    • Citizens of Russian Federation countries who reside permanently outside of the Russian Federation (assuming they are not sanctioned or listed, as indicated above)
    • Entities located in the Russian Federation that are owned or controlled, directly or indirectly, by a US person (assuming that the US person resides outside of the Russian Federation)
    • Entities that are winding down or divesting of entities located in the Russian Federation so long as they are not owned or controlled, directly or indirectly, by a Russian person.

  4. When Does This Mean for US Professionals?
    The prohibition takes effect starting on June 7, 2022, and remains in place indefinitely. Failure to abide by this Executive Order is a “strict-liability” offense. This means that sanctions can be imposed even if US persons were not aware that their actions were in violation of the Executive Order.

What Does This Mean for US Professionals? 

  1. Professional service firms that provide accounting (including US tax and CPA firms), trust, corporate formation, and management consulting services should perform due diligence on all clients to determine if they are located in the Russian Federation. The prohibition applies to any person located in the Russian Federation regardless of nationality as of June 7, 2022.
  2. If clients are determined to be located in the Russian Federation, steps should be taken to discontinue services under the Executive Order and to notify all staff.
  3. For any clients who were previously in the Russian Federation or believed to be in the Russian Federation, proper due diligence and documentation should be completed to note that their location is outside of the Russian Federation.
  4. Lastly, we recommend that all professional service firms seek additional guidance from their legal counsel and errors & omissions insurance providers.