New Item for Diligence Review Process: OFAC’s Foreign Sanctions Evaders List

Mar 19, 2014

Reading Time : 2 min

The following is a basic overview of the FSE List and important points to understand in incorporating the FSE List into regular diligence practices.

  • Who is on the FSE List? OFAC will add individuals or entities to the FSE List when the U.S. government determines that they: (1) have violated, attempted to violate, conspired to violate or caused a violation of U.S. sanctions against Syria or Iran; (2) have facilitated deceptive transactions for or on behalf of persons subject to U.S. sanctions against Syria or Iran; and/or (3) are owned or controlled by, or acting or purporting to act for or on behalf of, directly or indirectly, such entities or persons.
  • What is prohibited? Broad sanctions prohibitions preclude U.S. persons from engaging in activities involving parties included on the FSE List. General prohibitions bar U.S. persons from providing or procuring goods or services, including financial services, or technology to or from a listed person without specific prior authorization from OFAC, unless the transaction is otherwise exempt from regulation. Although an FSE’s property is not “blocked” as a matter of law under this OFAC regime (except where such parties are also listed as Specially Designated Nationals or otherwise subject to blocking under other OFAC sanctions programs), OFAC advises that U.S. persons must obtain OFAC authorization to provide, procure or receive property, or services related to that property, to or from an FSE. See also the OFAC FAQs: Question Index. U.S. financial institutions are required to obtain OFAC authorization before allowing the operation of a listed person’s bank account and before allowing the receipt or provision of related wire transfers to such accounts.
  • What are the implications for U.S. Entities? As with other OFAC restricted-party lists, U.S. persons and their subsidiaries or controlled entities outside the United States are effectively prohibited from engaging in “transactions” or activities with FSEs on a strict liability basis. U.S. parties that engage in transactions with an FSE are subject to potential OFAC enforcement and penalties under the International Emergency Economic Powers Act.
  • What does this mean for you? U.S. entities and individuals must take actions necessary to ensure that they screen effectively against, and do not engage in activities involving, parties included on the FSE List. In particular, the following steps should be incorporated into regular diligence practices to ensure compliance:
    • Use of Vendors for Screening. It is important for entities relying on third-party vendor screening services to check with their providers to ensure that the FSE List is incorporated into automated screening procedures for restricted-party screening. Entities should run test screenings against parties included in the FSE List to verify and document confirmation that their screening safeguards cover this list effectively.
    • Manual Screening. Entities and persons relying on manual screening, including those that use the Consolidated Screening List at www.export.gov, should separately consult the FSE List on OFAC’s website as part of going-forward practices, as long as the FSE List is not incorporated into the Consolidated Screening List.
    • Screening Previously Initiated Transactions. OFAC guidance on the FSE List clearly indicates that there is no “grandfathering” allowance for transactions initiated prior to the listing of an FSE. Where a potential transaction is in process at the time of a listing, U.S. persons are required to terminate and/or cease dealings with the FSE-listed party immediately unless and until otherwise exempted or specifically licensed by OFAC. Accordingly, you may need to review activities screened and initiated prior to February 6, 2014, that have not yet been completed to the extent that FSEs might be involved.

Share This Insight

Previous Entries

Deal Diary

June 27, 2024

On June 24, 2024, the U.S. Securities and Exchange Commission (SEC) published five new Form 8-K Compliance and Disclosure Interpretations (C&DIs) expanding the agency’s interpretations of cybersecurity incident disclosures pursuant to Item 1.05 of Form 8-K. In July 2023, the SEC adopted final rules with respect to cybersecurity incidents that generally require public companies to disclose (i) material cybersecurity incidents within four business days after determining the incident was material and (ii) material information regarding their cybersecurity risk management, strategy and governance on an annual basis. We wrote about the final cybersecurity disclosure rules here.

...

Read More

Deal Diary

February 12, 2024

The Securities and Exchange Commission (SEC) recently adopted final rules (available here; also see the fact sheet and press release) representing significant changes to  special purpose acquisition companies (SPACs), shell companies and the disclosure of projections. These rules aim to enhance disclosures, protect investors and align the regulatory framework for SPACs with traditional IPOs. The following summarizes the key aspects of these rules.

...

Read More

Deal Diary

October 4, 2023

On September 20, 2023, the U.S. Securities and Exchange Commission (SEC) issued a final rule amending the so-called “Names Rule” (found here) that is “designed to modernize and enhance” protections under Rule 35d-1 of the Investment Company Act of 1940. The final rule is part of the SEC’s holistic efforts to regulate environmental, social and governance (ESG) matters, and is the SEC’s latest attempt to curb greenwashing in U.S. capital markets. The amendments require registered investment funds that include ESG factors in their names to place 80% of their assets in investments corresponding to those factors, thereby extending to ESG funds the SEC’s long-standing approach of regulating the names of registered funds to ensure they are marketed to investors truthfully. Fund complexes with more than $1 billion in assets will have two years from the final rule’s effective date (60 days after publication in the Federal Register) to comply, while fund complexes with less than $1 billion in assets will be given a compliance period of 30 months.

Chair Gary Gensler said “[t]he Names Rule reflects a basic idea: A fund’s investment portfolio should match a fund’s advertised investment focus. In essence, if a fund’s name suggests an investment focus, the fund in turn needs to invest shareholders’ dollars in a manner consistent with that investment focus. Otherwise, a fund’s portfolio might be inconsistent with what fund investors desired when selecting a fund based upon its name.” The sole dissenting vote against the rule modification, Commissioner Mark Uyeda, said “[w]ith these amendments, the Commission overemphasizes the importance of a fund’s name, as if to suggest that investors and their financial professionals need not look at the prospectus disclosures.” Commissioner Uyeda also expressed concern that fund investors will bear the increased compliance costs associated with the rule change.

...

Read More

Deal Diary

May 31, 2023

As discussed in our prior publication (found here), the Securities and Exchange Commission (SEC) adopted amendments on December 14, 2022, regarding Rule 10b5-1 insider trading plans and related disclosures. On May 25, 2023, the SEC issued three new compliance and disclosure interpretations (C&DIs) relating to the Rule 10b5-1 amendments.

...

Read More

Deal Diary

May 24, 2023

On May 15, 2023, the Eastern District of California ruled that California Assembly Bill No. 979 (“AB 979”) violates the Equal Protection Clause of the U.S. Constitution’s Fourteenth Amendment and 42 U.S.C. § 1981. As enacted, California’s Board Diversity Statute, required public companies with headquarters in the state to include a minimum number of directors from “underrepresented communities” or be subject to fines for violating the statute. AB 979 defines a “director from an underrepresented community” as “an individual who self-identifies as Black, African American, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaska Native, or who self-identifies as gay, lesbian, bisexual, or transgender.”

...

Read More

Deal Diary

May 9, 2023

Update: On October 31, 2023, the Fifth Circuit granted the US Chamber of Commerce's petition for review of the SEC's share repurchase disclosure rules, holding that the SEC acted arbitrarily and capriciously in violation of the Administrative Procedure Act. The court directed the SEC to correct the defects within 30 days of the opinion. On December 1, 2023, the SEC informed the Fifth Circuit that it was unable to correct the rule's defects within 30 days of the opinion. On December 19, 2023, the Fifth Circuit vacated the SEC’s share repurchase disclosure rules.

...

Read More

Deal Diary

April 12, 2023

We have released our 2023 ESG Survey which includes a collection of reports reflecting on significant ESG themes and trends from 2022, as well as what we believe to be key developments for 2023.

...

Read More

Deal Diary

February 6, 2023

As companies begin preparing for the 2023 proxy season, we note that Institutional Shareholder Services Inc. (ISS) and Glass Lewis, the leading providers of corporate governance solutions and proxy advisory services, issued updated benchmark policies (proxy voting guidelines), which can be found here and here, respectively. The updated proxy voting guidelines generally focus on board accountability and oversight considerations and address topics such as climate accountability, board diversity, shareholder rights, corporate governance standards, executive compensation and social issues. What follows is a summary of the proxy voting guidelines published by ISS and Glass Lewis for the 2023 proxy season.

...

Read More

© 2024 Akin Gump Strauss Hauer & Feld LLP. All rights reserved. Attorney advertising. This document is distributed for informational use only; it does not constitute legal advice and should not be used as such. Prior results do not guarantee a similar outcome. Akin is the practicing name of Akin Gump LLP, a New York limited liability partnership authorized and regulated by the Solicitors Regulation Authority under number 267321. A list of the partners is available for inspection at Eighth Floor, Ten Bishops Square, London E1 6EG. For more information about Akin Gump LLP, Akin Gump Strauss Hauer & Feld LLP and other associated entities under which the Akin Gump network operates worldwide, please see our Legal Notices page.