A couple of years ago, I was of the opinion that one should consider screening for securities issued by parties subject to Russian sectoral sanctions under Directive 4 alone – which is the one that only restricts energy projects of certain types. My rationale, which I acknowledged as a stretch, was that these firms benefitted from the market liquidity by dealing in their securities and therefore could help fund prohibited projects. And I based this on previous guidance from OFAC that one should not deal in securities issued by SDNs, even on the secondary market – for the same reason (since the issuer gains no tangible economic benefit from trades of secondary issues).
Recently, I was challenged about this – and had totally forgotten my rationale. So, I asked OFAC – and here is their response:
Good afternoon. Thank you for your patience. It appears since the parties are non-SDNs, this would be permissible. First, under Directive 4 financial services are permitted and carved out from the prohibitions. Secondly, as you noted, there are certain projects that a Directive 4 entity would not be prohibited from entering into. The focus of the Directive 4 prohibitions seems to be on the export of technology and know-how to assist with drilling operations, with financial services and market liquidity divorced from these prohibitions.
What does this prove, other than that I am human – and not a lawyer? Probably that, if a plain reading does not provide a pretty clear answer, ask someone more knowledgable than you….
Highly likely this will not be the last misinterpretation I will make – at least it was on the side of caution…