Correspondent and Payable-Through Account and Transaction Processing Sanctions on Sberbank, Its Subsidiaries, and Others

Effective March 26, 2022, OFAC issued Directive 2 under EO 14024, “Prohibitions Related to Correspondent or Payable-Through Accounts and Processing of Transactions Involving Certain Foreign Financial Institutions,” which places correspondent and payable-through account and transaction processing sanctions on Public Joint Stock Company Sberbank of Russia (“Sberbank”), 25 of its financial institution subsidiaries (in Russia and five other countries), any other foreign financial institutions identified by OFAC for Directive 2 sanctions in the future, and any foreign financial institution that is directly or indirectly owned 50 percent or more, individually or in the aggregate, by one or more entities listed under Directive 2. Specifically, Directive 2 prohibits any “US financial institution,” which includes banks, money services businesses, credit card companies, insurance companies, securities brokers, investment companies, among others, as well as any such entities’ US holding companies, affiliates, or subsidiaries, from:

• Opening or maintaining a correspondent account4 or payable-through account5 for or on behalf of Sberbank or any other foreign financial institution covered by Directive 2; and
• Processing a transaction involving Sberbank or any other foreign financial institution covered by Directive 2.

OFAC has added Sberbank and the named affiliated entities to OFAC’s List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions (“CAPTA List”).

OFAC may subsequently determine that additional foreign financial institutions are subject to Directive 2, and if so, those sanctions take effect 30 days after such determination.

What does this mean?

Any “US financial institution” (1) must close any correspondent or payablethrough account operated for or on behalf of Sberbank, one or more of the 25 financial institution subsidiaries included in the Directive, or any foreign financial institution of which Sberbank or one or more of the 25 subsidiaries directly or indirectly own 50% or more before March 26, 2022, (2) cannot open any correspondent or payable-through accounts for or on behalf of any of those entities on or after that date, (3) must reject any transactions on or after that date involving any of those entities, unless exempted or authorized by OFAC, and (4) must watch out for the addition of more Russian bank targets in the coming days. Directive 2 also prohibits “any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions” of the Directive as well as “any conspiracy formed to violate any of the prohibitions of” the Directive. It is important to note that Sberbank and its 50% owned subsidiaries were already, and continue to be, subject to another directive – Directive 1 under E.O. 13662 – which prohibits all dealings by US persons or within the United States in new debt exceeding 14 days maturity or new equity of those entities.

What to do: We recommend that any US company meeting the definition of “US financial institution” screen their current accounts and transactions against the newly updated CAPTA List to ensure no accounts or transactions involving Sberbank, one of its listed subsidiaries, or any entity directly or indirectly owned 50 percent or more by any of the preceding, are maintained, or entered into, on or after March 26, 2022. Additionally, any such US companies should implement screening against the CAPTA List before opening new accounts with foreign financial institutions.