OFAC Warns of Sanctions Risk in Joining the Russian System for Transfer of Financial Messages

On November 21, 2024, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) issued an alert, warning foreign financial institutions (FFIs) of the sanctions risk in joining the Russian financial messaging system by the Central Bank of Russia, Sistema Peredachi Finansovykh Soobscheniy or “System for Transfer of Financial Messages” (SPFS). According to OFAC, the Central Bank of Russia created the SPFS “with the express purpose of diminishing the effect of sanctions imposed by the United States and its partners and allies” and as an alternative to the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network.

In this alert, OFAC provides several warnings to FFIs in connection with the SPFS. First, the alert states that FFIs that join or have already joined SPFS may be added to OFAC’s Specially Designated Nationals and Blocked Persons List under Executive Order (E.O.) 14024 (which allows for the designation of persons determined to operate or have operated in the Russian financial services sector). All property and interests in property subject to U.S. jurisdiction of FFIs designated as a Specially Designated National are blocked, and U.S. persons are generally prohibited from engaging in transactions with them. Second, OFAC makes clear that joining SPFS will be considered a “red flag” and OFAC will more aggressively target FFIs that do so. OFAC also advises that FFIs should be cautious about dealing with institutions that joined the SPFS as those institutions “may be conduits for Russian sanctions evasion.” Third, the alert reminds FFIs of the secondary sanctions authority under E.O. 14024, as amended by E.O. 14114, which allows OFAC to designate FFIs that conduct or facilitate any significant transaction or transactions or provide any service involving Russia’s military-industrial base.

This alert follows OFAC’s previous guidance to FFIs (initially issued in December 2023 and updated in June 2024); the U.S. Department of Commerce, Bureau of Industry and Security’s guidance to financial institutions on export controls compliance; and the European Union’s imposition of sanctions on SPFS in June 2024. Given the increased attention, financial institutions (including FFIs) should review their internal compliance programs and ensure that relevant export controls and sanctions provisions (including those intended to capture and prevent attempts to evade export controls and sanctions) are included.

For questions about U.S. export controls or sanctions, contact the authors or any of their colleagues in Arnold & Porter’s White Collar Defense & Investigations or Export Control and Sanctions practice groups.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.