Last week, we reported that there was some confusion relating to the new Sectoral Sanctions Identifications List inasmuch as OFAC said, in one place, that the prohibitions extended to dealing in equity and 90-day debt “of” and, in another place, it said it extended to dealing in equity and 90-day debt “for” parties on the list. The difference was significant because “of” would seem to connote a narrower restriction and only prohibit U.S. persons from loaning money to or purchasing equity from the parties on the SSIL. On the other hand, “for” would seem to prohibit, in addition, a number of other transactions, such as borrowing money from the party on the SSIL or acting as a broker to purchase stock from third parties for the entity on the SSIL. The SSIL used “of,” whereas the directives issued relating to the SSIL entries used “for.”

Well, sometime within the past several days, someone at OFAC quietly changed “of” on the SSIL to “for.” Given that people can be subjected to massive civil penalties and even sent to jail for engaging in prohibited transactions with entities on the new SSIL, one might have expected OFAC to admit the mistake and provide some clarification for the changed language, rather than simply sneaking onto the list under cover of darkness, making the change, and hoping that no one would notice that there had ever been a problem.

In any event, the SSIL and the directives now use the same language.  If we could only figure out exactly what that language means.

ABOVE: Russian President Putin Meets with Vnesheconombank Chairman V.A. Dmitriev

There is a significant ambiguity relating to the newly-announced Sectoral Sanctions Identifications List (“SSIL”) that we reported on yesterday and which placed Vnesheconombank and Gazprombank, among other Russian businesses, on the new list. There are two sections on the list. The first included financial institutions like Vnesheconombank and Gazprombank and prohibits U.S. persons from transactions covering debt in excess of 90 days and new equity involving these banks. The second included energy companies like the natural gas producer Novatek and prohibits dealings in debt in excess of 90 days but not in equity.

One source of confusion about the scope of these sanctions comes from a difference in wording between the directives issued yesterday by the President pursuant to his earlier Executive Order 13662 and the language on the SSIL which describes the restrictions on the listed entities.  With respects to the banks, Directive No. 1 talks of “new debt of longer than 90 days maturity or new equity for these persons” and the SSIL refers to “new debt of longer than 90 days maturity or new equity of these persons.” With respect to the energy companies, Directive No 2 talks of new debt of longer than 90 days maturity for these persons and the SSIL refers to “new debt of longer than 90 days maturity of  these persons.”

The difference between “for” and “of” in this context is significant. Dealing in equity for someone can include sales of third party equity to that person, unlike dealing in equity of someone, which can only be the equity issued by that person. The same issue occurs with respect to debt “for” and “of” the person, with the former covering not just extensions of credit to the person but also extensions of credit by the person. It is not clear which language controls.

Of course the losers here aren’t the companies on the SSIL; rather the losers are American businesses which lose business opportunities to European and other foreign competitors who are not subject to any restrictions under these sanctions. And the ambiguity about just what these sanctions cover only exacerbates the injury to U.S. businesses that may forego even more opportunities due to the ambiguous scope of the sanctions.