OFAC Warns Foreign Financial Institutions Against Joining Russian Financial Messaging Center

On November 21, 2024, the United States Department of the Treasury's Office of Foreign Assets Control ("OFAC") issued an alert cautioning foreign financial institutions against joining the Russian financial messaging system Sistema peredachi finansovykh soobscheniy ("SPFS").  

SPFS was established by the Central Bank of Russia in 2014, following Russia's invasion of Crimea, in anticipation of the imposition of sanctions against Russia by the United States and other countries.  Published reports indicate that SPFS is used by more than 150 foreign banks across 20 countries, including China, Belarus, Armenia, Tajikistan, and Kazakhstan.  SPFS enables Russian banks to evade sanctions by bypassing the Society for Worldwide Interbank Financial Telecommunications ("SWIFT") network to transact with financial institutions through a separate channel.  Sanctioned Iranian banks have joined SPFS for the same purpose.  Russia has been barred from SWIFT since shortly after it invaded Ukraine in February 2022.    

Executive Order 14024 (as amended) titled "Blocking Property With Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation," authorizes imposition of U.S. sanctions on the financial services sector of the Russian Federation economy.  SPFS is part of that sector.  Any foreign financial institution that joins or that has already joined SPFS is therefore subject to being placed on the Specially Designated Nationals and Blocked Persons List (the "SDN List").  The effects of being placed on the SDN List include blocking (i.e. freezing) any property or interests in property of the listed entity or person in the United States, and a prohibition on U.S. persons against providing or receiving funds, goods, or services to or from the listed entity or person.  

The alert expressly cautions foreign financial institutions that "OFAC views joining SPFS after publication of this alert as a red flag and is prepared to more aggressively target foreign financial institutions that take such action."  The alert also cautions foreign financial institutions about their exposure to institutions that have joined SPFS, as such banks “may be conduits for Russian sanctions evasion.”

OFAC sanctions against Russia and other sanctioned countries are complex, and laden with pitfalls.  Katten can help navigate them.