Hello everybody and welcome to today's edition of C&F Talks, in which I get to interview a speaker of one of our forthcoming events. Today, I have the pressure of interviewing Yulia Solomakhina, who's a Special Counsel in New York, for Cleary Gottlieb Steen & Hamilton. Yulia is going to be speaking at our Economic Sanctions Summit, being held here in London on the 20th of March. Yulia, welcome.

Hi, everyone. Very good to talk to you and looking forward to the summit.

Very good. Let's turn to our first question.

In your experience, what different approaches to sanctions compliance do companies take? Do most take the view that complete compliance with every sanctions regime is necessary? Or do some restrict it to circumstances which affect them directly and for example, ringfence, are the effective subsidiaries and recuse themselves to avoid Nexus and the need to comply with certain regimes?

Thank you, Maurice. That's a very good question. And I think what we've seen over the years is a developing approach and approaches are now different. Probably back in 2014 when I just started helping our sanctions practise with the Russian, the first Russian sanctions being implemented. The approach was I would not say more simplistic, but it was like everyone was ready to comply with the relevant sanctions, and the relevant sanctions were usually the UN, US, UK sanctions and we didn't see a lot of discussion about it, and it was just easier and risk free to commit to compliance with those sanctions. And we saw the same lists of relevant sanctions and all the transaction documents and reps and warranties and governance. And that was a uniform approach market practise standard, not much discussion, no caveats, no materiality qualifiers, nothing like that.

But starting from 2022 I would say, and this situation is evolving and constantly developing. You see the clients trying to actually focus not on relevant sanctions, but on applicable sanctions, so, it becomes a more granular analysis each time, and we discuss with the clients law the questions of Nexus in respect to a specific business, not just the group as such, but specific entities of the group and with respect to the specific transaction.

And you can see now situations when a US client for example, would try to not to commit to compliance with the US, UK sanctions because the regimes are diverging and could diverge even more, and just because they take a very pragmatic approach that in the situations when it's not legally necessary to comply with this or that restriction, they see that it could cost them a lot and so they focus on the things that are required.

And in other situations, we see, as you mentioned, the more proactive I would say approach one is not just the analysis of the Nexus but actually trying to understand if anything can be done proactively to modify that Nexus and to modify the result. And as you mentioned it could be recusals when for example clients in India or Malaysia or Brazil or the Middle East would try to exclude the personnel from the UK, EU, US residents or citizens of those countries from the participation, certain transactions from involvement in certain decisions. The other obvious example is that some companies choose not to transact in US dollars to avoid US Nexus.

And the other thing that we've seen a lot and we've been helping clients a lot with is the so-called ringfencing, when and it's not just Russia, could be Venezuela as well, when a multinational takes a position that the business in the specific jurisdiction targeted by sanctions would be ringfenced to the extent possible. So that it takes its own decisions, it does not involve people from the EU, UK or US or companies of the group from the UK or US into its transaction. And of course, this is all very subtle and you really need to be careful with that because you don't want to go into the circumvention terrain, you don't want to go into the potential facilitation situation and, for example, with respect to EU, we now have the best-efforts obligation for EU parent to actually. Proactively take active measures so that its subsidiaries in third countries do not take any steps that can undermine sanctions. So, it's really very tricky. It can become really tricky, but very clear that the approach is no longer simplistic.

Maurice

I am picking up on what you mentioned in terms of divergence. You know, as we sit here today, the goal posts are moving rapidly in the current environment, and that there may well be quite significant divergence between, say, the US regime and the UK and the EU regimes. What's your best advice to companies about how they might handle the potential conflicts that might arise in the future?

That's a very good question. I think it's very relevant in the current situation and good to think about. I don't have a fancy answer. My answer would be probably very boring, but the answer is that you really need to dig into the details and there is no high-level good approach or good high-level answer that feeds all because you really need to analyse the details of each specific situation. The touch points that create an access.

And what we've done to help many clients, is this holistic mapping exercise. When you're really looking to the situation, be it a dispute or potential dispute or a transaction or just analysing whether there was a potential breach of sanctions or could be a potential breach of sanctions, when you really map it out with respect to all the details of that situation and what specific touch points with respect to which regimes.

This creates and only then you take a decision which licences we're going to obtain and with respect to which touch points and then what order may be so that you can you try to tailor the best solution for a specific situation. That would be my advice.

And so, dig into the detail and map your position.

We're very pleased with that OFSI have kindly agreed to speak on their enforcement approach to sanctions in the UK. As a US qualified lawyer, could you give us a quick explanation of OFAC’s current approach to enforcement for breach of US sanctions?

Of course, actually I was participating in a sanctions seminar, back in December in Washington and representatives of OFAC and Department of State and Department of Justice and Treasury were all there presenting and with respect to enforcement, I would say that they emphasise that there is a programme being implemented by OFAC to allow them to become more efficient and to review the cases quicker and although from the kind of user perspective, we still see that the timelines are very long and it takes a lot of time to hear back from OFAC.

We also understand that the workload has increased for them very significantly and generally they mentioned that due to this efficiency programme the speed with which they review specific cases has increased five times, which sounds great, of course. I would say that there was a lot of emphasis on cooperation and coordination with the UN, UK and again, political situation, changes in administration, things could probably change. But back in back in December, they were really very focused on keeping this in place and working, on improvement and further improvement of this cooperation and coordination. Because actually, without that, it's not possible to achieve any effects and I think regulators and all the jurisdictions understand that.

And OFAC also emphasised that they are particularly focusing on non-US companies that have US touch points that use the US financial system and this is one of the primary goals for them. And I think from the enforcement cases that we see published is very clear that they've been focusing a lot on non-US companies.

Good. Well, it's good to hear that international cooperation is improving and things are getting a bit more efficient. For our viewers, if you would like to hear more on the rapidly developing world of economic sanctions, please do come in person to attend the Summit being held in London on the 20th March. Further information of available on our website www.cityandfinancial.com

Yulia, I very much look forward to seeing you in a couple of weeks’ time.

Thank you, Maurice. Same here.