How can international relations impact local real estate transactions? On March 6, 2014, President Obama issued an Executive Order entitled, “Blocking Property of Certain Persons Contributing to the Situation in Ukraine.” This imposes economic sanctions for doing business with this new category of Specifically Designated Nationals. This topic caught my attention because in 2004 I completed a law school semester in Moscow, Russia.
This Order declared that the conflict in Ukraine created a national emergency in the U.S. All property of any kind in the U.S. or property under the control of any U.S person or entity may not be transferred to any person, entity or association deemed to have engaged in: (1) undermining democratic processes in Ukraine; (2) threatening the peace, security, stability, sovereignty or territorial integrity of Ukraine; (3) misappropriating state assets of Ukraine or “an economically significant entity” in Ukraine; (4) asserting authority over any part of Ukraine without the authority of the Government of Ukraine; or (5) being a leader of any entity whose members engaged in any such activity. The Executive Order outlines other sanctions, including immigration visa restrictions.
Through this exercise of his national security powers, President Obama provides his administration with broad authority to designate individuals, businesses and other personal associations with whom one may not do business without risk of civil or criminal penalties. The Executive Order specifically identifies, “persons who have asserted governmental authority in the Crimean region without the authorization of the Government of Ukraine” as falling under this Executive Order. Given the day-to-day developments in Ukraine, the federal government may broaden enforcement of the Order beyond leaders in the Crimean secession movement.
What does this Order mean to those participating in real estate transactions in the U.S.? How are banks, settlement agents and others to protect themselves and ensure that they comply with this Order? The Treasury Department’s Office of Foreign Assets Control maintains a SDN List, available online. Professionals may consult this list to determine whether any party to a real estate settlement falls under the Executive Order. Banking regulation compliance managers, real estate attorneys and settlement agents in Virginia are already aware of OFAC compliance issues related to the narcotics intervention and disruption of international terrorist networks. This blog post is to identify certain issues particular to the political crisis in Ukraine relevant to OFAC compliance in real estate transactions.
1. What is the Scope of the Executive Order?
The scope of the Executive Order is potentially very broad, to include any offense breaching the peace or stability in Ukraine. I doubt that this Order was intended to include minor criminal offenses, street protests or economic decisions indirectly affecting financial markets in Ukraine.
2. Who Does the Executive Order Apply to?
Ukraine is in a constitutional crisis. Victor Yanukovych and his allies state that his political ouster did not follow the Presidential impeachment procedures outlined in the country’s Constitution. The current Ukrainian government asserts that the Russian military and secessionist movement in Crimea violate international law and the constitution. Given this set of circumstances, how does one prepare for a settlement or other transaction? Consult with the OFAC’s SDN List rather than news sources.
3. How are Cyrillic Alphabet Names Transliterated into English?
The Ukrainian and Russian languages both use variants of Cyrillic script. Romanization from Cyrillic script into English follows one of several varying transliteration systems. For example, the capital of Ukraine may be rendered “Kiev” or “Kyiv” in English. A real estate settlement agent seeking to comply with the Executive Order must be aware that varying transliteration systems exist in order to resolve potential problems.
These uncertainties provide all the more reason to consult the SDN Lists in order to confirm that completion of a real estate transaction does not offend national security policies adopted by the federal government.
The underlying problems causing this crisis are complex (and mostly outside the scope of this blog). I hope this conflict will peaceably resolve itself without further escalation.