One concern I hear a lot from businesses outside the United States is regarding so-called  “secondary sanctions” of the United States (“U.S.”), especially since the rapid expansion of the U.S. Department of the Treasury’s Office of Foreign Assets Control’s (“OFAC”) Russia-related sanctions regime beginning in February 2022. For example, a typical inquiry will be something like : “Our dealings with a Russian entity do not involve the U.S. or any U.S. persons, but what about U.S. secondary sanctions?” Unfortunately for them (and myself as a sanctions attorney), OFAC has never officially defined the term “secondary sanctions” for any of its programs, and it became an increasingly hot topic when on June 12, 2024 OFAC expanded the scope of Executive Order (“E.O.”) 14024, as amended by E.O. 14114 on December 23, 203, to “ratchet up the risk of secondary sanctions for foreign financial institutions that deal with Russia’s war economy.” 

In this article I will examine and break down this concept of so-called “secondary sanctions” in relation to OFAC’s Russia-related sanctions programs, with the aim of providing the reader an understanding of what it technically is and isn’t. Deciphering first what it isn’t will help to provide us with a working definition of what “secondary sanctions” are in practice. In the process of doing so, the reader will (hopefully) also gain a better understanding of OFAC’s Russia-related sanctions program and how to navigate it. There is also a whole genre of “secondary sanctions” on Iran, which would be better suited for exploration in a future article.

OFAC’s Russia-related Sanctions Programs 

It is first important to understand the scope of legal authorities that comprise OFAC’s Russia-related sanctions programs, which I have annotated: 

• Russian Harmful Foreign Activities Sanctions—the impetus for this program is E.O. 14024, and it has been used most often by the U.S. government when imposing sanctions in relation to Russia since February 2022. There are a variety of Executive orders, determinations, and directives that comprise the program, with most targets being subject to full blocking sanctions and designated on OFAC’s Specially Designated Nationals and Blocked Persons (“SDN”) List. The sole statutory basis for all such legal authorities is the International Emergency Economic Powers Act (“IEEPA”), 50 U.S.C. § 1701, et seq. The relevant regulations for this program are the Russian Harmful Foreign Activities Sanctions Regulations (“RuHSR”), 31 C.F.R. Part 587, which implement E.O. 14024, but are in need of an update to better take int consideration all of the legal authorities that comprise the overall program.  
• Ukraine-/Russia-related Sanctions—this program was created when Russia annexed the Crimea region of Ukraine in 2014, and has been relied upon to target many Russia-related actors, especially for designations pursuant to various directives on OFAC’s less restrictive Sectoral Sanctions Identifications (“SSI”) List. It is comprised of various statutes (not just IEEPA), Executive orders (based on the national emergency initially declared in E.O. 13660), determinations, and directives. The comprehensive U.S. embargo on the occupied regions of Ukraine—i.e., Crimea, Luhansk, and Donetsk—are under this program as well, set forth in Executive orders 13685 and 14065. The relevant regulations for this program are the Ukraine-/Russia-Related Sanctions Regulations (“URSR”), 31 C.F.R. Part 589, which implement most of the legal authorities that comprise the overall program, but could still benefit from a slight update.  
• Countering America’s Adversaries Through Sanctions Act of 2017 (“CAATSA”)—this statute was enacted on August 2, 2017, which among other things (including sanctions for other jurisdictions), amended, statutorily codified, and created some of its own U.S. sanctions authorities on Russia. Although OFAC’s overall Ukraine-/Russia-related Sanctions program is partially comprised of these CAATSA-related authorities, the agency also views it as its own stand-alone program. 
• Magnitsky Sanctions—this program was created based on the Sergei Magnitsky Rule of Law Accountability Act of 2012 (“Magnitsky Act”), which Congress initially put forth in response to the Russian government’s human rights abuses towards Russian lawyer Sergei Leondovich Magnitsky—responsible for exposing certain acts of government corruption—and his eventual death. It is a rather limited program in scope, targeting certain persons with full blocking sanctions who were involved in the detention, abuse, or death of Mr. Magnitsky, and/or that are deemed responsible for certain human rights violations in Russia. Although this program inspired the legal authorities comprising OFAC’s Global Magnitsky Sanctions program, it is separate and distinct. 

Notwithstanding the applicability of any of the foregoing OFAC sanctions programs to a transaction, it is important to note that the U.S. Department of Commerce’s Bureau of Industry and Security’s (“BIS”) Export Administration Regulations (“EAR”) imposes stringent controls and licensing requirements on the export, reexport, and transfer (in-country) of items subject to the EAR—i.e., U.S.-origin items and (potentially) foreign-made items involving certain thresholds of U.S. origin parts or technology, including for their manufacture—to or within Russia, including numerous low-grade consumer goods. However, these export controls do not relate to the concept of “secondary sanctions,” so I won’t be surveying them any further here. They are more well suited under the concept of U.S. “primary sanctions” that I examine next.   

U.S. “Primary Sanctions” 

With the relevant legal authorities summarized as above, the next step is to establish the type of conduct that would be considered a violation of U.S. economic sanctions laws and regulations related to Russia to elicit a potential civil and/or criminal penalties enforcement response (the Department of Justice handles criminal enforcement). Such legal authorities do not fall under the umbrella of supposed “secondary sanctions,” but are instead more appropriately labeled under what’s informally referred to as “primary sanctions.” 

OFAC’s Russia-related sanctions programs prohibit U.S. persons from a variety of transactions and dealings involving sanctioned targets. The term U.S. person means any U.S. citizen, permanent resident alien (i.e., green card holder), entity organized under the laws of the U.S. (including foreign branches), or any person in the U.S. The categories of transactions that are prohibited for U.S. persons include the following, amongst others, unless they are authorized by OFAC or statutorily exempt: 

• Engaging in virtually any transaction or dealing with persons (i.e., individuals or entities) subject to full blocking sanctions as a result of their being designated on the SDN List under a relevant legal authority (e.g., E.O. 14024, E.O. 13662, the Magnitsky Act) or constructively blocked under OFAC’s 50 Percent Rule. 
• Engaging in certain types of defined transactions—e.g., dealings in new debt of specified tenors or new equity of persons subject to directives 1 or 2 under E.O. 13662, or Directive 3 under E.O. 14024—with persons identified on SSI List or OFAC’s Non-SDN Menu-Based Sanctions (“NS-MBS”) List, including those constructively identified on such lists pursuant to OFAC’s 50 Percent Rule. 
• Engaging in virtually any transactions or dealings with the occupied regions of Ukraine, which include Crimea under E.O. 13685 and Luhansk and Donetsk under E.O. 14065. 
• Engaging in any new investment in the Russia Federation under E.O. 14071, which is just one example of many other blanket prohibitions for U.S. persons under the Russian Harmful Foreign Activities Sanctions program in engaging in certain types of conduct involving the Russian Federation as a whole or with certain sectors of its economy (e.g., the April 12, 2024 Determination pursuant to E.O. 14068, prohibiting the import of aluminum, copper, and nickel of Russian origin). 

While U.S. persons are prohibited from engaging in any such specified activities, because of IEEPA, non-U.S. persons—i.e., persons that do not satisfy the legal definition of a U.S. person—are also prohibited from causing a U.S. person to engage in the relevant prohibited conduct, whether directly or indirectly. An example would include a foreign person who receives payment in U.S. dollars at their foreign bank account from a sanctioned target’s foreign bank account, for the sale of goods, while an intermediary U.S. bank is remotely involved in clearing the U.S. dollar payment. Non-U.S. persons that engage in conduct amounting to prohibited causation may incur civil and/or criminal penalties as well. 

The common denominator with all of the above legal authorities is that the U.S. government maintains its jurisdiction for civil/criminal enforcement over a transaction or dealing involving a sanctioned target because there is a “U.S.-nexus” present. A U.S. person is somehow involved in the picture, even though it may be rather indirect, granting the U.S. government with legal jurisdiction to enforce monetary and/or criminal penalties on the violating persons, including non-U.S. persons. The concept of so-called “secondary sanctions” begins to appear when a U.S. sanctioned target is involved in a transaction or dealing, but a U.S.-nexus is not necessarily present. 

“Conduct” and “Derivative” Based Sanctions

“Conduct” and “derivative” based sanctions get grouped under so-called “secondary sanctions” a lot, and this is most likely because they can apply to any person regardless of a U.S.-nexus being present in the conduct that is at issue. While you are free to categorize it as such, technically speaking they are each a distinct legal concept, which I have attempted to define here. 

“Conduct” based sanctions—are when the U.S. government has the legal authority pursuant to a specified designation criteria to impose relevant blocking or less restrictive sanctions (pursuant to a directive for example) on a person because they engaged in certain targeted conduct. For example, E.O. 14024 authorizes the Secretary of the Treasury or the Secretary of State to designate persons determined to be the following:

• To operate or have operated in the technology sector or the defense and related material sector of the Russian Federation economy, or other sectors that have been separately determined by the Secretary of Treasury in consultation with several other agencies pursuant to published determinations. 

There are many such designation criteria in the various Executive orders that comprise OFAC’s Russia-related sanctions programs, and they serve as their cornerstone. 

“Derivative” based sanctions—are when the U.S. government has the legal authority pursuant to a specified designation criteria to impose blocking or less restrictive sanctions on a person because of a defined relationship with a certain defined person, government, or other target, as opposed to conduct alone. For example, E.O. 14024 authorizes the Secretary of the Treasury or the Secretary of State to designate persons determined to be the following: 

• To have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of any person blocked under E.O. 14024. 
• To be owned or controlled by, or to have acted or purported to act for or on behalf of, directly or indirectly, any person blocked under the Executive order.
• To be or have been a leader, official, senior executive officer, or member of the board of directors of the Government of the Russian Federation.
• To be a spouse or adult child of any person blocked under certain specified sections of the Executive order. 

The first two examples provided for “derivative” sanctions are present in nearly all legal authorities authorizing the imposition of sanctions under OFAC’s Russia-related sanctions programs. While even I group them under so-called “secondary sanctions” when attempting to explain the general distinction between “primary” and “secondary” sanctions—especially for the sake of brevity—they are technically their own category. 

One common trait between “conduct” and “derivative” sanctions authorities is that when they are first enacted/issued, they set the stage and/or expand the legal framework for a sanctions program to enable the U.S. government to impose sanctions on various targets. They may also simultaneously impose sanctions on persons that meet their specified designation criteria. Their primary purpose isn’t necessarily to forewarn others from engaging in transactions with already sanctioned targets, which as examined next, is a more prevalent trait of OFAC’s “secondary sanctions” authorities in their truest form.

“Secondary Sanctions”

Having covered what the term “secondary sanctions” isn’t, let’s delve into what it is. With the exception of OFAC’s Magnitsky Sanctions Program, certain legal authorities under each of the three remaining Russia-related sanctions programs comprise what OFAC itself refers to as “secondary sanctions” authorities. As noted above, there is considerable overlap between OFAC’s CAATSA-related Program’s Russia provisions and its Ukraine-/Russia-related Sanctions Program, and I’ll examine CAATSA under the latter program for our purposes here. 

Russian Harmful Foreign Activities Sanctions—Section 11 of E.O. 14024 was amended by E.O. 14114 on December 22, 2023, and later updated in its scope on June 12, 2024, authorizing the Secretary of the Treasury (i.e., OFAC) with the authority to select any one of two types of sanctions to impose—blocking sanctions, or imposing prohibitions or strict conditions in relation to correspondent or payable-through accounts in the U.S.—on foreign financial institutions (“FFIs”) determined to have conducted or facilitated significant transactions, or provided any services involving Russia’s military-industrial base. The term “Russia’s military industrial base” is currently defined to include: 

• Any person blocked pursuant to E.O. 14024;
• Any person operating in the technology, defense and related material, construction aerospace, or manufacturing sectors of the Russian Federation economy (note: other sectors may be added in the future); 
• Persons that support the sale, supply, or transfer, directly or indirectly, to the Russian Federation of certain critical items that are identified in a December 22, 2023 separate published Determination pursuant to Section 11(a)(ii) of E.O. 14024.

One could argue that these criteria for imposing sanctions on an FFI are essentially the same as “derivative” based sanctions. However, OFAC itself has referred to this specific sanctions authority in Section 11 of E.O. 14024, as amended, as a “secondary sanctions” authority in a related press release, as well as in updating the SDN List entry of numerous persons designated under E.O. 14024, where for any FFI’s dealings with them the relevant sanctions criteria under Section 11 would be triggered (i.e., because the listed person is designated under E.O. 14024). The language OFAC added stated: “Secondary sanctions risk: See Section 11 of Executive Order 14024.”

Ukraine-/Russia-related Sanctions—Alongside the various IEEPA-based Executive orders that comprise this program, there are 3 statutes that specifically call for the President to impose sanctions with respect to Russia: 

• Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014 (“SSIDES”)
• Ukraine Freedom Support Act of 2014 (“UFSA”)
• Countering America’s Adversaries Through Sanctions Act of 2017 (“CAATSA”), PL 115-44

In pertinent part, §§ 222 and 223 of CAATSA codified this program’s key Executive orders—i.e., E.O. 13660, 13661, 13662 (also further modified this Order), and 13685—which are implemented in the URSR in 31 C.F.R. § 589.201. Along with several of its own Russia-related sanctions authorities, CAATSA also added to and/or amended nearly all the existing sanctions authorities of SSIDES and the UFSA. Almost all of the sanctions provisions of SSIDES and the UFSA, as amended by CAATSA, have also been implemented in §§ 589.201 and 589.209 of the URSR. It is also important to note that §§ 589.202-589.205 of the URSR fully implement directives 1-4 (as amended) under E.O. 13662, which as noted above impose certain debt and/or equity related transactional prohibitions in relation to persons subject to sanctions under any such directives. 

While the designation criteria of the Executive orders and SSIDES that are implemented in § 589.201 of the URSR are essentially “conduct” or “derivative” based sanctions authorities, OFAC notes within these regulations that certain transactions with persons blocked pursuant to such Executive orders and/or SSIDES “…may result in the imposition of secondary sanctions…” and that their entries on the SDN List will also include the descriptive prefix text “Secondary sanctions risk.” OFAC also notes the same descriptor regarding “Secondary sanctions risk” in §§ 589.202-589.205, for transactions with persons subject to the relevant directive(s). Reading between the many lines of legalese at play here, the secondary sanctions authority being referred to by OFAC is set forth in subparagraph (a)(6)(vii)(B) of § 589.201, which implements § 8909 of SSIDES, as amended by § 228 of CAATSA.

Specifically, § 589.201(a)(6)(vii)(B) authorizes the Secretary of the Treasury to impose blocking sanctions with respect to any foreign person determined to knowingly facilitate a significant transaction, including a deceptive or structured transaction, for or on behalf of—(1) any person subject to sanctions imposed by the United States with respect to the Russian Federation; or (2) any child, spouse, parent, or sibling of any such individuals. The term subject to sanctions imposed by the United States with respect to the Russian Federation is interpreted by OFAC to include persons subject to sanctions under SSIDES, the UFSA, provisions of CAATSA with respect to the Russian Federation; and the following covered executive orders: E.O. 13660, E.O. 13661, E.O. 13662, E.O. 13685, E.O. 13694, or E.O. 13757. In other words, persons identified on the SDN, SSI (i.e., the directives implemented in §§ 589.202-589.205 ), or the NS-MBS lists pursuant to such authorities, or constructively blocked under OFAC’s 50 Percent Rule pursuant to such authorities, are considered subject to sanctions imposed by the United States with respect to the Russian Federation. In short, if a foreign person engaged in transactions with persons subject to sanctions imposed by the United States with respect to the Russian Federation, they risk “secondary sanctions” being imposed on them. 

Although the “Secondary sanctions risk” descriptor does not appear in § 589.209, which implements certain provisions of the UFSA (as amended by CAATSA), many entries in OFAC’s sanctions lists will be identified with that descriptor and note: “Ukraine-/Russia-Related Sanctions Regulations, 31 CFR 589.201 and/or 589.209.” In short, FFIs that engage in certain categories of transactions specified in subparagraphs (b) and (c) of that section, risk the imposition of various types of sanctions specified in subparagraph (d). While subparagraph (b) targets FFIs that knowingly engage in significant transactions with persons identified on the NS-MBS List pursuant to § 8923 of the UFSA for having engaged in certain specified activities, subparagraph (c) is much broader in scope. Specifically, § 589.209(c) targets any FFI that knowingly facilitates a significant financial transaction on behalf of any Russian person included on OFAC’s SDN List pursuant to any of the Executive orders underlying OFAC’s Ukraine-/Russia-related Sanctions program.

Whatever is left in CAATSA that’s not covered by the foregoing provisions of the URSR (i.e., § 224; § 231; § 232; § 233; § 234), are “conduct” and related “derivative” based sanctions authorities, which may be referred to as “secondary sanctions” authorities for convenience sake, but that’s not what OFAC calls them for what it’s worth, as examined next. 

The Common Denominator of “Secondary Sanctions” Authorities

As you may have observed yourself from the assessment of the foregoing legal authorities, what OFAC calls “secondary sanctions” authorities can still technically be labeled as “derivative” sanctions (i.e., deal with XYZ and we may impose sanctions on you). So how are they actually different than one another? 

To put it more eloquent terms, whereas the purely “conduct” and “derivative” based sanctions detailed above are primarily intended to set the initial stage and framework for the U.S. government to impose sanctions on various targets, “secondary sanctions” in their truest form come into the picture later on, and are intended as a last resort in deterring non-U.S. persons from engaging in transactions with already sanctioned persons (especially where “primary sanctions” have no force). However, this doesn’t mean that purely “derivative” based sanctions authorities can’t still be used for deterrence purposes as well. Another distinction is that all the OFAC labeled Russia-related “secondary sanctions” authorities target only non-U.S. persons, particularly foreign financial institutions. However, that doesn’t mean much in practice, because even “derivative” and “conduct” based sanctions authorities that aren’t labeled as such by OFAC almost always target non-U.S. persons. 

The only common denominator we can walk away with here for what constitutes “secondary sanctions” and what doesn’t, is those sanctions authorities that OFAC itself labels as such. In the end, it all basically just appears to come down to semantics. You could still group “derivative” and perhaps “conduct” based sanctions under that term, but when analyzing a specific transaction under the lens of OFAC’s Russia-related sanctions programs you’ll be more technically correct in making the relevant distinctions, which I’ve hopefully conveyed in this article.

The author of this blog post is Kian Meshkat, an attorney specializing in U.S. economic sanctions and export controls matters. If you have any questions please contact him at [email protected].