On February 21, President Biden issued an executive order blocking property of certain persons, and prohibiting transactions regarding Russia’s invasion of the Ukraine. The following day, the U.S. Treasury’s Office of Foreign Assets Control (OFAC) issued restrictions on activities with Russian individuals and entities. On February 25, these lists were updated to include political leaders such as Vladimir Putin.
Three major card networks and PayPal have blocked access to a large portion of the Russian banking market in response to the U.S. government sanctions. As a result of this action, many point-of-sale transactions through merchants will be blocked. Cash shortages in Russia will become worse, and e-commerce will be extremely difficult.
The U.S. and European Union have also cut off certain Russian banks’ access to SWIFT, a messaging system that allows banks to communicate about cross-border payments securely and quickly.
On March 2, Elizabeth Warren (D-MA), Mark Warner (D-VA), Jack Reed (D-RI), and Sherrod Brown (D-OH) sent a letter to Treasury Secretary Janet Yellen expressing concerns that criminals and rogue states “may use digital assets and alternative payment platforms as a new means to hide cross-border transactions for nefarious purposes.” The senators note the importance and urgency due to Russia potentially using cryptocurrency as a way to circumvent the aforementioned sanctions. Culminating the letter, the senators request clarification on five different questions to ensure cryptocurrency is not used to evade economic sanctions and that such sanctions remain effective for achieving foreign policy goals.
Our Take. Payment processors and other fintechs that send payments worldwide may consider blocking all transactions to Russia at this time, absent any special circumstances. Due to the possibility of the president or OFAC expanding the scope of blocked entities or persons, this may be the most risk-averse option, although it comes with some risk for being overbroad.
Companies should immediately review and update their OFAC screening procedures, as well as their Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance programs to ensure proper blocking on the updated Specially Designated Nationals and Blocked Persons List (SDN List). Stakeholders should also review their IP address monitoring technology, geolocation screening technology, physical address and email address domain monitoring, and screening for flagged business identifier codes (BICs). Businesses should have strong algorithms to ensure that close matches to persons or businesses on the SDN List are flagged for immediate review.
Lastly, payments companies and fintechs should be screening their merchants’ customers against OFAC’s SDN List. If a merchant’s customers are on the SDN List, those transactions must be blocked.