Workshop: Building a Sanctions Compliance Memo
A workshop on drafting defensible sanctions compliance memos: structure, authorities to cite, and a worked Russian oil price cap hypothetical.
Purpose and Audience of a Sanctions Compliance Memo
A sanctions compliance memo is the legal-operational document a financial institution, exporter, law firm, or corporate counsel produces to determine whether a proposed transaction, counterparty relationship, or course of conduct is permissible under applicable sanctions regimes. It is not an academic exercise: under 31 C.F.R. § 501.601, OFAC requires U.S. persons to maintain records of transactions subject to its regulations for five years, and the memo functions as the contemporaneous record demonstrating reasonable due diligence. In OFAC's 2019 Framework for OFAC Compliance Commitments, the agency explicitly identified "management commitment, risk assessment, internal controls, testing and auditing, and training" as the five pillars — the memo operationalizes pillars two and three for a specific matter.
The audience is layered. The immediate reader is a compliance officer or General Counsel making a go/no-go decision. The secondary reader is the regulator: OFAC's Enforcement Division, the EU national competent authority (e.g., HM Treasury's Office of Financial Sanctions Implementation in the UK, the Bundesbank's Servicezentrum Finanzsanktionen in Germany), or, in criminal matters, DOJ's National Security Division. The 2023 Tri-Seal Compliance Note issued jointly by Commerce BIS, Treasury OFAC, and DOJ on voluntary self-disclosures confirmed that contemporaneous written analysis weighs materially in penalty mitigation under the OFAC Economic Sanctions Enforcement Guidelines (31 C.F.R. Part 501, Appendix A).
The Five-Part Structure
A defensible memo follows a disciplined structure:
1. Facts. State the parties, the proposed transaction (goods, services, financial instrument, value, currency, routing), the jurisdictions touched, and the timing. Identify each counterparty's beneficial owners down to the 50 percent threshold required by OFAC's Revised Guidance of August 13, 2014 (the "50 Percent Rule"), and the equivalent EU aggregation rule articulated in the Council's EU Best Practices for the Effective Implementation of Restrictive Measures (most recently updated June 27, 2022).
2. Applicable Regimes. Identify every regime that could attach. For a transaction involving a Russian counterparty in 2024, that minimally includes: Executive Orders 14024 (April 15, 2021), 14065, 14066, 14068, and 14071; Council Regulation (EU) 833/2014 as amended through the 14th sanctions package (Regulation 2024/1745, June 24, 2024); UK Russia (Sanctions) (EU Exit) Regulations 2019; and UN Security Council measures where applicable. Cite the operative provision, not the regime generally.
3. Analysis. Apply law to fact. Distinguish primary sanctions (jurisdictional nexus through U.S. person, U.S.-origin goods, U.S. dollar clearing, or U.S. financial system) from secondary sanctions (e.g., CAATSA § 231 designations, or E.O. 14114's December 22, 2023 expansion of secondary sanctions on foreign financial institutions supporting Russia's military-industrial base). Address general licenses by number (e.g., Russia GL 8K for energy-related transactions) and determine whether their conditions are satisfied. Flag facilitation risk under 31 C.F.R. § 560.208 where a non-U.S. affiliate is involved.
4. Conclusion. State the recommendation: proceed, proceed with conditions, decline, or seek a specific license under 31 C.F.R. § 501.801. Conditions should be enumerated (e.g., contractual sanctions representations, wind-down within the GL period, KYC refresh).
5. Escalation and Record. Identify who must approve, whether a Suspicious Activity Report under 31 U.S.C. § 5318(g) or an OFAC blocking report under 31 C.F.R. § 501.603 is triggered, and the retention location. The 2019 ZTE settlement and the 2023 Binance settlement ($968 million OFAC component, November 21, 2023) both turned in part on the absence or falsification of such records.