Introduction

Anatoly Karachinskiy, the former majority shareholder of the IBS Group, has recently been removed from the US sanctions list, marking a significant development. This is the first instance since the start of the Ukraine war where a prominent Russian businessman has been removed from the Office of Foreign Assets Control (OFAC) SDN List.

Anatoly Karachinskiy Came Under US Sanctions in April 2022

On April 20, 2022, Anatoly Karachinskiy was added to the OFAC SDN List, along with 28 other Russian individuals and 40 companies. According to the corresponding note on the OFAC website , his inclusion in the sanctions list was based on his relationship with the Bank “Otkritie” (Linked To: PUBLIC JOINT STOCK COMPANY BANK FINANCIAL CORPORATION OTKRITIE).

Right after that, Karachinskiy promptly resigned from the Supervisory Board of “Otkritie.” However, his new sanctioned status became a significant problem not only for him but for his business as well. At that time, he was a majority shareholder of the IBS Group – one of the leaders in the IT solutions market. Since he controlled more than 50% of the IBS shares, the company became automatically sanctioned under the 50 Percent Rule. To address this issue, an urgent reorganization of the company and divestment from its shareholders was required.

Reorganization of the IBS Group of Companies

The reorganization of IBS was carried out in two stages. Firstly, Anatoly Karachinskiy stepped down from the company’s Board of Directors , as announced by the IBS press service on May 11, 2022. This step was very important, considering the complexities of the 50% rule. If he did not do so, transactions conducted by Karachinskiy on behalf of the company or bearing his signature would have fallen under US sanctions, causing significant problems. Additionally, a sanctioned individual among the management would have raised concerns among business partners, potentially leading to avoidance of any contact with the company due to fears of secondary sanctions.

The second and most crucial stage involved Anatoly Karachinskiy’s divestment from the shareholders of IBS Group, with all his 75% shares being bought out by the managers of the IBS. While this freed the company from the control and ownership of a sanctioned individual, it did not fully resolve its reputational challenges. The problem remains because any potential business partner conducting due diligence will discover that the former IBS shareholder is on the OFAC SDN List. Most companies will be reluctant to have any relations with the company, unwilling to become a target for US secondary sanctions. The only final solution to the problems related to US sanctions could be removing the IBS former majority shareholder from the OFAC SDN List .

Anatoly Karachinskiy Removed from OFAC SDN List on May 19, 2023

Since February 2022, thousands of Russian businessmen, their companies, aircrafts, and ships came under US sanctions.  Dozens of the sanctioned individuals have been trying to fight them. Only Anatoly Karachinskiy has succeeded so far. Why didn’t other defendants achieve any positive results?

There are several reasons for that. Firstly, lifting US sanctions takes a long time. As a rule, it is more than a year. Secondly, there must be good reasons for lifting sanctions. Such as a legal or factual error, a change in circumstances that makes the presence of the defendant on the sanctions list unsubstantiated, or a change in the behavior of the defendant in such a way that it provides sufficient grounds for removing him from the sanctions list.

It is worth noting that delisting from the OFAC SDN List is an administrative process, which is mainly regulated by the internal OFAC rules. So, it’s crucial to make sure the client is represented before OFAC by experienced American lawyers who know the OFAC rules and procedures, as well as how this agency reviews the sanctions lifting requests in practice. Although OFAC’s decision on a request to lift sanctions is final, it may be reviewed by OFAC due to changed circumstances or challenged in a US court.

In the case of Anatoly Karachinskiy, his lawyers did not have to challenge the US sanctions in court. He was removed from OFAC SDN List on May 19, 2023. Usually, OFAC does not explain the reasons for lifting sanctions. There were no OFAC comments in this case either. Nevertheless, as we see it, the following arguments contributed to the OFAC’s decision to remove Anatoly Karachinskiy from the US sanctions list:

1.He left the Supervisory Board of the Bank “Otkritie” (resigned from a position in a blocked entity), removing the initial basis for his inclusion into the OFAC SDN List.

2.He sold his stake in the IBS Group and left its Board of Directors.

3.He is not close to Putin or involved in Russian politics.

4.The IBS Group is a significant player in the IT technology market, cooperating with major American companies.

Anatoly Karachinskiy’s American legal team likely put forth additional arguments supporting the request to remove him from the OFAC SDN List. However, these arguments remain confidential and will only become known if Anatoly Karachinskiy decides to disclose them.

Conclusion

As of May 19, 2023, Anatoly Karachinskiy is no longer under US sanctions. Although this is the first time that a Russian businessman has been removed from the OFAC SDN List, US sanctions have already been repeatedly lifted from other non-Russian persons. This development highlights the potential for other individuals on the US sanctions list to successfully challenge and lift sanctions, provided they have a strong case and are assisted by experienced American lawyers.