Two different questions: who you are and where you are

A businessman moved to Dubai in 2022, obtained a UAE residence visa, rented an apartment, and brought his family over. The Russian passport stayed, the Moscow apartment stayed, the account at a Russian bank stayed, and his engagement letter with a US consultant still carries a Moscow address. He appears on no sanctions list. The Specially Designated Nationals and Blocked Persons List (SDN List) does not name him. Even so, a US accounting firm has declined to keep filing for him, and a Delaware corporate service provider is asking him to document where he actually lives.

The reason is that US sanctions law asks at least two separate questions, and the two are constantly collapsed into one. The first is who you are as a matter of US law: are you a US person, so that the prohibitions bind you personally? The second is where you are: is the recipient of the service a person located in Russia? The answers move independently of each other. A Russian national living in Miami on a green card answers yes to the first and no to the second. A US citizen teaching at a Moscow university answers yes to both.

This article is about the second question. The answer to it decides whether a US accountant, consultant, architect, or IT contractor may lawfully serve you at all. Banks and service providers build their own compliance checks around the same question.

What OFAC means by a person located in Russia

The Office of Foreign Assets Control of the US Department of the Treasury (OFAC) has set out its reading of the term in guidance, in particular in FAQ 1058. For purposes of section 1(a)(ii) of Executive Order (EO) 14071, the term covers:

• persons physically located in the Russian Federation;
• individuals ordinarily resident in the Russian Federation;
• entities incorporated or organized under the laws of the Russian Federation or of any jurisdiction within it.

Nationality appears nowhere in that definition. It is built on presence and on ordinary residence, and it runs in both directions. A US citizen who lives and works in Moscow is a person located in Russia, with everything that follows from it for US service providers. That is precisely why OFAC had to issue separate general licenses for such people.

General License (GL) 44 under the Russian Harmful Foreign Activities Sanctions Regulations (RuHSR), 31 C.F.R. part 587, issued July 14, 2022, authorizes tax preparation and filing services for individuals who are US persons in the Russian Federation. GL 19 under the same program authorizes the transactions they need for the ordinary maintenance of themselves and their families in the country.

For entities, the rule is simpler and harder-edged, because the test is formal. A company organized under the law of the Russian Federation stays inside the definition regardless of where its owners and its director live or where it is in fact managed. A foreign entity does not meet that formal limb, but presence remains a separate question: a branch or a permanent office in Russia puts the company back into the same category. Redomiciliation deserves a check of its own. Moving a company to another jurisdiction changes the governing law, but by itself it removes neither actual presence nor the indirect-export analysis discussed below.

The second limb, ordinary residence, is the hardest. OFAC has published no formal definition of “ordinarily resident” for this program. Only the direction of interpretation is clear: this is not a question of where a person happens to be on a particular day. Two weeks in Istanbul does not take a Moscow resident outside the test, and buying a one-way ticket does not by itself make a relocation complete. What is assessed is the whole body of facts.

Which prohibitions are triggered by this test

Section 1(a)(ii) of EO 14071, issued April 6, 2022, prohibits the export, reexport, sale and supply, directly or indirectly, from the United States or by a US person wherever located, of specified categories of services to any person located in Russia. The categories themselves are set by separate OFAC Determinations. The ones that matter most to professional and technology service providers are:

• the Determination of May 8, 2022: accounting, trust and corporate formation, and management consulting services (effective June 7, 2022);
• the Determination of September 15, 2022: quantum computing services (effective October 15, 2022);
• the Determination of May 19, 2023: architecture and engineering services (effective June 18, 2023);
• the Determination of June 12, 2024: IT consultancy and design services, and IT support and cloud-based services for enterprise management software and design and manufacturing software (effective September 12, 2024);
• the Determination of January 10, 2025: petroleum services (effective February 27, 2025).

Separate determinations made under section 1(a)(ii) of EO 14071 also restrict certain services connected with the maritime transport of Russian oil and petroleum products and with the acquisition of aluminum, copper and nickel of Russian origin.

A similar territorial test appears in other instruments. The Executive Order of March 11, 2022 (EO 14068) prohibits the supply of US dollar banknotes to the Government of the Russian Federation and to anyone located in Russia. Individual carve-outs come from general licenses: Russia-related GL 18 authorizes certain transactions connected with non-commercial personal remittances. Certain transactions involving telecommunications and certain internet-based communications are authorized by Russia-related GL 25G.

What the list does not contain matters just as much. The prohibition reaches defined categories of services, not every dealing with someone who meets the test. Legal, medical and educational services are not included as categories in their own right. Transactions with blocked persons, including receiving payment from them for services, are governed by separate provisions and, as a rule, require a general license in force or a specific OFAC license.

A service provider should keep one further point in view: civil liability for a breach of OFAC’s rules rests on strict liability and can arise regardless of intent and regardless of whether the provider knew the circumstances that made the transaction prohibited. A good-faith mistake about where the client is located is not in itself a defense. A proper client check and documentation of its results can, however, weigh heavily when OFAC assesses the circumstances of a violation and sets the amount of any penalty.

The May 8, 2022 Determination carries two important exclusions. It does not reach services provided to an entity located in the Russian Federation that is owned or controlled, directly or indirectly, by a US person, nor services connected with the wind-down or divestiture of an equity interest in an entity located in the Russian Federation that is not owned or controlled, directly or indirectly, by a Russian person.

The sanctions regime moves quickly, so before relying on any of these instruments, its status and current text should be checked as of the date of the transaction in question.

After a move: address, account, tax residency

This is where most practical disputes arise. Someone left three years ago but kept a registered address in Russia, an apartment, a bank account, and possibly tax residency. Does he meet the test?

OFAC has published no ready-made list of criteria, so the analysis rests on the totality of the circumstances. In practice the facts that carry weight are: where the person actually spends the year; where the family lives; whether there is a residence permit or residence visa of another country and whether it is actually used; what address appears on contracts, invoices and bank onboarding forms; where the person connects to services from; and where the main source of income sits.

Three circumstances deserve separate comment, because clients often give them more weight than they carry.

• A Russian address on the paperwork. It creates no status on its own, but for a counterparty it is the first and often the only visible fact. If a Moscow address sits on the contract with a US firm, that firm has already answered the location question, and changing its mind will take documents.
• An account at a Russian bank. Holding one does not by itself bring a person inside the test, and closing it for sanctions purposes is rarely necessary. An account that receives the main income is a different matter: it is strong evidence of where the center of a life sits.
• Tax residency. This is a concept of Russian tax law in its own right, and it does not track the sanctions test. Losing Russian tax residency does not automatically end the status, and keeping it does not automatically create the status.

Two cases illustrate the point. A person with a Cypriot residence permit who lives on the island all year round, pays rent and school fees there, but receives dividends into a Russian account is almost certainly outside the test, and that is provable. A person with the same permit who spends one month a year in Cyprus, has kept a Moscow registration, family and office, and travels to the island for banking meets the test on the totality of the facts, and the residence permit does not change that.

The practical conclusion is simple: a move counts only once it is documented. A residence visa, a lease, utility bills, a local bank account, insurance and a school place for the children settle the question far more reliably than a free-form explanation.

What we check in this analysis

We prepare a written legal opinion on the question, and its structure is almost always the same. First, the status of the recipient of the service: is this person located in Russia, fact by fact and with the document behind each fact. Second, the service itself: does it fall within one of the categories set by an OFAC determination, and is there an applicable exclusion or a valid OFAC general license. Then the indirect-export question: will the ultimate benefit of the service go to someone inside the test. And finally, an annex with the documents a bank or a US service provider needs in order to check and confirm that the transaction is permissible.

We are equally clear about the limits of that analysis. The opinion answers the question whether US sanctions restrictions apply. It does not replace advice on Russian currency or tax law, and it does not guarantee that a bank or a counterparty will agree to proceed: their internal compliance requirements may be stricter than the law.

If the analysis shows that the intended transaction is prohibited, the next step may be an application for a specific OFAC license, or a change to the structure of the service or of the transaction itself.

A third-country company: why it does not settle the question by itself

A common approach is to register a company in the UAE, Kazakhstan, or Cyprus and to contract through it. Sometimes it works, and sometimes it does not, and the line is drawn in OFAC’s guidance in FAQ 1059.

OFAC confirms that the prohibitions do not reach services provided to a non-Russian company that has a physical presence and operations outside Russia, including where it is owned by persons located in Russia, provided the services are not passed on into Russia. At the same time, OFAC reads indirect export as covering the situation where the ultimate benefit of the service is received by a person located in Russia.

OFAC’s own examples mark the boundary. A service is prohibited where a US corporate service provider administers a trust formed under the law of a US state for a settlor or beneficiary ordinarily resident in Russia. So is the formation by a US provider of a third-country company for such an individual, where the company is created to hold real estate and has neither presence nor operations in that country. Conversely, tax support for the US subsidiary of a Russian group that has an office, employees and a real business in the United States does not fall under the prohibition, provided the parent company in Russia does not make use of the result of the service.

The conclusion for structuring is that incorporation is not the point. Substance is: premises, staff, operations, and who in reality consumes the service.

Nationality: where it still matters

It would be a mistake to read all of this as meaning that a passport counts for nothing in US sanctions. The same Determination of May 8, 2022 uses, alongside the location term, the term “Russian person”: an individual who is a citizen or national of the Russian Federation, or an entity organized under the law of the Russian Federation. That term does its work in the exclusion for wind-down and divestiture of an equity interest. In other words, one document runs a location test for the prohibition and a nationality test for the carve-out.

Nationality also does independent work outside sanctions law: in the statutes of individual states restricting purchases of real property, in visa rules, in the EU and UK sanctions regimes, and in the internal compliance policies of banks and payment providers.

So the honest answer to “I left, so surely the prohibitions no longer apply to me” is this: possibly, but that is a claim about facts rather than about a passport, and it is for you to prove. If a US firm has declined to serve you, or a bank has refused to open an account, the work is to establish the facts and record them in a document the counterparty can place on its file.