US Capital Markets Sanctions

Executive Summary

The Securities Industry and Financial Markets Association (“SIFMA”) and its member firms fully support the important U.S. national security and foreign policy goals furthered by U.S. sanctions imposed by the Office of Foreign Assets Control (“OFAC”) of the U.S. Department of the Treasury (“Treasury”). We are firmly aligned with U.S. sanctions objectives and committed to working with OFAC to increase the effectiveness of its sanctions programs.

Since 2014, OFAC’s use of sanctions affecting U.S. capital markets participants and U.S. investors has increased dramatically. Variations in different OFAC sanctions programs have resulted in a patchwork of capital markets sanctions. Although U.S. firms have implemented policies and procedures to comply with sanctions impacting capital markets activities, it has become evident to market participants that these sanctions are not tailored to address the realities of the capital markets.

In addition, and most importantly, U.S. capital markets sanctions have unintentionally harmed U.S. investors. U.S. retail and institutional investors have broad exposure to the capital markets, including, among others, individuals investing through pension plans, mutual funds, exchange-traded funds (“ETFs”), individual retirement accounts (“IRAs”) and other investment vehicles with the aim of receiving reliable, low-risk returns. Sanctions that restrict investors’ ability to divest their holdings, receive dividends or interest payments or preserve the value of investments made long before sanctions were imposed have a significant negative impact on those investors. At the same time, these types of restrictions have no effect on the capital already raised by the securities issuers before sanctions. It is thus not apparent that the U.S. investor harms that result under current approaches to U.S. capital markets sanctions are offset by commensurate impacts advancing U.S. sanctions goals.

There are more effective ways for OFAC to implement sanctions on securities issuers that would mitigate negative impacts to U.S. investors, market participants and OFAC itself, without undermining the critical goals of U.S. sanctions policy or providing meaningful benefit to targeted issuers. As we detail in this white paper, OFAC should adopt a standardized capital markets sanctions framework designed to: (i) ensure that sanctions do not negatively impact U.S. investors; (ii) enable OFAC to implement capital markets sanctions in a more institutionalized and effective manner; and (iii) help U.S. firms understand their compliance obligations in the securities context.