The Policy Alert raises questions for future consideration regarding the implementation of international sanctions and the compatibility of domestic regulatory guidance.

The US Department of Treasury through its Office of Foreign Assets Control (OFAC), has imposed sanctions on two Georgian government officials and two private citizens for their roles in suppressing fundamental freedoms, including freedom of expression and peaceful assembly. According to the U.S. Treasury, these individuals were involved in violent crackdowns on protestors related to Georgia’s controversial "foreign influence law," passed in May 2024. The sanctions, enacted under Executive Order 13818 as part of the Global Magnitsky Human Rights Accountability Act, specifically target those responsible for serious human rights abuses. Georgian banks should comply with the sanctions under the Magnitsky act, even if there is no dedicated domestic order for this.

The National Bank of Georgia (NBG), in its recent [September 2024] press statement, emphasizes that the country’s financial sector adheres to international sanctions within its own regulatory framework. 

NBG has issued numerous regulations and guidelines that require banks to comply with the sanctions. Order No. 208/04 issued in August 2023 was an additional layer introducing more legal clarity in the sanctions compliance framework specifically for sanctions against Russia and Belarus. The September 19, 2023 amendment to the above order introduced exceptions for Georgian citizens and legal entities owned by Georgian citizens, mandating banks to comply with the August order only in case of guilty verdict by the Georgian court.  The September amendment introduces legal ambiguity, creates precedent, and sets a legal basis for replicating a similar approach in the case of other sanctions regimes. Notably, OFAC imposes sanctions unilaterally and immediately, without waiting for local judicial processes. 

This ambiguous framework and regulatory and procedural incompatibility raises many important questions: What risks are associated with the adoption of NBG’s relevant regulations? What consequences might third parties, financial institutions, and intermediaries face if they adhere to the NBG rule? Could they incur penalties, operational restrictions, or reputational damage for facilitating transactions or maintaining business relationships with individuals targeted by international sanctions, such as those imposed by OFAC? What may be the potential implications for the general public and for the country more broadly?

Please refer to the attached policy document (above) for the complete analysis.