EO 14024 Directive 3: Covered Entities, Restrictions, and Penalties

Directive 3 under Executive Order 14024 prohibits U.S. persons from transacting in newly issued debt with a maturity longer than 14 days, or in any new equity, of designated Russian entities. Violations can bring civil penalties up to roughly $377,700 per transaction and, if willful, criminal fines up to $1 million and up to 20 years in prison.

The point of the rule is financial pressure: by shutting designated entities out of U.S. capital markets for new issuances, Directive 3 makes it harder for them to raise fresh money through bonds, long-term loans, or stock sales that touch a U.S. person or the United States.

Which Entities Directive 3 Covers

Covered entities appear on OFAC’s Non-SDN Menu-Based Sanctions (NS-MBS) List, which is separate from the Specially Designated Nationals (SDN) List.¹ The distinction matters. An NS-MBS listing does not freeze the entity’s assets. It imposes targeted restrictions on specific transaction types, and ordinary business outside those restrictions can continue.

Annex 1 to the directive names 13 major Russian entities determined to operate in the financial services sector of Russia’s economy, or to be owned or controlled by the Russian government. Sberbank, Gazprombank, Alfa-Bank, Gazprom, Gazprom Neft, Russian Railways, Transneft, Alrosa, and Sovcomflot are among them.¹ OFAC can add entities at any time through new determinations, so the current NS-MBS List is the authoritative reference.

The 50 Percent Rule

The prohibitions reach further than named entities. Under OFAC’s 50 Percent Rule, any entity owned 50 percent or more in the aggregate, directly or indirectly, by one or more sanctioned persons is treated the same as the sanctioned parent.² “Indirectly” captures ownership held through intermediate entities that are themselves 50 percent or more owned by the sanctioned person. Routing a new bond or stock issuance through a subsidiary or shell does not escape the directive.

New Debt and New Equity: What’s Restricted

Two categories of instruments fall within Directive 3, and the definitions decide whether a given transaction is prohibited.

New debt means any debt instrument with a maturity longer than 14 days, issued on or after the relevant effective date.³ Very short-term arrangements of 14 days or less remain permissible under this directive; anything longer is off-limits.

New equity means any equity interest, including stocks, shares, and depositary receipts, issued on or after the effective date. There is no de minimis threshold on the equity side.

The dividing line is the issuance date, not the purchase date. Debt or equity that a covered entity issued before its sanctions effective date is not restricted by Directive 3. A U.S. person may hold or trade pre-existing securities of a covered entity so long as another sanctions program or the wider EO 14024 framework does not prohibit the activity.¹ Directive 3 itself provides that all other activities with covered entities are permitted unless separately prohibited by another law or OFAC program.

What Counts as a Prohibited Transaction

For U.S. persons and anyone acting within the United States, Directive 3 forbids all transactions in, financing for, and other dealings in the new debt or new equity of covered entities.³ The reach is wide. Underwriting a new bond issuance, buying newly issued shares, extending credit to fund such a purchase, processing a related payment, or structuring a deal that lets a covered entity obtain new capital through these instruments all fall inside the prohibition.

Role does not matter. A U.S. bank processing a payment tied to a covered entity’s new bond offering carries the same exposure as an investor buying the bonds directly, whether acting as principal, agent, or intermediary.

Evasion and Conspiracy

The directive separately prohibits any transaction designed to evade or avoid its restrictions, any transaction that causes a violation, any attempted violation, and any conspiracy to violate the prohibitions.⁴ Structuring through non-U.S. intermediaries, chopping a long-term instrument into rolling short-term notes to sit under the 14-day threshold, or layering entities to obscure the true issuer all sit inside the evasion prohibition. OFAC weighs substance over form.

When the Prohibitions Take Effect

Timing depends on how an entity was designated.

For the Annex 1 entities, prohibitions took effect at 12:01 a.m. eastern daylight time on March 26, 2022. Any new debt or equity those entities issued on or after that moment is subject to the restrictions.³

For entities designated later, prohibitions take effect at 12:01 a.m. eastern time, 30 days after the date of OFAC’s determination.³ Use that window. Identify exposure, stop pipeline transactions in the newly covered entity’s debt or equity, and update screening.

Compliance and Reporting

U.S. financial institutions are expected to screen for transactions involving entities on the NS-MBS List and their 50-percent-or-more-owned subsidiaries. When a prohibited transaction is identified, the institution must reject it and report the rejection to OFAC within 10 business days.⁵ Reports go through OFAC’s electronic reporting system and should include the legal authority for the rejection, the date, and the transfer instructions or other documents already in hand.⁶

OFAC also issues General Licenses that authorize specific categories of otherwise-prohibited transactions, often on a time-limited basis to allow wind-downs of pre-existing contracts with newly designated entities. These are published on OFAC’s website and apply automatically to anyone meeting their terms, with no individual application required.⁷

Penalties for Violations

Violations are enforced through the International Emergency Economic Powers Act (IEEPA), which supplies both civil and criminal penalties.

On the civil side, OFAC can impose a fine up to the greater of $250,000 (the statutory baseline) or twice the value of the underlying transaction. After inflation adjustments, the per-violation cap reached $377,700 as of early 2025. Civil liability does not require proof of intent; negligent violations can still draw enforcement.⁸

On the criminal side, a willful violation can bring a fine up to $1 million and imprisonment up to 20 years for individuals. That reach extends to anyone who willfully commits, attempts, conspires, or aids and abets a violation.⁸

The “twice the transaction value” multiplier is what makes large violations especially costly. A single prohibited bond underwriting worth tens of millions of dollars can generate a civil penalty in the same range, before any criminal exposure. OFAC has also pursued enforcement against institutions for systemic compliance failures, not only for individual bad transactions. Any transfer that violates the directive is null and void under 31 CFR Part 587 and cannot serve as the basis for asserting rights or interests in the property involved.⁹

1
Federal Register. Publication of Financial Services Sectoral Determination and Directives 1A, 2, 3, and 4 Under Executive Order 14024
2
Office of Foreign Assets Control. Entities Owned by Blocked Persons (50% Rule)
3
Office of Foreign Assets Control. FAQ 984 – Directive 3 Under Executive Order 14024
4
Office of Foreign Assets Control. Russian Harmful Foreign Activities Sanctions FAQs
5
Office of Foreign Assets Control. FAQ 49 – Reporting Blocked and Rejected Transactions
6
Office of Foreign Assets Control. Filing Reports with OFAC
7
Office of Foreign Assets Control. Russian Harmful Foreign Activities Sanctions
8
Office of the Law Revision Counsel. 50 USC 1705 – Penalties
9
eCFR. 31 CFR Part 587 – Russian Harmful Foreign Activities Sanctions Regulations