Worldwide: Expansive New Russia Sanctions, Export Controls Issued On Second Anniversary Of Ukraine Invasion

On February 23, 2024 — marking the second anniversary of Russia's invasion of Ukraine and following the death of opposition politician and anti-corruption activist Aleksei Navalny — the U.S. government issued the largest package of sanctions and export controls since the beginning of the invasion in 2022. The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC), along with the U.S. Department of State, added over 500 entities and individuals to the Specially Designated Nationals (SDN) list, including Russia's largest state-owned shipping company and fleet operator, in order to disrupt Russia's financial and military infrastructures, inhibit Russia's ability to fund its war efforts, reduce its revenue from oil sales, and impose additional costs for Russia's repression, human rights abuses, and aggression against Ukraine.

In conjunction with these sanctions, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) added 93 companies to its Entity List and issued updates to the Common High Priority Items List.

With these latest actions, Treasury and State have now designated over 4,000 entities and individuals pursuant to Russia-related sanctions, and BIS has now placed over 900 parties on the Entity List. The scope of these sanctions has also prompted the U.S. government to issue a business advisory detailing the legal, financial, and reputational risks to those doing business in Russia or the areas it occupies in Ukraine.

Provided below are brief summaries of the actions taken on February 23, 2024.

OFAC SANCTIONS ACTIONS

Financial Infrastructure

OFAC has targeted Russia's financial infrastructure to weaken its capacity to finance its war against Ukraine. Significantly, OFAC has designated the National Payment Card System Joint Stock Company (NPSK), which is owned by the Central Bank of Russia and operates Mir, Russia's largest electronic fund transfer system. Mir has been strategically utilized by the Russian government to evade sanctions and reconnect to the international financial system. Alongside NPSK, OFAC has designated nine regional financial institutions, five investment and venture capital funds, and six financial technology (fintech) companies. These entities have bolstered Russian military capabilities in Ukraine by pumping money into military-industrial base hubs and developing next-generation technology utilized for military operations

Military Industrial Base and Manufacturing Sectors

With this latest round of sanctions, the U.S. government continues to target Russia's military-industrial base, while also broadening their scope to include non-defense sectors that facilitate transactions or provide services to the Russian military-industrial base. Specifically, these sanctions target individuals and entities engaged in the following activities relating to Russia's military, manufacturing, technology, and transport sectors:

• Weapons production
• Additive manufacturing
• Machine tools and other manufacturing and metalworking equipment
• Lubricants, coolants, and industrial chemicals
• Semiconductor and electronics manufacturing, components, and research
• Industrial automation
• Optics
• Navigational instruments
• Military-industrial base information technology and software
• Energy storage and power supply for military-industrial base equipment
• Aerospace
• Logistics, cargo transportation, and truck parts
• Metals and mining

Unmanned Aerial Vehicles (UAVs)

Russia has cooperated with Iran's Ministry of Defense and Armed Forces Logistics (MODAFL) to finance and produce Iranian-designed one-way attack UAVs. Also known as kamikaze drones, these UAVs have been used to attack critical infrastructure and other civilian targets in Ukraine. OFAC's sanctions target the network of entities and individuals (known as the "Alabuga UAV Procurement Network") through which Russia has acquired and produced these deadly UAVs. Included amongst the sanctioned parties are Iran's MODAFL and United Arab Emirates (UAE)-based front-company Generation Trading FZE, which has been used by Iran's MODAFL to facilitate the sale of sample UAV models, parts, and related ground stations to support Russian UAV production.

Other Sanctioned Individuals, Entities, and Vessels

OFAC has taken further action to reduce Russia's revenue from oil sales by targeting Russia's largest state-owned shipping company and fleet operator, Joint Stock Company Sovcomflot. OFAC has also identified and sanctioned 14 crude oil tankers as property in which Sovcomflot has an interest.

Additionally, OFAC has sanctioned 26 entities and individuals across 11 countries including China, Serbia, the UAE, and Liechtenstein, who facilitate, participate in, or support the transfer of critical technology and equipment to Russia's military-industrial base. With these sanctions, OFAC aims to undermine Russia's ability to import technology and equipment through third parties that will advance its military capabilities.

Russia-Related General Licenses

Concurrent with the imposition of these sanctions, OFAC issued and updated several Russia-related general licenses, allowing for certain transactions involving these newly sanctioned entities. These general licenses authorize the following:

• General License No. 88A – the wind down of any transaction involving certain blocked entities, including Sovcomflot, until April 8, 2024;
• General License No. 89 – the wind down of transactions involving certain blocked financial institutions, until April 8, 2024;
• General License No. 90 – the divestment or transfer, or the facilitation of such actions, of debt or equity issued or guaranteed by certain blocked entities to a non-U.S. person, until April 8, 2024;
• General License No. 91A – certain activities involving blocked vessels, including safe docking and anchoring, the preservation of the health and safety of crew, emergency repairs, or environmental mitigation or protection activities, until May 23, 2024;
• General License 92 – the delivery and offloading of cargo from blocked Sovcomflot vessels until April 8, 2024, provided that the cargo was loaded prior to February 23, 2024;
• General License 93 – transactions with other Sovcomflot vessels, provided that such vessels are not identified on OFAC's SDN List.

BIS ACTIONS

Addition of 93 Entities to Entity List

In efforts to cut off the Russian defense industrial base and military from goods it seeks to sustain its war effort, including low-technology consumer goods, BIS has added 93 entities to its Entity List. These additions, which include entities based in Russia, Belarus, China, Türkiye, the UAE, Kyrgyzstan, India, and South Korea, are in response to activities in support of Russia's defense-industrial sector and war effort.

Over half of these entities also received a "footnote 3" designation as Russian-Belarusian military end users. This means that these entities are subject to a license requirement for all items subject to the Export Administration regulations (EAR) subject to a policy of denial (except for EAR99 food and medicine, which will be reviewed on a case-by-case basis).

With these additions, more than 900 parties have now been placed on the Entity List for their role in Russia's invasion of Ukraine.

Updates to the Common High Priority Items List

Together with the European Union, Japan, and the United Kingdom, BIS has identified "common high priority items" that Russia seeks to procure for its weapons programs. The Common High Priority Items List has been updated to include new Tier 4.B, Computer Numerically Controlled (CNC) machine tools and components. These machine tools, identified below by their relevant six-digit Harmonized System (HS) codes, pose a heightened risk of being diverted to Russia because of their importance to Russia's war efforts:

The addition of Tier 4.B to the Common High Priority Items List brings the total number of items up to 50. Notably, this list does not create additional restrictions or licensing requirements for exports of these items to Russia, but instead focuses on encouraging heightened due diligence on the part of exporters of certain critical items that could be diverted to Russia or Russian interests, as discussed in our previous Insight.

RELEASE OF U.S. GOVERNMENT BUSINESS ADVISORY

The Departments of Commerce, the Treasury, State and Labor released an official Business Advisory, "Risks and Considerations for Doing Business in the Russian Federation and Russia-Occupied Territories of Ukraine," to highlight and inform businesses, individuals, and organizations about the range of heightened operational, legal, economic, and reputational risks associated with doing business in or engaging in transactions involving Russia or Russian-occupied territories in Ukraine.

The advisory lays out numerous risks associated with such operations, including:

• Exposure to sanctions, export controls, import prohibitions, money laundering vulnerabilities, and corruption;
• Risks related to the proliferation and implementation of repressive laws in Russia and Russian-occupied areas of Ukraine, including measures authorizing expropriation or detentions based on spurious grounds; and
• Implication in the Government of Russia's violations of international law, including war crimes and crimes against humanity, and human rights abuses, such as:
  • forced labor, including child labor;
  • discrimination based on sexual orientation and gender identity;
  • restrictions on freedom of expression; and
  • state surveillance.

The advisory contains an Annex with resources and recommendations for compliance due diligence relating to both human rights considerations and sanctions and export controls. Businesses, individuals, financial institutions, and any other persons or organizations that are linked to Russia and the areas it occupies in Ukraine are strongly advised to conduct heightened due diligence to mitigate these risks.

This latest package of sanctions and export controls greatly expands the reach of Russia-related sanctions, covering multiple sectors of the Russian economy as well as entities outside of Russia. Companies that work in these sectors or in locations where there is a high risk of diversion or evasion, should heighten their due diligence.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.