On May 19, 2023, the Biden Administration along with leaders of the Group of Seven (G7), unveiled a new package of sanctions. The G7 leaders released a joint statement reaffirming their commitment to offer “the financial, humanitarian, military and diplomatic support Ukraine requires for as long as it takes.” Among other things, the US Department of Commerce has greatly expanded the list of consumer goods that are prohibited for export to Russia under the Industrial Sector Sanctions, and the US Department of the Treasury and the US Department of State have targeted more than 300 individuals, entities, vessels, and aircraft tied to Russia.
In particular, these new sanctions target third-country circumvention of sanctions and focus on procurement networks of military-related goods and intelligent services. The expanded sanctions also seek to curtail energy sector investment and future energy projects.
OFAC Expands Sanctions, Targeting Russian Energy and Military and New Sectors of the Russian Economy and Services to Russia
On May 19, 2023, the US Department of State (State) and US Department of the Treasury Office of Foreign Assets Control (OFAC) announced new sanctions, including OFAC strengthening sanctions against 22 individuals and 104 entities in over 20 jurisdictions and State designating nearly 200 individuals, entities, vessels, and aircraft, and expanded sanctions to new sectors of the Russian economy and prohibited services.
Specifically, the United States has:
- Expanded sanctions targeting the circumvention and evasion of Russian sanctions, particularly by third countries (primarily focused on procurement networks of military-related goods and intelligence services);
- Expanded sanctions that target Russia’s ability to acquire military and industrial equipment for its war efforts (targeting supply chains that provide advanced materials and technology to Russia, especially semiconductors and other microelectronics and military technology and related components, as well as the development of weapons);
- Expanded sanctions targeting the energy industry, including energy educational institutions, research institutes related to energy extraction, drilling and mining equipment companies, and firms that facilitate Russian energy sector investment and future energy projects and infrastructure (designations included entities involved in key industries such as shipbuilding, dredging, geophysical exploration, engineering software, mining, and metals, as well as future energy projects and infrastructure in Russia’s arctic region).
Additionally on May 19, OFAC:
- Published a determination pursuant to Section 1(a)(i) of Executive Order (EO) 14024 expanding sanctions to the architecture, engineering, construction, manufacturing, and transportation sectors of the Russian economy;
- Published a determination pursuant to Section 1(a)(ii) of EO 14071 prohibiting the exportation, reexportation, sale, or supply, directly or indirectly, from the United States, or by a US person, of architecture or engineering services to any person located in Russia (excluding any services to an entity located in Russia that is owned or controlled, directly or indirectly, by a US person and any service in connection with the wind down or divestiture of an entity located in Russia that is not owned or controlled, directly or indirectly, by a Russian person);
- Amended Directive 4 under EO 14024 to impose an additional reporting requirement on US persons to identify assets of entities subject to Russia-related Directive 4, which US persons may hold (must submit a report on or before June 18, 2023, and annually thereafter, on property in their possession or control with an interest, direct or indirect of an entity subject to Russia-related Directive 4). Existing licenses or authorizations issued by OFAC pursuant to the prior version of Russia-related Directive 4 remain in effect.
New OFAC General Licenses
OFAC also issued various general licenses (GLs), including:
- Renewed GL 13E, authorizing US persons through 12:01 am EDT, August 17, 2023, to pay taxes, fees, or import duties, and purchase or receive permits, licenses, registrations, or certifications, to the extent such transactions are prohibited by Directive 4, provided such transactions are ordinarily incident and necessary to such persons’ day-to-day operations in the Russian Federation;
- GL 66, authorizing wind down of transactions involving Public Joint Stock Company Polyus or its subsidiaries through 12:01 am EDT, August 17, 2023;
- GL 67, authorizing transactions that include Public Joint Stock Company Polyus or its subsidiaries ordinarily incident and necessary to:
- the divestment or transfer of debt or equity purchased prior to May 19, 2023 through 12:01 am EDT, August 17, 2023;
- facilitating, clearing, or settling trades of debt or equity purchased prior to May 19, 2023 through 12:01 am EDT, August 17, 2023;
- the wind down of derivative contracts entered into prior to 4:00 pm EDT, May 19, 2023 through 12:01 am EDT, August 17, 2023;
- GL 68, authorizing wind down of transactions involving the following universities and institutes through 12:01 am EDT, July 18, 2023:
- Grozny State Oil Technical University Named After Academician M.D. Millionshchikov;
- Saint Petersburg Mining University;
- Sergo Ordzhonikidze Russian State University for Geological Prospecting;
- Gubkin Russian State University of Oil and Gas;
- Almetyevsk State Oil Institute; or
- Any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest.
BIS Actions and Expansion of Russia-Related Export Controls
Recently, the US Department of Commerce Bureau of Industry and Security (BIS) took action to enforce Russia-related export control and greatly expanded such controls.
Specifically, on May 16, 2023, BIS issued a Temporary Denial Order suspending the export privileges of MIC P&I, LLC, Russian airline Smartavia, freight forwarder Intermodal Maldives, and Oleg Patsulya and Vasilii Besedin, two Russian nationals residing in Florida, for diverting civilian aircraft parts to Russia.
BIS also has expanded export controls targeting Russia and Belarus to align US controls with those implemented by US partners and allies and further limit Russia’s access to items that enable its military capabilities and to sources of revenue that could supports those capabilities, including expanding:
- the Russian and Belarusian Industry Sector Sanctions under supplement no. 4 to part 746 of the EAR by adding the remaining HTS-6 codes under three entire harmonized tariff system chapters (Chapters 84, 85, and 90—over 2,000 total entries), which includes a variety of electronics, instruments, and advanced fibers for the reinforcement of composite materials, including carbon fibers;
- the Russian and Belarusian Industry Sector Sanctions under supplement no. 6 to part 746 of the EAR by adding certain discrete chemicals, biologics, fentanyl, and its precursors, and related equipment designated as EAR99, which may be useful for Russia’s industrial capabilities or diverted to Belarus;
- the list of foreign-produced items listed in supplement no. 7 to part 746 of the EAR that require a license when destined to Iran, Russia, and Belarus to limit Iran’s support of Russian’s invasion of Ukraine by providing unmanned aerial vehicles; and
- the destination scope of the Russia/Belarus Foreign-Direct Product (FDP) Rule by adding the temporarily occupied Crimea region of Ukraine; and
BIS also added to the Entity List:
- 69 Russian entities for providing support to Russia’s military and defense sector (these entities will also have footnote 3 designations as Russian or Belarusian military end users and will also be subject to restrictions under the Russia/Belarus-Military End User FDP Rule); and
- one Armenian entity and one Kyrgyz entity for preventing the successful accomplishment of end-use checks and posing a risk of diversion of items subject to the EAR to Russia.
BIS and the US Department of the Treasury Financial Crimes Enforcement Network (FinCEN) also issued a joint alert on May 19, supplementing the joint alert issued in June 2022 urging financial institutions to be vigilant against efforts to evade BIS export controls against Russia, to provide financial institutions additional information with respect to new BIS export control restrictions relating to Russia. Specifically, this new joint alert:
- provides an overview of new export control restrictions issued since the June 2022 joint alert;
- highlights common tactics used by illicit actors to evade Russia-related sanctions and export controls, particularly the use of third-party intermediaries and transshipment points;
- identifies the high Priority Items List, which consists of nine HTS codes covering critical US components that Russia relies on for its weapons systems; and
- details evasion typologies and identifies additional transactional and behavioral red flags to assist financial institutions.
This latest US sanctions package is notable in that it greatly expands the number of consumer goods targeted by sanctions, ramping up the costs of the war for Russia consumers and demonstrates US appetite to go after third-party sanctions evaders handling goods with potential military end uses. We expect to see continued ramping up of sanctions and targeting of sanctions evaders for the duration of the war.