[co-author: Sam Finkelstein]

Sam Finkelstein, Associate at The Volkov Law Group, rejoins us for a new posting on OFAC’s announcement of new sanctions targeting Russia’s military-industrial complex.

The United States is determined to ensure that no one profits off of Russia’s war against Ukraine. To that end, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) has widened the scope of its Russia Sanctions Program, imposing nearly 100 new sanctions on the Russian defense sector and individuals who benefit from it. Following suit, the State Department also designated more than 70 persons pursuant to Executive Order (“E.O.”) 14024.

E.O. 14024 authorizes sanctions against a wide range of activities deemed to benefit the Russian government. The United States has leveraged its Russia Sanctions Program well beyond entities and individuals directly supporting the Ukraine war effort­­­––the Department of State’s latest round of sanctions targets entities involved in expanding Russia’s energy production and export capacity, Russian metals and mining companies, and companies providing financial services in Russia.

Both OFAC and the Department of State issued sanctions against non-Russian entities due to their connections to the Russian military-industrial complex. OFAC designated Siberica Oy (“Siberica”) and Luminor Oy (“Luminor”)––two Finland-based logistics firms found to have imported a suspicious amount of high-performance electronics into Russia since it launched its war against Ukraine.

OFAC targeted two Turkish entities––Margiana and Demirci––for supplying Russia with drones, sensors, and measuring tools. These dual-use goods have commercial and military applications, so their shipment or transshipment to Russia is restricted.

The State Department also designated several Türkiye-based companies and individuals, primarily involved in the maritime industry. Turkish firms have served as a critical vector for electronics imports into Russia, undermining U.S. and E.U. restrictions on the sale of sensitive technology to Russia. Dismantling the international “shadow fleet” of smugglers exporting oil from Russia and importing restricted goods will remain a top priority for OFAC and State.

Among the individuals sanctioned by OFAC is Russian oligarch Andrei Removich Borakev, a rail manufacturing baron whose Transmash company was already under sanction for manufacturing parts for the Russian military. Also sanctioned was fellow tycoon Iskandar Kakhramonovich Makhmudov (“Makhmudov”), due to his ownership interests in Russia-based metals and mining companies, and numerous Russia-based financial services firms.

This broad-based sanctions strategy, according to Treasury Secretary Janet Yellen, is intended to “disrupt Russia’s military supply chains.”

As the Russia Sanctions Program continues to widen in scope, it is incumbent upon companies with global operations to conduct and periodically update their due diligence of all third parties with which they do business. Finland––not regarded as a high-risk country to do business in––is nonetheless implicated in OFAC’s latest round of sanctions. Other “low-risk” countries are likely to be implicated too, as U.S. authorities untangle the web of clandestine shipping networks feeding the Russian war machine.

The Department of Justice has promised a new era of sanctions enforcement, and it means business––DOJ recently announced its first successful criminal prosecution a company for violating the Iran Sanctions Program. At the same time, businesses are faced with the unprecedented compliance challenge presented by the rapidly-growing list of individuals and entities sanctioned under the Russia Sanctions and Export Control program.

Consistent with the March 2023 Joint Compliance Note issued by the Departments of Commerce and Treasury, organizations can best navigate these risks through the implementation and maintenance of a risk-based sanctions and export compliance program. Business (and their officers) that fail to take the sanctions threat seriously could face regulatory penalties, administrative enforcement action, or even criminal prosecution.