Key Takeaways:

• On February 23, 2024, the Biden administration announced more than 500 sanctions on individuals and entities inside the Russian Federation and entities outside of Russia determined to be supporting Russia’s war effort.
• Among these sanctions, the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”) targeted the Russian financial infrastructure and key industries in connection with the Russian military-industrial complex.
• OFAC issued four new General Licenses relating to the winding down of business and investment with some of the newly sanctioned entities and individuals.
• Three Russian government officials were sanctioned in connection with the death of Aleksey Navalny.
• OFAC published three new Russia-related Frequently Asked Questions (“FAQs”) clarifying the prohibitions in place on the Russian diamond industry, and amended eight other FAQs.
• The U.S. Department of Commerce added 93 entities to the Entity List for contributing to the Russian military and defense industry and undermining U.S. sanction objectives.
• No substantive changes were made to U.S. export controls or sanctions regulations.

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On February 23, 2024 the Biden administration announced additional Russia-related sanctions under Executive Order (“E.O.”) 14024, on the second anniversary of Russia’s invasion of Ukraine. Both the State Department and OFAC expanded the sanctions targeting Russia’s financial infrastructure and key industries that dig deeper into the Russian military supply chain, and added sanctions on entities in third-countries, including from China and the United Arab Emirates, that continue to enable Russia to evade U.S. sanctions. OFAC added nearly 300 persons to the Specially Designated Nationals and Blocked Persons List (“SDN List”), while the State Department added over 250 persons.

All property and interests of the individuals and entities added to the SDN List are considered blocked and must be reported to OFAC. And all entities owned 50% or more by an SDN are generally treated as if they were also on the SDN List (known as the “50 Percent Rule”), even if they are not expressly listed. Transactions by U.S. persons involving blocked property or persons are prohibited, unless authorized by a specific or general OFAC license.

Russia’s Financial Infrastructure

• OFAC has continued to target core Russian financial infrastructure, including Russian banks and payment systems, investment firms, and financial technology (fintech) companies to curtail Russia’s use of the international financial system to continue its war in Ukraine. In this round, OFAC takes aim at the National Payment Card System Joint Stock Company, the state-owned operator of the Mir National Payment System (“Mir”), which is owned by the Central Bank of Russia and is a key player in facilitating financial transactions within the Russian Federation and abroad. Mir had been established by Russia as an alternative to the SWIFT financial transaction processing system from which numerous Russian banks were excluded in 2022.
• Other key targets include nine regional financial institutions (Avangard Joint Stock Bank, Bank RostFinance, Joint Stock Commercial Bank Chelindbank, Joint Stock Commercial Bank International Financial Club, Joint Stock Commercial Bank Modulbank, Joint Stock Company Databank, Maritime Joint Stock Bank Joint Stock Company, Public Joint Stock Company Bystrobank, Public Joint Stock Company SPB Bank), five investment and venture capital funds injecting foreign and domestic investment to advance the Russian tech industry (Limited Liability Company BSF Capital, Limited Liability Company Investment Consultant Elbrus Capital, Limited Liability Company Orbita Capital Partners, Nonprofit Organization Investment and Venture Fund of the Republic of Tatarstan, Obshchestvo S Ogranichennoi Otvetstvennostyu Guard Kapital), and six financial technology companies providing software and IT solutions for Russian financial institutions (Finansovye Informatsionnye Sistemy, Joint Stock Company Quorum, Limited Liability Company Crypto Pro, Obshchestvo S Ogranichennoi Otvetstvennostyu Faktor TS, Obshchestvo S Ogranichennoi Otvetstvennostyu Sistemy Prakticheskoi Bezopasnosti, Obshchestvo S Ogranichennoi Otvetstvennostyu Validata).

Targeting Third-Country Enablers

OFAC has also focused its attention on third-country entities and individuals who helped facilitate, materially assisted, sponsored, or provided financial, material, or technological support to the Russian military and defense industry.

• OFAC targeted 26 third-country entities and individuals in 11 countries, including China, Serbia, the United Arab Emirates, India, and Liechtenstein.
• United Arab Emirates-based Generation Trading FZE, was identified as a front company for Iran’s Ministry of Defense and Armed Forces (“MODAFL”) to facilitate the sale of unmanned aerial vehicles (“UAVs”) and parts to support UAV production in Russia; these sanctions are aimed at disrupting this key UAV supply link.
• The State Department has also designated Russian proxy authorities in occupied territories in Ukraine, as well as individuals exerting Russian influence in Moldova.

Russia’s Military Industrial Base and Industry

The U.S. sanctioned over 250 individuals and entities in connection with the Russian military and defense industry. Although the following sanctioned entities are based in the Russian Federation, including a few state-owned companies (either wholly or partially owned), many have used a series of front companies and third-country enablers to evade sanctions.

Sanctions in Connection with the Death of Aleksey Navalny

Russian opposition leader and political prisoner, Aleksey Navalny, died while in Russian custody on February 16, 2024. Although the Kremlin has denied responsibility for Navalny’s death, the U.S. and its allies hold Putin responsible, viewing this action as another example of Putin’s crackdown on dissent.

The State Department has designated three individuals connected to the death of Aleksey Navalny: Valeriy Gennadevich Boyarinev, Igor Borisovich Rakitin, and Vadim Konstantinovich Kalinin. Boyarinev is the Deputy Director of the Federal Penitentiary Service of Russia, which oversaw Penal Colony IK-3 where Navalny was being detained at the time of his death. Following Navalny’s death Boyarinev was promoted to “Colonel General” by Putin. Rakitin and Kalinin were officials in the Federal Penitentiary Service of Russia, and, respectively, were the overall head of the Yamalo-Nenets Autonomous Region (where Penal Colony IK-3 is located) and warden of Penal Colony IK-3.

General Licenses Issued Pursuant to E.O. 14024

OFAC issued four General Licenses to allow for the winding down of transactions with certain of the newly-sanctioned entities.

General License No. 88: “Authorizing the Wind Down of Transactions Involving Certain Entities Blocked on February 23, 2024” creates an exception to authorize any transaction that is ordinarily incident and necessary to the wind down of transactions with the blocked entities listed below until April 8, 2024, provided that any payment to a blocked person is made into a blocked account as provided in the Russian Harmful Foreign Activities Sanctions Regulations.

• PJSC Transcontainer
• Publichnoe Aktsionernoe Obshchestvo Mechl
• JSC SUEK
• ILLC Geopromining Investment
• LLC Holding GPM
• Joint Stock Company Samara Metallurgical Plant
• Joint Stock Company Rimera
• Public Joint Stock Company Pipe Metallurgical Company
• Vostochnaya Stevedoring Company LLC
• JSC Rosgeolgia
• National Payment Card System Joint Stock Company
• Limited Liability Company BSF Capital
• Limited Liability Company Investment Consultant Elbrus Capital
• Limited Liability Company Orbita Capital Partners
• Nonprofit Organization Investment and Venture Fund of the Republic of Tatarstan
• Obshchestvo S Ogranichennoi Otvetstvennostyu Guard Kapital
• Limited Liability Company Shipbuilding Complex Zvezda

This general license also covers any entity in which one or more of the above persons owns (directly or indirectly) individually or in the aggregate, a 50% or greater interest.

General License No. 89: “Authorizing the Wind Down and Rejection of Transactions Involving Certain Financial Institutions Blocked on February 23, 2024” authorizes any transaction that is ordinarily incident and necessary to the wind down of transactions with the financial institutions listed below until April 8, 2024, provided that any payment to a blocked person is made into a blocked account as provided in the Russian Harmful Foreign Activities Sanctions Regulations. U.S. persons are authorized to reject, rather than block, and return to the originator, originating financial institution, or their successor-in-interest, all transactions prohibited involving any blocked financial institution described above as an originating, intermediary, or beneficiary financial institution, through until 12:01am (EST) on April 8, 2024.

• Avangard Joint Stock Bank
• Bank RostFinance
• Joint Stock Commercial Bank Chelindbank
• Joint Stock Commercial Bank International Financial Club
• Joint Stock Commercial Bank Modulbank
• Joint Stock Company Databank
• Maritime Joint Stock Bank Joint Stock Company
• Public Joint Stock Company Bystrobank

This general license also covers any entity in which one or more of the above persons owns (directly or indirectly) individually or in the aggregate, a 50% or greater interest.

General License No. 90: “Authorizing Certain Transactions Related to Debt or Equity of, or Derivative Contracts Involving, Certain Entities Blocked on February 23, 2024” authorizes transactions involving the divestment or transfer, or the facilitation of the divestment or transfer of debt of or equity in the block entities below to a non-U.S. person until April 8, 2024. However, these transactions must have been entered into prior to 4:00pm (EST) on February 23, 2024. Any payments to a blocked person must also be made into a blocked account as provided in the Russian Harmful Foreign Activities Sanctions Regulations.

• LLC Holding GPM
• Limited Liability Company Geopromaining Verkhne Menkeche
• Joint Stock Company Saylakh Surma
• Joint Stock Company Zvezda
• ILLC Geopromaining Investment
• Public Joint Stock Company PIK Specialized Homebuilder

This general license also covers any entity in which one or more of the above persons owns (directly or indirectly) individually or in the aggregate, a 50% or greater interest.

General License No. 91: “Authorizing Limited Safety and Environmental Transactions Involving Certain Blocked Persons or Vessels” permits certain activities until May 23, 2024, including the safe docking and anchoring in port of a listed number of vessels in which a listed blocked person has a property interest in that vessel. Additionally, the GL extends to ensure the preservation of the health and safety of the crew of any of the blocked vessels or emergency repairs of any blocked vessels or environmental mitigation or protection activities related to any of the blocked vessels.

• Ladoga Shipping Company Limited Liability Company
• JSC Polar Marine Geosurvey Expedition
• Yuzhmorgeologiya AO
• Sevmorneftegeofizika AO
• Amige AO

This general license also covers any entity in which one or more of the above persons owns (directly or indirectly) individually or in the aggregate, a 50% or greater interest.

However, entering into any new commercial contracts involving the property or blocked persons, including the blocked entities listed above, is prohibited. Offloading any cargo onboard these blocked vessels, unless it is ordinarily incident and necessary to address vessel emergencies, is also prohibited.

New FAQs Related to Restrictions on the Russian Diamond Industry

OFAC has released three new FAQs (1164, 1165, and 1166) to further illustrate examples of diamonds and diamond products subject to import prohibitions. Following the December 6, 2023 announcement by G7 leaders to impose further restrictions on Russian diamonds, OFAC released two diamond-related determinations to broaden the scope of import prohibitions pursuant to E.O. 14068: the Diamond Jewelry Determination and the Diamond Determination.

Effective March 1, 2024, the prohibitions include the importation of non-industrial diamonds mined, extracted, produced, or manufactured wholly or in part in the Russian Federation, as well as unsorted diamonds and diamond jewelry. The FAQs highlight that non-industrial diamonds of Russian origin are subject to prohibitions regardless of weight or whether they have been substantially transformed in third countries, and include unsorted diamonds and diamond jewelry exported from the Russian Federation regardless of origin. The FAQs further indicate that the expanded prohibitions on diamonds over 1.0 carat will take effect on March 1, 2024, and those diamonds under 1.0 carat (but greater than 0.5 carat) will take effect on September 1, 2024.

OFAC has also amended eight of their current FAQs in order to incorporate the new sanctions from February 23, 2024. Those FAQs include: 886, 887, 1019, 1022, 1025, 1027, 1092, and 1154.

Entity List Designations by the U.S. Department of Commerce

The U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) added a total of 93 entities onto its Entity List for contributing to the Russian military and defense industry and undermining U.S. sanction objectives. A license from Commerce is now required to export, reexport, or transfer (in-country) all items subject to the Export Administration Regulations (“EAR”), which includes items classified as EAR99.

Of those, 63 entities are based in the Russian Federation, 16 are based in Turkey, eight are based China (including Hong Kong), four in the United Arab Emirates (“UAE”), two in Kyrgyzstan, one in India, and one in South Korea.

Moreover, 51 entities of the 93 listed entities will be subject to a policy of denial for all items under the EAR, with the exception of food and medicine designated as EAR99, which will be reviewed on a case-by-case basis. While the majority of these entities were based in Russia, five of them were based in China including: Dennex Enterprises Limited; Exeya Co., Limited; Most Development Limited; Sigma Technology Limited; and United Electronics Group Company Limited. More importantly, these entities contributed significantly to Russia’s military and defense industrial base by facilitating the diversion of controlled microelectronics to Russian military end users. As such, they have been designated as Russian-Belarussian military end users, which subjects them to Footnote 3 designation restrictions on receiving foreign-produced items that fall under the Commerce Department’s Russia/Belarus-Military End User Foreign Direct Product rule (Section 734.9(g) of the EAR).

BIS included a savings clause that allows shipments of items that were en route aboard a carrier to a port of export, reexport, or transfer (in-country), on February 23, 2024, pursuant to actual orders for export, reexport, or transfer (in-country) to or within a foreign destination, to proceed to that destination under the previously available export authorization before March 24, 2024. Any such items not actually exported, reexported, or transferred (in-country) before midnight, on March 24, 2024, will require a license in accordance with the final rule.