The U.S. Government recently announced the largest round of sanctions against the Russian Federation (Russia) since the invasion of Ukraine two years ago. This multi-agency effort enacted over 500 sanctions against foreign entities and individuals with ties to Russia’s war efforts. In particular, the sanctions target financial institutions, the defense industrial base, and supply chain networks. Directing efforts at sanctions-evaders, the sanctions also include export restrictions on entities and individuals that have supported Russia in evading U.S. export controls through exporting, reexporting, and transshipping foreign-made technology and commodities to Russia.
New Sanctions
Among other entities and individuals, the Office of Foreign Assets Control (OFAC) sanctioned Russia’s largest state-owned shipping company, Sovcomflot. As a result, all property and interests of entities related to Sovcomflot must be reported to OFAC and all financial transactions with such companies are prohibited unless specifically authorized by an OFAC license. The practical result of this OFAC action is limiting a U.S. person's (including entities) ability to utilize Sovcomflot’s owned vessels for international shipments. Under OFAC’s 50% Rule, any vessels directly or indirectly owned by 50% or more in the aggregate by Sovcomflot and/or other sanctioned parties are also subject to sanctions. Moreover, payments and other financial transactions related to activities predating the sanctions are also prohibited without an OFAC license.
As it relates to export controls, the Bureau of Industry and Security (BIS) added more than 90 entities and individuals to the “Entity List” for supporting Russia’s war efforts. Notably — only 63 of these new additions are Russian, with the remaining parties scattered across the People’s Republic of China, Turkey, the United Arab Emirates, the Kyrgyz Republic, India, and South Korea. The geographical breadth of these additions should be taken as a warning sign by exporters in the United States and exporters dealing with United States-origin commodities that the risk of sanctions violations is not limited to transactions involving Russian parties. In light of this BIS action, parties engaged in exports should continue to implement heightened export compliance due diligence processes. In particular, reviewing updated licensing requirements, including those for EAR99 commodities, obtaining end-use declarations, and restricted party screening.
Additional Sanctions
These new sanctions are in addition to the December 22, 2023, Executive Order (E.O.) amending E.O.s 14024 and 14068, also targeting Russian financial institutions and exports. Specifically, the amendment to E.O. 14024 expanded OFAC’s authority to sanction financial institutions that have conducted or facilitated any transaction on behalf of sanctioned parties operating in sectors of the Russian economy that support military efforts. OFAC wielded this new authority as the new sanctions were imposed under E.O. 14024. As a result, entities and individuals engaged in international transactions should expect additional scrutiny from financial institutions when Russian or Russian-related parties or entities are involved. A proven method to mitigate financial institutions’ risk-adverse approach to sanction compliance is demonstrating a robust internal export compliance program.
Parties involved in international trade should also be aware of the amendment to E.O. 14068. The amended E.O. provides U.S. Government agencies with the authority to ban importation of certain diamond products mined, extracted, and/or manufactured in Russia — even if such products are transformed in a third country. This type of sectoral sanction is not self-executing and requires specific actions from OFAC. However, this expanded authority is yet another warning sign that heighten compliance practices are warranted for entities and individuals involved in the diamond industry.
Conclusion
The new sanctions and recently amended E.O.s emphasize the U.S. Government’s commitment to limiting Russia’s ability to wage war against Ukraine. However, these actions are also a warning sign to parties involved in international trade that the U.S. Government is continuing to target entities and individuals that support Russia’s war effort through sanctions evasion. Via multiple announcements, the U.S. Government has made it clear that deterring Russia through sanctions is a national security priority, and these recent developments are in support of this effort.
Behind the scenes, the U.S. Government is also increasing sanctions enforcement through civil and criminal investigations. As the war in Ukraine reached its second anniversary, parties may consider taking this opportunity to ensure that adequate resources are dedicated to maintaining a robust export compliance program. Parties involved in international trades should consider reviewing internal policies and procedures to ensure compliance not only with U.S. sanctions, but other applicable sanctions (e.g., U.K. and the European Union). Restricted party screening should also extend from supply chain networks — through end-users — to avoid transactions with sanctioned entities and individuals. Finally, additional compliance trainings and audits should be implemented to mitigate the risk of sanctions violations.
