Following the invasion of Ukraine by Russia on February 24, 2022, the United States ("US"), the European Union ("EU"), and the United Kingdom ("UK") adopted—together with their allies—successive waves of sanctions, in an unprecedented timeframe, in condemnation of Russia and to constrain its ability to wage its war of aggression against Ukraine.
On February 22 and 23, 2024, as the war in Ukraine hits the two-year mark, novel sanctions were once again adopted in parallel by the US, EU, and UK.
In addition, the US, EU, and UK published a revised list of common high-priority items on February 22 and 23, 2024.1 This list details controlled goods and technology supporting Russian military systems found on the battlefield in Ukraine, items for which operators should exercise enhanced due diligence.
I. US IMPOSES MORE SANCTIONS AGAINST RUSSIA
On February 23, 2024, the US Department of the Treasury’s (“Treasury”) Office of Foreign Assets Control (“OFAC”) sanctioned almost 300 individuals and entities, including targets in Russia’s financial infrastructure and military-industrial base and more than two dozen third-country sanctions evaders in Europe, East Asia, Central Asia, and the Middle East.2
As part of OFAC’s targeting of Russia’s core financial infrastructure, OFAC’s sanctions included the National Payment Card System Joint Stock Company (“NSPK”), which is the state-owned operator of Russia’s Mir National Payment System. NSPK is owned by the Central Bank of Russia and plays a key role in facilitating financial transactions both internal to Russia and abroad.
A. Additional Sanctions by US Department of State
On February 23, 2024, the US Department of State sanctioned more than 250 entities and individuals, including those engaged in sanctions evasion and circumvention and those bolstering Russia’s future energy and metals and mining production. These sanctions also included several individuals for acts supporting Russia’s war, including the unlawful transfer and/or deportation of Ukrainian children.3
The Department of State also announced that it is taking steps to impose visa restrictions on Russia Federation-installed purported authorities involved in human rights abuses in connection with the transfer, deportation, and confinement of Ukrainian children.
B. Additional Sanctions Under US Price Cap Coalition
On February 23, 2024, the US, through OFAC—as part of an international coalition of countries (the “Price Cap Coalition”), including the G7, the EU, and Australia, that have agreed to prohibit the import of crude oil and petroleum products of Russian Federation origin—designated Joint Stock Company Sovcomflot (“Sovcomflot”), Russia’s state-owned shipping company and fleet operator. In addition to designating Sovcomflot, OFAC identified 14 crude oil tankers as property in which Sovcomflot has an interest.4
C. Issuance of New General Licenses by OFAC
In addition to OFAC’s sanctions actions outlined above, OFAC issued several general licenses allowing for transactions relating to the wind down and divestment or transfer of debt or equity involving entities designated, outlined below. The authorizations issued under these general licenses are, as usual, conditional and subject to limitations. Parties planning to rely on them should do so only after a close analysis to ensure that their contemplated transactions are consistent with the terms of the relevant general license.
i) Russia-related General Licenses 88 (“GL 88”), (“GL 88A”), and 89 (“GL 89”)
GL 88, GL 88A, and GL 89 authorize transactions that are ordinarily incident and necessary to the wind down of any transaction involving certain entities blocked on February 23, 2024 through 12:01 a.m. Eastern Daylight Time on April 8, 2024, provided that any payment to a blocked person is made into a blocked account in accordance with the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 58.
ii) Russia-related General License 90 (“GL 90”)
GL 90 authorizes transactions that are ordinarily incident and necessary to the divestment or transfer, or the facilitation of the divestment or transfer, of debt or equity issued or guaranteed by certain blocked entities (“Covered Debt or Equity”) to a non-US person through 12:01 a.m. Eastern Daylight Time, April 8, 2024. The license also authorizes transactions through 12:01 a.m. Eastern Daylight Time, April 8, 2024, that are ordinarily incident and necessary to:
1) Facilitating, clearing, and settling trades of Covered Debt or Equity that were placed prior to 4:00 p.m. Eastern Standard Time, February 23, 2024, or
2) The wind down of derivative contracts entered into prior to 4:00 p.m. Eastern Standard Time, February 23, 2024, that include certain entities as a counterparty or are linked to Covered Debt or Equity
… provided that these payments are in accordance with the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587.
iii) Russia-related General Licenses 91 (“GL 91”) and 91A (“GL 91A”)
GL 91 and GL 91A authorize transactions through 12:01 a.m. Eastern Daylight Time, May 23, 2024, that are ordinarily incident and necessary to 1) the safe docking and anchoring in port of any vessels in which certain persons have a property interest (“blocked vessels”); 2) the preservation of the health or safety of the crew of any of the blocked vessels; or 3) emergency repairs of any of the blocked vessels or environmental mitigation or protection activities relating to any of the blocked vessels. Any payment to a blocked person under GL 91 must be made into a blocked account in accordance with the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587.
iv) Russia-related General Licenses 92 (“GL 92”) and 93 (“GL 93”)
GL 92 authorizes transactions through 11:59 p.m. Eastern Daylight Time, April 8, 2024, that are ordinarily incident and necessary to the delivery and offloading of cargo from any vessel identified on OFAC’s List of Specially Designated Nationals and Blocked Persons (“SDN List”) that is blocked solely due to a property interest of Sovcomflot or any entity in which Sovcomflot owns, directly or indirectly, a 50% or greater interest, provided that the cargo was loaded prior to February 23, 2024.
GL 93 authorizes transactions involving any vessel that is blocked solely due to a property interest of Sovcomflot or any entity in which Sovcomflot owns, directly or indirectly, a 50% or greater interest, provided that the vessel is not identified on OFAC’s SDN List.
D. Addition of 93 Entities in Russia to Entity List by US Department of Commerce
On February 23, 2024, the US Department of Commerce Bureau of Industry and Security (“BIS”) imposed additional export restrictions on 93 entities in Russia and seven other destinations for a variety of reasons related to their activities in support of Russia’s defense-industrial sector and war effort.5
More than 50 of the added entities will also receive a “footnote 3” designation as Russian-Belarusian military end users. A footnote 3 designation subjects the entities to some of the most severe restrictions under the Export Administration Regulations (“EAR”). The entities are added with a license requirement for all items subject to the EAR and a license review policy of denial, apart from food and medicine designated as EAR99, which will be reviewed on a case-by-case basis by BIS.
E. Release of Risk Advisory by US Department of State
Finally, on February 23, 2024, the Department of State released a risk advisory for businesses and individuals remaining directly or indirectly in the Russian market to understand the sanctions risks of their activities and any applicable exemptions or authorizations. In the advisory, the Department of State encourages businesses and individuals conducting business in the Russian Federation and the occupied regions of Ukraine to limit their exposure by conducting heightened due diligence that incorporates both a robust review of compliance mechanisms (compliance due diligence) and heightened human rights due diligence.6
II. EU ADOPTS 13th SANCTIONS PACKAGE AGAINST RUSSIA
On February 23, 2024, the EU adopted its 13th sanctions package against Russia. The new package introduces additional asset freeze measures.7 It also amends sectoral sanctions targeting Russia by extending the list of entities subject to enhanced export control restrictions on dual-use and advanced technology items, further limiting Russia's access to electronic components and facilitating trade in iron and steel products between the EU and the UK.8
New asset freeze designations entered into force immediately upon publication on February 23, 2024, while the remaining measures entered into force at midnight on February 23, 2024.
A. Additional Asset Freeze Measures Listings
The names of 106 individuals and 88 entities were added to the list of parties subject to EU asset freeze measures. The 194 additions target (i) the Russian military-industrial complex, (ii) North Korean and Belarusian parties involved in shipping armaments to Russia, (iii) Russian parties involved in circumvention schemes, (iv) judges and officials in occupied Ukrainian territories, and (v) parties involved in violations of children’s rights.
For instance, the new designations target (i) well-known companies specialized in the military-industrial sector, such as Proekt-technika, NPO Bazalt, JSC Saturn, and OJSC Orsha aircraft repair plant, and (ii) JSC Peleng, a Belarusian company active in the optoelectronics industry.
Listings related to circumvention concern two Russian entities—LLC "Testkomplekt" and LLC NOVELCO—and their Russian general directors, parties found to be involved in parallel imports to or supplies in Russia of controlled goods and thereby considered as significantly frustrating the provisions of EU sanctions.
B. Enhanced Export Control Restrictions
i) Reinforced restrictions for dual-use and advanced technology items (Annex I of Regulation 2021/821 and Annex VII of Regulation 833/2014)9
The EU added 27 entities to the list of entities subject to enhanced export control restrictions on dual-use and advanced technology items. Newly designated entities are registered in Russia, China, Kazakhstan, India, Serbia, Thailand, Sri Lanka, and Turkey.
ii) Extension of the list of advanced technology items (Annex VII of Regulation 833/2014)
Additions to the list of export-controlled goods, technology, and software in Annex VII of Regulation 833/2014 concern electronic components that were notably found in drones on the Ukrainian battlefield. Accordingly, Annex VII now covers "aluminium electrolytic fixed electrical capacitors (excluding power capacitors)" falling under tariff position 8532 22 of the EU's combined nomenclature.
iii) Extension of the list of goods that contribute to the enhancement of Russian industrial capacities (Annex XXIII of Regulation 833/2014)
The list of export-controlled goods and technology in Annex XXIII of Regulation 833/2014 now covers all "electrical transformers, static converters (for example, rectifiers) and inductors" falling under tariff heading 8504 of the EU's combined nomenclature. Previously, only products falling under tariff positions 8504 32, 8504 33, and 8504 34 were covered.
Goods falling under tariff positions 8504 10, 8504 21, 8504 22, 8504 23, 8504 31, 8504 40, 8504 50, and 8504 90, however, benefit from a wind-down exemption, allowing the execution of contracts concluded before February 24, 2024, until May 25, 2024.
C. Facilitating Trade in Iron and Steel Products Between EU and UK
The EU added the UK to the list of partner countries for the importation of iron and steel, which already included Switzerland and Norway.10 Accordingly, upon the importation into the EU of iron and steel products from the UK, importers are now exempt from the requirement to provide evidence of the country of origin of the iron and steel inputs.
D. No Amendment (Yet) to the list of Common High Priority Items in Annex XL of Regulation 833/2014
As indicated in our previous Legal Update on the 12th sanctions package,11 a "No Russia" clause requirement was introduced through Article 12g of Regulation 833/2014. This provision obliges operators to include in their contracts with counterparties in third countries other than Russia, with the exception of partner countries,12 contractual provisions that (i) prohibit the re-export of inter alia common high-priority items listed in Annex XL to or for use in Russia and (ii) provide for adequate remedies in case of contractual breach.13
While the European Commission published an updated list of Common High Priority Items on its website, Annex XL was not updated in Regulation 833/2014. Correspondingly, the "No Russia" clause requirement does not (yet) apply to goods falling under tariff positions 8475.10, 8458.11, 8458.91, 8459.61, and 8466.93 of the EU’s combined nomenclature. Operators should nonetheless exercise enhanced due diligence in relation to these goods and, as a good due diligence practice, insert contractual clauses prohibiting re-exports to or for use in Russia.14
In that regard, the European Commission published on February 22, 2024, a FAQ on the "No Russia" clause requirement, which notably provides for a non-mandatory template clause, detailing expectations in terms of contractual obligations and adequate remedies.15 The European Commission recommends the contractual clause to not only prohibit re-exports to Russia but also oblige non-EU counterparties to exercise vigilance and best efforts further down the commercial chain. It also advises on providing for remedies in the form of contract termination and penalty payments.
III. UK ADDS MORE THAN 50 ENTRIES TO THE UK SANCTIONS LIST UNDER RUSSIA AND BELARUS REGIMES
On February 22, 2024, the UK announced a number of new asset freeze measures under its Russia and Belarus regimes to mark the second anniversary of Russia’s full-scale invasion of Ukraine. At the same time, the UK expanded the Common High Priority List, in collaboration with its international partners, and announced its first-ever sanctions strategy.
A. New Asset Freeze Targets under Russia and Belarus Regimes
On February 22 2024, the UK government designated more than 52 individuals and businesses in connection with Russia’s invasion of Ukraine. These sanctions target key sources of Russian revenue such as metals, diamonds, and the energy trade, as well as parties that supply Russia with munitions. The new targets include munitions manufacturers, electronics companies, diamond and oil traders, and oil and gas companies (such as Arctic LNG 2; one if its directors; and six directors of PJSC Novatek, which is the majority owner of Arctic LNG 2).16
B. UK Updates Common High Priority List
On February 22, 2024, the UK government, in collaboration with its international partners, expanded the Common High Priority List, a list that includes Western items critical to Russia’s weapons systems and its military development. In particular, the list was expanded to include five new codes related to Computer Numerical Control (“CNC”) machines which are crucial to the manufacture and maintenance of vital military equipment.17
C. UK Government Releases First Sanctions Strategy
On February 22, 2024, the UK government also released its first sanctions strategy, which sets out the UK‘s approach to using sanctions to address global threats, promote international norms, and protect the UK. The strategy states that “the UK deploys sanctions to deter future or continued malign activity; to disrupt current malign activity; and to demonstrate our readiness to defend international norms.”18
1 The revised list is available on the Bureau of Industry and Security's website; the European Commission's website; and the UK Foreign, Commonwealth & Development Office's website, respectively at https://www.bis.doc.gov/index.php/all-articles/13-policy-guidance/country-guidance/2172-russia-export-controls-list-of-common-high-priority-items, https://finance.ec.europa.eu/publications/list-common-high-priority-items_en and https://www.gov.uk/government/publications/russia-sanctions-common-high-priority-items-list/russia-sanctions-common-high-priority-items-list.
2 OFAC, "On Second Anniversary of Russia’s Further Invasion of Ukraine and Following the Death of Aleksey Navalny, Treasury Sanctions Hundreds of Targets in Russia and Globally," February 23, 2024, available at https://home.treasury.gov/news/press-releases/jy2117.
3 Department of State, "Responding to Two Years of Russia’s Full-Scale War On Ukraine and Navalny’s Death On Second Anniversary of Russia’s Further Invasion of Ukraine and Following the Death of Aleksey Navalny," February 23, 2024, available at https://www.state.gov/imposing-measures-in-response-to-navalnys-death-and-two-years-of-russias-full-scale-war-against-ukraine/.
4 OFAC, “U.S. Treasury Designates Russian State-Owned Sovcomflot, Russia’s Largest Shipping Company,” February 23, 2024, available at https://home.treasury.gov/news/press-releases/jy2121.
5 Department of Commerce, " Commerce Stands Strong with Ukraine, Takes Further Action Against
Ongoing Russian Aggression," February 23, 2024, available at https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3452-2024-02-23-bis-press-release-russia-two-year-actions/file.
6 Department of State, “Risks and Considerations for Doing Business in the Russian Federation and Russia-Occupied Territories of Ukraine,” February 23, 2024, available at https://www.state.gov/russia-business-advisory/#:~:text=To curtail the Government of,provision of certain services%2C and.
7 Through Council Decision (CFSP) 2024/747 of 23 February 2024 amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, OJ L, 2024/747, 23.02.2024, and Council Implementing Regulation (EU) 2024/753 of 23 February 2024 implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, OJ L, 2024/753, 23.02.2024, available respectively at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202400747 and https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202400753.
8 Through Council Decision (CFSP) 2024/746 of 23 February 2024 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, OJ L, 2024/746, 23.02.2024 and Council Regulation (EU) 2024/745 of 23 February 2024 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine, OJ L, 2024/745, 23.02.2024, available respectively at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202400746 and https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202400745.
9 Council Regulation (EU) No 833/2014 of 31 July 2014 concerning restrictive measures in view of Russia's actions destabilizing the situation in Ukraine, OJ L 229, 31.7.2014, p. 1, as amended.
10 This list is contained in Annex XXXVI to Regulation 833/2014.
11 Available on our website at: https://www.mayerbrown.com/en/insights/publications/2023/12/european-union-adopts-12th-sanctions-package-against-russia#Three.
12 As listed in Annex VIII of Regulation 833/2014. Currently: the United States of America, Japan, the United Kingdom, South Korea, Australia, Canada, New Zealand, Norway, and Switzerland.
13 This obligation will apply as of March 20, 2024, for contracts concluded after December 19, 2023, and as of December 20, 2024, for contracts concluded before December 19, 2023.
14 Consistent with the European Commission's notice to economic operators, importers, and exporters, OJ C 145 I, 1.4.2022, p. 1.
15 European Commission, "No Re-Export to Russia" Clause, Frequently Asked Questions, February 22, 2024, available at https://finance.ec.europa.eu/document/download/7f54341b-2bf1-4142-b5d4-b1b09c93d03e_en?filename=faqs-sanctions-russia-no-re-export_en.pdf.
16 New UK sanctions mark two years since Russia’s illegal invasion of Ukraine, Foreign, Commonwealth & Development Office Press Release, 23 February 2024, available at: https://www.gov.uk/government/news/new-uk-sanctions-mark-two-years-since-russias-illegal-invasion-of-ukraine.
17 Russia Sanctions – Common High Priority Items List, updated 22 February 2024, Foreign, Commonwealth & Development Office, available at: https://www.gov.uk/government/publications/russia-sanctions-common-high-priority-items-list/russia-sanctions-common-high-priority-items-list.
18 Deter, disrupt and demonstrate – UK sanctions in a contested world: UK sanctions strategy, 22 February 2024, UK Government Policy Paper, available at: https://www.gov.uk/government/publications/deter-disrupt-and-demonstrate-uk-sanctions-in-a-contested-world-uk-sanctions-strategy.
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