Contemporaneous with the European Union’s adoption of its 13th package of Russia sanctions, on February 23, 2024, the United States imposed sanctions against nearly 500 targets in continued response to Russia’s aggression against Ukraine. This set of actions targets individuals connected to Alexei Navalny’s imprisonment as well as participants in Russia’s financial sector, defense industrial base, and procurement networks.

Through the new sanctions, the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury and the US Department of State targeted third-country “facilitators” supporting the transfer of critical technology and equipment to Russia’s military-industrial base in 11 countries, including China, Serbia, the United Arab Emirates (UAE), Finland, Kyrgyzstan, Germany and Liechtenstein. OFAC also designated sanctions evaders across multiple continents. Meanwhile, the US Department of Commerce’s Bureau of Industry and Security added 93 entities to the Entity List, primarily from Russia (63) but also Turkey (16), China (8), the UAE (4), Kyrgyzstan (2), India (1) and South Korea (1). Most of the entities were added for attempting to acquire US-origin items in support of Russia’s military and attempting to evade existing sanctions and export controls.

Financial Infrastructure Sanctions Target Credit Card Payment System, Russian Banks, Investment Firms and Fintech

In a major development affecting participants worldwide in Russia’s “Mir national payment system,” OFAC sanctioned the National Payment Card System JSC, which clears and settles payments between consumers, merchants, and banks for debit and credit card transactions primarily within Russia. A symbol of Russian national pride and independence, the Mir payment system has allowed Russia to reduce dependence on foreign payment systems such as Visa and Mastercard. As a result of today’s actions, not only are US persons now prohibited from using the Mir card payment system (or co-branded Mir cards), but also non-US participants in the system are at greater risk of a secondary sanctions designation. Under OFAC General License (GL) 88, a wind-down period is provided until April 8, 2024.

Additional newly designated financial institutions include several regional banks and investment and venture capital funds that seek to underwrite Russia’s development of advanced technologies, and financial technology (fintech) companies that provide software and IT services for Russian financial institutions. In connection with these actions, OFAC issued GL 89, which authorizes the wind down and rejection of transactions involving any of these financial institutions or any entity which one or more of these institutions owns, directly or indirectly, a 50% or greater interest. Note that GL 89 does not authorize any transactions prohibited by Directive 2 or Directive 4 under EO 14024.

The designations of non-US companies accused of servicing Russia’s military-industrial base serve to spotlight and heighten the risk faced by foreign financial institutions for conducting or facilitating significant transactions or providing any service involving Russia’s military-industrial complex. Examples of activities that could expose foreign financial institutions to sanctions risk include maintaining accounts, transferring funds, or providing other financial services (i.e., payment processing, trade finance, insurance) for any persons that support Russia’s military-industrial base, including those persons designated for operating in the specified sectors of the Russian economy. OFAC issued an advisory in December 2023, Guidance for Foreign Financial Institutions on OFAC Sanctions Authorities Targeting Support to Russia’s Military-Industrial Base, which provides practical guidance on identifying sanctions risks and implementing controls.

US Department of State Highlights Success of “Phase Two” of the Russian Oil Price Cap and Sanctions Sovcomflot

Also on Friday, the US Department of State issued an announcement touting the success of Phase Two of the Russian Oil Price Cap. Phase Two began in October 2023 in a concerted effort to enhance compliance with the G7 maritime services ban and price cap exception. It was marked by the sanctions designation of several vessel owners, shipping companies, and an oil trader alleged to have used G7 services to trade in oil cargoes priced above the cap. The maritime services ban and price cap exception framework is designed to suppress Russian oil revenues while avoiding a spike in global oil prices by maintaining global volumes. According to data cited by the Department of State, since October, the discount on Russian oil has increased meaningfully to a peak of $20 in January, while the volume of exports has remained steady.

Demonstrating its commitment to enforcing the maritime services ban with price cap exception, on the same day OFAC designated on the Specially Designated Nationals (SDN) list state-owned Sovcomflot, Russia’s largest shipping company and fleet operator, for violating the G7 price cap. Also targeted were 14 crude oil tankers in which Sovcomflot has an interest. Concurrent with this designation, OFAC issued GL 92 authorizing the offloading of crude oil (or other cargo) from these 14 vessels for a period of 45 days; and GL 93 authorizing transactions with all other Sovcomflot-owned vessels at this time.

Meanwhile, in an effort to further constrain Russia’s energy production and energy revenue, the Department of State designated several entities involved in Russia’s Arctic LNG 2 project. It also designated RosGeo, the Russian state-owned geological exploration company, and related companies and exploration vessels. Further, it expanded existing prohibitions against Rosatom, the state-owned corporation involved in nuclear energy development and other energy initiatives. In connection with these designations, OFAC issued GL 91 authorizing certain safety and environmental transactions involving a group of these blocked persons and vessels until May 23, 2024.

The New Sanctions Target Hundreds Accused of Involvement in Russian Military-Industrial Complex in a Variety of Industries

The new OFAC designations include third-country exporters and suppliers around the world. These include European companies such as Rheingold Edelmetall AG, a Liechtenstein-based precious metals investment firm owned and controlled by two German nationals, which worked to disguise the origin of Russia precious metals and help Russian clients to launder funds by buying and selling precious metals for cash. Most of the targets are involved in advanced manufacturing and technology such as machine tools. OFAC’s actions also target persons for operating or having operated in Russia’s engineering, electronics, metals and mining, and transportation sectors. The new GL 88 authorizes the wind down of transactions involving specified companies from various sectors until April 8, 2024, while GL 90 authorizes transactions necessary to the divestment or transfer of debt or equity issued to or guaranteed by various newly blocked entities until April 8, 2024.

The newly designated entities include companies and individuals in the following sectors:

• Weapons Manufacturing – These designations target Russia’s production of deadly unmanned aerial vehicles (UAVs), which include Iranian-designed “kamikaze drones” used by the Russian military in Ukraine. Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL) was designated for its involvement in the production and financing of the UAVs. In addition to manufacturers of weapons and ammunition, the designations target advanced manufacturing and machine tools, including computer numerically controlled (CNC) machines (used in Russia’s heavy machine-building and arms manufacturing industries); additive manufacturing (3D printing) used by Russia to create aircraft parts and other military-related items); and bearings (an integral component of Russia’s military hardware, including its main battle tanks). Also included are manufacturers of metal products, including Mechel, Russia’s top producer of specialty steels; manufacturers of metalworking equipment; and manufacturers of lubricants, coolants, and industrial chemicals.
• Aerospace – Five entities were designated for their involvement in the development and supply of parts for airplanes, helicopters, and drones, as well as the repair and maintenance of aircraft.
• Industrial Automation – Several entities were designated for designing or implementing industrial automation components and systems.
• Semiconductor and Electronics Manufacturing and Research – These designations include manufacturers and suppliers of electronic components, as well as a company that provides electronic repair services and an applied mathematics research institute.
• Optics – Several entities were designated for developing or producing optical technology such as night vision devices and laser equipment.
• Navigational Instruments – Several entities were designated for their involvement in the production and testing of navigation instruments and systems used by the Russian military, such as radar equipment, radio equipment, and anti-aircraft missile systems.
• Energy Storage and Power – Several entities were designated for their involvement in the manufacture of batteries that provide power supply for military-industrial base equipment.
• Software and IT – Several entities were designated for their involvement in the manufacture of computers and software, such as computer-aided design (CAD) systems for Russian weapons manufacturers. In addition, two dozen entities were designated for their involvement in the design and operation of IT infrastructure, hardware and software that support Russia’s military-industrial complex.
• Transport, Logistics and Truck Parts - OFAC targeted companies providing a variety of logistics services such as customs clearance, shipping, special cargo handling, and storage. This includes JSC Suek, a Russian transportation logistics company that works significantly with the Russian Ministry of Defense and is also the country’s largest coal supplier, and Finland-based HD Parts OY, which has provided thousands of shipments of truck spare parts to Russia. As mentioned above, the actions also included designation of the state-owned Sovcomflot, Russia’s largest shipping company and fleet operator, for violating the G7 maritime services ban and price cap and 14 crude oil tankers in which Sovcomflot has an interest.
• Diamonds – The new Diamonds Determination and Diamond Jewelry Determination prohibit the importation and entry into the United States, including importation for admission into a foreign trade zone located in the United States, of (1) non-industrial diamonds that were mined, extracted, produced, or manufactured wholly or in part in Russia with a weight of 1.0 carat or greater as of March 1, 2024, or with a weight of 0.5 carats or greater as of September 1, 2024, even if such diamonds have been substantially transformed into other products outside of Russia; and (2) diamond jewelry and unsorted diamonds exported from Russia, except to the extent provided by law, or unless licensed or otherwise authorized by OFAC. OFAC also issued FAQs 1164, 1165, and 1166 providing further clarification on the two determinations.

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