K2 Integrity delivers information and analysis on recent developments related to sanctions against Russia and key implications for the public, private, and non-profit sectors as the United States (U.S.), the European Union (EU), the United Kingdom (UK), and other G7 countries continue to lead a global sanctions campaign that has been unprecedented in its speed, complexity, and impact in responding to Russia’s ongoing war against Ukraine.
DOLFIN users can visit the updated Russia Sanctions page on DOLFIN to find additional resources and information on sanctions against Russia, including sanctions evasion typologies, case studies, and analysis on other sanctions programs implicating Russian actors, such the Global Magnitsky Sanctions program targeting human rights violations and corruption.
Recent Developments Related to Sanctions Against Russia
Since our 4 August update, a number of sanctions-related actions have taken place and are detailed below. Most notably, on 2 September, Finance ministers (or their equivalents) of countries in the Group of Seven (G7)—the United States, Canada, France, Germany, Italy, Japan, and the United Kingdom—issued a statement confirming their joint intention to finalize and implement a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products globally. The provision of such services would only be allowed if the oil and petroleum products are purchased at or below a price (the price cap) determined by the broad coalition of countries adhering to and implementing the price cap.1 The G7 countries announced that they will work immediately to set the price cap and invited all countries to provide input on its design and how it can effectively be implemented.
Following the G7 statement, OFAC published preliminary guidance on the implementation of a price cap for Russian-origin crude oil and petroleum products (collectively referred to as “seaborne Russian oil”).2 OFAC anticipates issuing a determination pursuant to Executive Order (EO) 14071, which would prohibit services related to the maritime transportation of Russian seaborne oil if purchased above the price cap amount. The guidance stated that the price cap on crude oil will go into effect on 5 December 2022, which coincides with the effective date of a prohibition against the import of Russian crude oil into the EU or provision of related services announced as a part of EU sixth round of sanctions in June.
In response to the G7 statement, the Kremlin stated that Russia would stop selling oil to countries that implement the price cap.3
As of the date of this publication, the price cap amount and other details of this measure are yet to be determined. It also remains unclear whether the United States may seek to impose secondary sanctions on the dealings in Russian seaborne crude oil that do not involve a U.S. nexus, but are conducted above the price cap.
Other U.S. actions include:
- On 6 September, the White House Press Secretary stated that the U.S. would not designate Russia as a state sponsor of terror, a label Ukraine has pushed for amid Russia’s ongoing invasion. The Biden administration explained that such a designation could delay food exports and further jeopardize deals to move goods through the Black Sea.4
- Multiple press reports indicated that in mid- to late August Iran shipped military drones to Russia that it was then likely to deploy in its war against Ukraine.5 On 8 September, OFAC added four entities and one individual in Iran to its Specially Designated Nationals and Blocked Persons List due to their involvement in the research, development, production, or shipment of the drones. The designations subject the targets to blocking sanctions and were made pursuant to two executive orders, EO 13882 (weapons of mass destruction proliferators) and EO 14024 (Russian harmful foreign activities).6
- On 25 August, the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce issued a summary of actions it has taken since the Russian invasion of Ukraine7 to limit Moscow’s ability to access sensitive goods and technologies. The announcement did not contain any new restrictions and was merely intended to provide a summary of the major actions taken by the U.S. government to limit the Russia’s ability to access such goods and technologies. In summary, since February 2022, BIS has done the following:
- Issued new regulations imposing export controls on high tech, industrial, and luxury goods to Russia and Belarus that resulted in a 97 percent decrease by value of U.S. exports;
- Coordinated with 37 allies and partners to implement similar controls;
- Expedited licensing applications to support Ukrainian defense firms;
- Prevented or interdicted shipments;
- Added 335 parties to the Entity List for supporting Russia’s military; and
- Issued the first joint alert with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) that urged financial institutions to conduct additional due diligence and highlighted potential red flags, among other actions.
- On 18 August, OFAC issued two Russia-related General Licenses:
- General License 38A: Replaced General License 38, dated 2 June 2022. The updated license now authorizes not only all transactions ordinarily incident and necessary to the processing of pension payments to U.S. persons, but also non-U.S. persons not located in the Russian Federation. The authorization is valid if the only involvement of blocked persons is the processing of funds by Russian banks blocked pursuant to EO 14024.
- General License 50: New license that authorizes all transactions prohibited by EO 14024 that are ordinarily incident and necessary to (i) the closing of an account of an individual, who is not a blocked person, held at a financial institution blocked pursuant to EO 14024; and (ii) the unblocking and lump sum transfer of all remaining funds and other assets of such person to another financial institution.
- On 16 August, BIS issued two sets of Frequently Asked Questions addressing red flags that could signal risks of diversion of U.S.-origin goods:
- Commodity, End-user, and Transshipment Country Red Flag FAQs: This set of FAQs lists the primary commodities of concern due to their likelihood to be diverted to an end use in Russia or Belarus, including to enhance military and defense capabilities of both countries. The FAQs also list a number of red flags to help industry identify evasion attempts, as well as list 18 countries that are prone to being used as transshipment points to mask sanctions evasion.8 These locations include, but are not limited to, Armenia, Brazil, China, Georgia, India, Israel, Kazakhstan, Kyrgyzstan, Mexico, Nicaragua, Serbia, Singapore, South Africa, Taiwan, Tajikistan, Turkey, United Arab Emirates, and Uzbekistan. The commodities and countries of concern referenced in the FAQs are identical to those referenced in the joint advisory issued by BIS and FinCEN in June 2022.9
- Semiconductor Foundry-specific Guidance: This single FAQ advises covered persons to be on the lookout for red flags and to also use BIS’s Know Your Customer guidance to identify instances of companies appearing on the Entity List trying to disguise their participation behind third parties.10
Other EU-related actions include:
- On 1 September, the EU Council added two members of the Russian State Duma and a member of the Russian Federation Council to the list of individuals who are subject to the asset-freezing sanctions in the EU.11
Other UK actions include:
- Between 5 August and 22 August, OFSI issued four General Licenses under its Russia sanctions regime:12
- General License INT/2022/2104808 allowing for the payments of bank fees and service charges related to frozen accounts.
- General License INT/2022/1845976 allowing Crown servants, contractors, and their family members to carry out activities in their personal capacity, which would otherwise be prohibited.
- General License INT/2022/2085212 allowing payments to several Russian sanctioned banks or their subsidiaries for the purpose of making energy available for use in Mongolia.
- General License INT/2022/2055384 allowing persons subject to UK sanctions to make payments to, from, or via designated Russian banks exclusively for the purpose of winding down business operations in Russia.
The imposition of a price cap on Russian-origin oil and petroleum products is a major move by the G7 to limit the Russian government’s revenue and is expected to have a considerable impact on the global energy market. Some initial takeaways are as follows:
- While the OFAC guidance provided the framework for how such a price cap would be administered in the U.S., the details of this measure are yet to be determined, and other G7 governments have not yet issued similar guidance;
- Even assuming the G7 governments issue additional guidance, the practical implementation of the price cap will be challenged by policy countermeasures and sanctions evasion efforts undertaken by the Russian government and its supporters;
- As with other tools of economic statecraft, administration of the price cap will rely upon multinational corporations and financial institutions, including insurance companies, to implement the requirements. OFAC’s 9 September guidance strongly encouraged a recordkeeping and attestation process for parties involved in the sale of Russian oil targeted by the price cap to minimize possible enforcement exposure; and
- At this point the price cap does not cover the gas exported from Russia.
As options for trading partners narrow, Russia will rely upon other nations that do not adhere to western sanctions regimes. This could include jurisdictions subject to comprehensive sanctions such as Iran and North Korea or countries that have expressed frustration with sanctions restrictions. While these risks are not new, it is imperative that sanctions compliance professionals understand the evolving risk environment to adapt controls, as appropriate—including through risk management programs that squarely address intermediation risks of indirectly dealing with sanctioned Russian actors, activities, and interests through correspondent accounts, other third parties, and jurisdictions that have not committed to implementing or otherwise supporting sanctions or trade restrictions against Russia.
As the speed of designations and new sanctions measures has slowed, authorities have shifted their focus to implementation, including through the publication of guidelines, FAQs, and other guidance. The issuance of several general licenses by various authorities indicates that sanctions-imposing countries are trying to limit the unintended effects of the massive sanctions campaign against Russia. These efforts will create additional flexibility for managing Russia-related interests that are not targeted by the multilateral sanctions campaign against Russia; however, they also introduce additional complexity for actors implementing such sanctions or otherwise cooperating in the sanctions campaign against Russia.
1 G7 Finance Ministers’ Statement on the united response to Russia’s war of aggression against Ukraine (2 September 2022), https://www.bundesfinanzministerium.de/Content/EN/Downloads/G7-G20/2022-09-02-g7-ministers-statement.pdf?__blob=publicationFile&v=7.
2 Preliminary Guidance on Implementation of a Maritime Services Policy and Related Price Exception for Seaborne Russian Oil (9 September 2022), https://home.treasury.gov/system/files/126/cap_guidance_20220909.pdf.
3 “Russia Says It Will Stop Selling Oil to Countries That Set Price Caps” (Reuters, 2 September 2022), https://www.reuters.com/business/energy/russia-says-it-will-stop-selling-oil-countries-that-impose-price-caps-2022-09-02.
4 “Biden Will Not Declare Russia a State Sponsor of Terrorism—White House” (Reuters, 6 September 2022), https://www.reuters.com/world/biden-will-not-declare-russia-state-sponsor-terrorism-white-house-2022-09-06/.
5 “With Iranian Drones, Russia Complicates Nuclear Deal Talks” (AP, 25 August 2022), https://apnews.com/article/russia-ukraine-middle-east-iran-united-states-d7802180c7ecbdbe5cd06ee72c6d18f7.
6 Treasury Sanctions Iranian Persons Involved in Production of Unmanned Aerial Vehicles and Weapon Shipment to Russia (8 September 2022), https://home.treasury.gov/news/press-releases/jy0940.
7 Press Release: Six Months into Russian Invasion, Commerce Actions Making a Difference in Support of Ukrainian People (25 August 2022), https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3123-2022-08-24-press-release-commerce-actions-in-support-of-ukraine/file.
8 FAQs published by BIS (16 August 2022), https://www.bis.doc.gov/index.php/documents/policy-guidance/3120-best-practices-faq-draft-8-15-22-final/file.
9 FinCEN and the U.S. Department of Commerce’s Bureau of Industry and Security Urge Increased Vigilance for Potential Russian and Belarusian Export Control Evasion Attempts (28 June 2022), https://www.fincen.gov/sites/default/files/2022-06/FinCEN%20and%20Bis%20Joint%20Alert%20FINAL.pdf.
10 FAQs published by BIS (16 August 2022), https://www.bis.doc.gov/index.php/documents/policy-guidance/3119-2022-faq-foundries-and-red-flags-docx0812clean/file.
11 Council Decision (CFSP) 2022/1447 of 1 September 2022, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.LI.2022.227.01.0004.01.ENG&toc=OJ%3AL%3A2022%3A227I%3ATOC.
12 OFSI General Licenses, https://www.gov.uk/government/collections/ofsi-general-licences.