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 Group of Seven (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
On May 19, 2023, following their meeting in Hiroshima, the G7 leaders issued a statement on Ukraine (the Statement), which among other topics, announced their commitment to further coordinated sanctions and trade restrictions on Russia. The Statement reiterated G7 countries’ sustained unity on the use of sanctions and other economic actions to curb Russia’s ability to wage its illegal war, and specifically announced that they are taking the following measures:
- Broader actions to deprive the Russian military from access to G7 goods, technologies, and services, including: (a) restricting exports of industrial machinery, tools, and other technology that Russia uses to rebuild its war machine, and (b) further targeting of those operating in these key sectors, such as manufacturing, construction, and transportation;
- An increased focus on preventing the evasion and circumvention of sanctions and trade controls against Russia through third countries and third parties;
- Additional actions against Russia’s financial sector — including third-country branches of Russian banks — while coordinating to preserve financial channels for essential transactions;
- Additional steps to limit Russia’s revenue from energy, metal, and extractive industries; and
- Restrictions on trade in and use of diamonds mined, processed, or produced in Russia.
Authorities in the United States and the United Kingdom were the first to announce additional sanctions on Russia following the Statement. As of the date of this publication, the EU Council has not adopted new sanctions; however, on May 22, 2023, the EU High Representative for Foreign Affairs and Security Policy announced that the Council was working on the 11th package of sanctions against Russia, which will be focused on combating circumvention.
U.S. actions include:
- The Department of the Treasury and the Department of State designated over 300 entities, individuals, aircraft, and vessels as subject to asset-freeze sanctions. The targets include individuals and entities located in Russia and more than 20 other countries, including China, Malta, the United Arab Emirates, Germany, the UK, the Netherlands, Canada, Cyprus, and Finland.
- The Department of the Treasury’s Office of Foreign Assets Control (OFAC) expanded the targeted sectors of the Russian economy by issuing a determination that identifies the architecture, engineering, construction, manufacturing, and transportation sectors of the Russian economy pursuant to section 1(a)(i) of Executive Order 14024. This will allow OFAC to impose asset-freeze sanctions on individuals or entities determined to operate or have operated in any of those sectors.
- OFAC introduced additional professional services restrictions by prohibiting U.S. persons from providing architecture services or engineering services to any person located in Russia.
- OFAC amended Directive 4 issued under Executive Order 14024 to require U.S. persons to report to OFAC any property in their possession or control in which the Russian Central Bank, National Wealth Fund, or Ministry of Finance has an interest. The reports must be submitted on or before June 18, 2023, and annually thereafter by June 30.
- The Department of Commerce’s Bureau of Industry and Security (BIS) issued two rules to broaden the scope of controls, provide clarification for some existing restrictions, and add 71 entities to the BIS Entity List.
- The first rule is an extensive rule that:
- Revises the Export Administration Regulations (EAR) to enhance and strengthen the existing sanctions against Russia, Belarus, Iran, and the temporarily occupied Crimea region of Ukraine, and;
- Corrects and clarifies some of the existing controls against Russia and Belarus.
- The second rule added 69 entities in Russia and one entity each in Armenia and Kyrgyzstan to the Entity List maintained by BIS, for their role in supporting Russia’s military and defense sectors. The Entity List identifies persons reasonably believed to be involved, or to pose a significant risk of being or becoming involved, in activities contrary to the national security or foreign policy interests of the United States. In most of the cases, the addition to the Entity List imposes a licensing requirement for the export, re-export, or transfer (in-country) of all items subject to the EAR and a license review policy of denial for all items subject to the EAR apart from food and medicine designated as “EAR99,” which will be reviewed on a case-by-case basis. In addition, the 69 entities in Russia were listed as military end users under § 744.21 (g) of the EAR, which entail more stringent restrictions against them.
- The first rule is an extensive rule that:
- BIS also published a joint alert with the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) to urge increased vigilance for potential Russian and Belarusian export control evasion attempts. The joint alert supplements a previous one published by BIS and FinCEN in June 2022 and sets clear regulatory expectations for financial institutions regarding trade controls, an area that has not historically been the focus of financial institutions’ compliance departments. The joint alert:
- Provides an overview of the restrictions that were introduced following the publication of the initial joint alert;
- Urges additional diligence to detect the use of third-party intermediaries to evade export restrictions;
- Provides a list of high priority items with their Harmonized System (HS) Codes;
- Lists the trade finance products that bear higher compliance risk, including payment processing for exported goods;
- Reminds financial institutions to use the relevant term when filing SARs that include activities highlighted in the joint alert; and
- Provides an additional list of potential red flag indicators of export control evasion that may be relevant to financial institutions and other covered institutions or persons.
UK actions include:
- On May 19, 2023, the UK’s Office of Financial Sanctions Implementation (OFSI) added 42 individuals and 44 entities (including five Russian financial institutions) to the list of sanctions targets under its Russia sanctions regime. Those individuals and entities are connected to Russia’s energy, metals, defense, transport, and financial sectors.
- The UK Government announced that it will impose a ban on Russian diamonds, copper, aluminum, and nickel.  The UK Government has yet to pass the required regulations to implement these prohibitions.
- On May 22, 2023, the UK’s Export Control Joint Unit published a new Notice: Russia sanctions – Trade sanctions circumvention. The Notice recommends that exporters ramp up their due diligence efforts and provides several key risk indicators to consider grouped by customer, product, and location.
The G7 Statement and the latest actions by U.S. and UK authorities demonstrate their growing focus on sanctions and trade control evasion activities, and intention to target actors outside of Russia that provide pathways for Russian actors to gain access to sanctioned goods, services, and technologies. G7 countries and their partners and allies will continue to impose a wide range of asset-freeze sanctions and other measures against such actors regardless of the existence of a nexus to their respective jurisdictions.
Strategic trade controls, which include restrictions on imports, exports, re-exports, and transfers within countries, are at the forefront of the G7’s campaign against Russia’s war of aggression. The supplemental joint alert published by BIS and FinCEN is the latest and clearest signal by U.S. authorities to financial institutions that they need to be aware of the risks associated with trade finance products and detect unusual and suspicious behavior by implementing strong Know Your Customer controls and transaction monitoring.
Fifteen months after the beginning of the global sanctions campaign against Russian aggression, new sanctions measures are still being introduced to incrementally dry up Russia’s sources of revenue and disrupt its military’s access to G7 goods and technologies. Individuals and entities around the world involved in international trade and finance, whether in the private or public sector, must continue to keep track of the expanding sanctions and other economic actions against Russia and ensure they do not run afoul of restrictions or miss reporting obligations.
 G7 Leaders’ Statement on Ukraine ( May 19, 2023), https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/19/g7-leaders-statement-on-ukraine/
 Press Release, Foreign Affairs Council, 22 May 2023, https://www.consilium.europa.eu/en/meetings/fac/2023/05/22/
 U.S. Department of State Fact Sheet, United States Imposes Additional Sanctions and Export Controls on Russia in Coordination with International Partners, May 19, 2023, https://www.state.gov/united-states-imposes-additional-sanctions-and-export-controls-on-russia/
 U.S. Department of the Treasury Press Release, With Over 300 Sanctions, U.S. Targets Russia’s Circumvention and Evasion, Military-Industrial Supply Chains, and Future Energy Revenues, May 19, 2023, https://home.treasury.gov/news/press-releases/jy1494
 Determination Pursuant to Section 1(a)(i) of E.O. 14024, May 19, 2023, https://ofac.treasury.gov/media/931771/download?inline
 Determination Pursuant to Section 1(a)(ii) of E.O. 14071, May 19, 2023, https://ofac.treasury.gov/recent-actions/20230519
 Directive 4 under Executive Order (E.O.) 14024, as amended, May 19, 2023, https://ofac.treasury.gov/media/918806/download?inline
 Federal Register of the United States, 88 FR 33422, Implementation of Additional Sanctions Against Russia and Belarus Under the Export Administration Regulations (EAR) and Refinements to Existing Controls, Published on May 23, 2023, https://www.federalregister.gov/documents/2023/05/23/2023-10774/implementation-of-additional-sanctions-against-russia-and-belarus-under-the-export-administration
 Federal Register of the United States, 88 FR 32640, Addition of Entities to the Entity List, Published on May 22, 2023, https://www.federalregister.gov/documents/2023/05/22/2023-10684/addition-of-entities-to-the-entity-list
 Supplemental Alert: FinCEN and the U.S. Department of Commerce’s Bureau of Industry and Security Urge Continued Vigilance for Potential Russian Export Control Evasion Attempts, May 19, 2023, https://www.bis.doc.gov/index.php/documents/enforcement/3272-fincen-and-bis-joint-alert-final-508c/file
 UK Government Press Release, UK sanctions target Russia’s theft of Ukrainian grain, advanced military technology, and remaining revenue sources, May 19, 2023, https://www.gov.uk/government/news/uk-sanctions-target-russias-theft-of-ukrainian-grain-advanced-military-technology-and-remaining-revenue-sources
 UK Government Press Release, New sanctions demonstrate G7 resolve on Russia, May 18, 2023, https://www.gov.uk/government/news/new-sanctions-demonstrate-g7-resolve-on-russia
 UK’s Export Control Joint Unit, NTE 2023/08: Russia sanctions – Trade sanctions circumvention, May 22, 2023, https://www.gov.uk/government/publications/notice-to-exporters-202308-russia-sanctions-trade-sanctions-circumvention/nte-202308-russia-sanctions-trade-sanctions-circumvention