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 16 September update, a number of sanctions-related actions have taken place and are detailed below. Most notably, following the sham referendums aimed at providing pretext for annexation of four regions of Ukraine to Russia, the leaders of the G7 strongly condemned Russia’s actions.1 The sanctions response was also swift: the United States imposed additional blocking sanctions, the UK expanded the sectors that are prohibited from providing services to Russia, and the EU announced a proposed eighth sanctions package against Russia. In addition to imposing new sanctions, the United States and other countries continue their efforts to close loopholes by providing guidance and clarifications.
U.S. actions include:
- On 30 September, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) imposed blocking sanctions on 11 entities and hundreds of Russian government officials and their family members under the authority granted in Executive Order (“E.O.”) 14024.2 Entities designated by OFAC include companies in third countries that have been assisting Russia in circumventing sanctions. Concurrently, OFAC published a new FAQ reminding the public of the heightened sanctions risk that international actors outside of Russia would face for providing political or economic support to Russia as a result of its illegal attempts to change the status of Ukrainian territory.3
- On 30 September, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) added 57 entities located in Russia and the Crimea region of Ukraine to the Entity List for supporting the Russian military.4 Exportation of any good that is subject to Export Administration Regulations (“EAR”) from anywhere in the world to an entity on the Entity List is prohibited. Furthermore, BIS issued an FAQ clarifying that the agency is ready to aggressively apply its export controls authorities against any entities, both in Russia and in third countries, that seek to provide material support for Russia’s and Belarus’s military and industrial sectors , including by backfilling technologies Russia cannot import due to restrictions imposed by the United States and its allies.5
- On 29 September, the U.S. Department of Justice (“DOJ”) unsealed an indictment charging a U.S. citizen and three citizens of Russia, including Oleg Deripaska, with violating new U.S. sanctions.6 According to the indictment, a New Jersey resident has been assisting Deripaska in his efforts to evade sanctions, including by purchasing, maintaining, and selling assets in the United States on his behalf.
- On 15 September, OFAC imposed blocking sanctions on 22 individuals and two entities under the authority provided in E.O. 14024. The designated individuals included those who attempted to evade sanctions for the government of Russia, officials involved in deportation of Ukrainian children, and other political figures and their family members.7
- Also on 15 September, OFAC issued determinations pursuant to section 1(a)(i) of E.O. 140248 and 1(a)(ii) of E.O. 14071.9 The determination under E.O. 14024 added a designation ground for any person who operates or has operated in the quantum computing sector of the Russian economy. The determination under E.O. 14071 added quantum computing services to the list of services that U.S. persons may not provide to Russia.
- Along with the new sanctions announced on 15 September, OFAC published a number of FAQs, including one notably about Russia’s MIR National Payment System, FAQ 1082.10 The FAQ cautions against non-U.S. financial institutions entering into new or expanded agreements with the National Payment Card System Joint Stock Company (“NSPK”), the operator of the MIR system. By engaging with MIR, non-U.S. financial institutions may expose themselves to the risk of being sanctioned since MIR processes transactions for several sanctioned Russian banks and as such the non-U.S. financial institutions may support Russian banks’ effort to evade the U.S. sanctions.
- On 15 September, BIS imposed further export controls on industrial and commercial items that can support Russian and Belarusian military aggression against Ukraine.11 In particular, BIS issued a rule that:
- Expanded the scope of the industry sector of the Russian economy to cover items that are potentially useful for biological and chemical weapons;
- Imposed controls on quantum computing-related hardware, software, and technology, in line with OFAC’s prohibition on provision of services in this sector;
- Added Belarus to the scope of industry sector sanctions that were only applicable to Russia; and
- Expanded the military end user and military-intelligence end user controls.
EU actions include:
- On 28 September, the EU Commission President and the High Representative of the Union for Foreign Affairs and Security Policy announced the eighth EU sanctions package against Russia.12 Although the details of the eighth package are yet to be published, the High Representative referred to the following new measures:
- Several additional asset freeze sanctions against individuals and entities;
- Expanding trade restrictions (both export and import);
- Potential expansion of the scope of prohibited services to Russia;
- A new prohibition for EU nationals to sit on governing bodies of Russian state-owned enterprises;
- Introducing the legal framework for the oil price cap in line with the G7’s efforts to implement the price cap; and
- Introduction of a new designation criterion for those who assist Russia and Russian sanctions targets in sanctions evasion.
UK actions include:
- On 30 September, the UK government announced the upcoming expansion of sanctions against Russia.13 The new sanctions measures are designed to cut Russia’s access to several services from sanctions-imposing countries including the UK. Specifically, the UK government:
- Prohibited the provision of the following services to Russia: IT consultancy services, architectural services, engineering services, advertising services, transactional legal advisory services, and auditing services . The UK government press release announced that Russia has imported 67% of such services from countries that are now imposing sanctions on Russia, including the UK;
- Imposed blocking sanctions on the Governor of the Central Bank of the Russian Federation;
- Imposed prohibition on the export of almost 700 types of goods that are critical for production in Russia’s manufacturing sector from the UK to Russia. Based on the UK government, the goods that were sanctioned as part of actions on this day represent over GPB 200 million of the trade volume between Russia and the UK last year; and
- Announced that it is working to finalize the Russian oil price cap mechanism in cooperation with other G7 countries.
- On 26 September, the Office of Financial Sanctions Implementation (“OFSI”) imposed asset freeze sanctions on 92 individuals and entities in response to the Russian regime conducting sham referendums in four regions of Ukraine.14
Following Russia’s attempt to annex four regions of Ukraine by staging sham referendums in those regions, the United States, EU, and UK — the main sanctions-imposing authorities — responded swiftly by introducing several new sanctions that include new blocking sanctions against individuals and entities that were involved in Russia’s annexation effort, new prohibitions on the provision of major services to Russia, and additional trade-related controls. The latest expansions have further narrowed the scope of permissible activities with Russia, increasing the burden of conducting legal analysis of permissibility of contemplated activity for anyone who continues doing business with Russia. Most of the activities that relate to Russia — apart from specific humanitarian activities — are now restricted under the sanctions laws of at least one western country or its allies. Even though the U.S., EU, UK and other G7 countries are taking actions in concert, the scope of their respective sanctions varies. As a result, any activity that relates to Russia needs to be assessed diligently across different jurisdictions.
The major sanctions-imposing authorities – especially the U.S. and EU – have been vocal about their intent to impose sanctions on those who help Russia evade sanctions. The announced recent rounds of designations prove that they are willing to deliver on that message. This means, even in the absence of any nexus with countries imposing extensive Russia sanctions, the risk of conducting business with Russia continues to increase. Parties should not only evaluate their potential nexus to various jurisdictions that have imposed sanctions (i.e., analysis of the primary enforcement risk), but also need to consider the risk of being targeted in cases where no such nexus exists.
The Russia sanctions have an unprecedented focus on strategic trade controls. Such controls are aimed at limiting the ability of Russia to continue to produce military and technology items for subsequent use in its war efforts, as well as limiting Russia’s ability to pivot its production and exports to third countries that continue trade with Russia. Companies that engage in export/import and related services should ensure they have clear understanding of all the restrictions if they choose to continue doing business with Russia. Companies worldwide should know and screen their customers to ensure their counterparts are not on any regulator list or acting on their behalf. It is also advisable to conduct training for personnel so that they are aware of red flags indicating potential attempts by Russia or Belarus to circumvent trade controls and backfill their depleted inventories. Finally, financial institutions also should pay attention to payments linked to trade transactions to ascertain that they are not involved in transactions related to prohibited imports or exports.
1 G7 Leaders’ Statement (23 September 2022), https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/23/g7-leaders-statement-3/
2 Russia-related Designations and Designations Updates; Publication of Russia-related Frequently Asked Question (30 Sept. 2022), https://home.treasury.gov/news/press-releases/jy0981
3 FAQ 1091 (30 September 2022), https://home.treasury.gov/policy-issues/financial-sanctions/faqs/1091
5 BIS FAQ ( 30 September 2022), https://www.bis.doc.gov/index.php/documents/about-bis/3145-2022-09-30-bis-faq-third-country-application-of-controls/file
6 DOJ Press Releases, Russian Oligarch Oleg Vladimirovich Deripaska and Associates Indicted for Sanctions Evasion and Obstruction of Justice (29 September 2022), https://www.justice.gov/opa/pr/russian-oligarch-oleg-vladimirovich-deripaska-and-associates-indicted-sanctions-evasion-and
7 Russia-related Designations; Issuance of Russia-related General License and Frequently Asked Questions; Zimbabwe-related Designation, Removals and Update; Libya-related Designation Update (15 September 2022), https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20220915
8 Determination Pursuant to Section 1(a)(i) of Executive Order 14024 (15 September 2022), https://home.treasury.gov/system/files/126/determination_09152022_eo14024.pdf
9 Determination Pursuant to Section 1(a)(ii) of Executive Order 14071 (15 September 2022), https://home.treasury.gov/system/files/126/determination_09152022_eo14071.pdf
10 OFAC’s Frequently Asked Questions, FAQ1082 (15 September 2022), https://home.treasury.gov/policy-issues/financial-sanctions/faqs/1082
11 Implementation of Additional Sanctions Against Russia and Belarus Under the Export Administration Regulations (EAR) and Refinements to Existing Controls, 87 FR 57068, https://www.federalregister.gov/documents/2022/09/16/2022-19910/implementation-of-additional-sanctions-against-russia-and-belarus-under-the-export-administration
12 Press statement by President von der Leyen on a new package of restrictive measures against Russia (28 September 2022), https://ec.europa.eu/commission/presscorner/detail/en/STATEMENT_22_5856
13 Sanctions in response to Putin’s illegal annexation of Ukrainian regions (30 September 2022), https://www.gov.uk/government/news/sanctions-in-response-to-putins-illegal-annexation-of-ukrainian-regions
14 UK sanctions collaborators of Russia’s illegal sham referendums (26 September 2022), https://www.gov.uk/government/news/uk-sanctions-collaborators-of-russias-illegal-sham-referendums