As part of K2 Integrity’s commitment to monitor and provide insights into the evolving global sanctions campaign against Russia, we have reviewed and summarized recent developments since our last update on 13 May.
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 the last update, various authorities have undertaken sanctions-related actions against Russia, including those taken by the European Union (EU) and the United States (U.S.).
EU actions include:
- On 3 June, the EU approved a sixth round of sanctions against Russia, with the following prohibitions effective immediately1:
- Ban on the purchase, import, or transfer of crude oil and certain petroleum products from Russia to the EU. The phasing out of Russian oil will occur over six months for crude oil to approximately eight months for other refined petroleum;
- Removal of Sberbank, Credit Bank of Moscow, Russian Agricultural Bank, and Belarusian Bank for Development and Reconstruction from the SWIFT international payment system;
- Expansion of the list of persons and entities, identified by the EU, for export restrictions regarding dual-use goods and technology;
- Suspension of broadcasting activities on several Russian state-owned broadcasting companies; and
- Asset freezing sanctions on individuals responsible for war crimes in Ukraine.
U.S. actions include:
- Through the KleptoCapture taskforce, the U.S. Government continues to target and disrupt assets of Russian oligarchs and enablers with close affiliations to Putin. As outlined in an action on 2 June, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) — pursuant to Executive Orders (“E.O.”) 14024, E.O. 13685, and E.O. 13661 — imposed asset freezing sanctions on those involved in yacht brokerage activities and Russian government officials, and multiple luxury yachts and aircrafts.2
- On 24 May, OFAC announced that General License (“GL”) 9C would not be renewed, expiring at 12:01 a.m. EDT on 25 May. GL 9C — issued pursuant to the Russian Harmful Foreign Activities Sanctions Regulations — had authorized all transactions necessary to the receipt of interest, dividend, or maturity payments in connection with previously issued debt or equity of the Central Bank, the National Wealth Fund, or the Ministry of Finance of Russia. Under this authorization, U.S. banks had been permitted to process these payments for both U.S. and non-U.S. investors.
- On 19 May, U.S. Treasury Secretary Janet Yellen — in discussions with G7 leaders — announced U.S. officials were considering imposing secondary sanctions on third parties who continue to purchase Russian oil.3 While there are no details regarding the scope of these potential prohibitions, Yellen’s comments surrounding secondary sanctions against Russia’s energy sector suggest the United States wants to deter Russia from re-routing oil to other major importers, such as China and India. If imposed, secondary sanctions would target third parties for transacting with designated Russian persons, essentially cutting off third party persons who continue to support Russia from the international financial system.
Key Implications (Public, Private, and Non-Profit Sectors)
- Top Russian government officials have stated their interest in finding non-EU importers of Russian oil.4 Those operating in the energy supply chain industry will need to carefully assess their customer base to understand what exposure, if any, there may be to Russia. Purchasers of Russian oil and gas may be exposed to U.S. secondary sanctions risk, depending on the particular facts and circumstances of the transactions and the future direction of U.S. secondary sanctions policy. Persons providing energy-related services should also update policies and procedures to account for new risks presented by the EU’s new oil ban and sanctions targeting the Russian energy sector more broadly.
- GL 9C had been utilized by the Russian government to make international bond payments in U.S. dollars as bond payments were due and in accordance with the terms of the bonds. With the expiration of the GL, U.S. financial institutions will not be permitted to process such payments, forcing Russia into a technical default for all bonds that do not contain an alternative currency provision. The bondholders may either renegotiate the terms of the bonds or choose to trigger the default and pursue various ways of collecting the funds due. According to Reuters, Russia has a total of 15 international bonds outstanding with a face value of around $40 billion — half of which are estimated to be held by investors outside of Russia.5
1 Russia’s aggression against Ukraine: EU adopts sixth package of sanctions, European Council. https://www.consilium.europa.eu/en/press/press-releases/2022/06/03/russia-s-aggression-against-ukraine-eu-adopts-sixth-package-of-sanctions/ and “EU gives final approval to sanctions targeting Russian oil and Sberbank.” Reuters. 2 June 2022. https://www.reuters.com/world/europe/eu-ambassadors-back-sixth-round-russia-sanctions-2022-06-02/
2 U.S. Treasury Severs More Networks Providing Support for Putin and Russia’s Elites, U.S. Department of the Treasury, 2 June 2022. https://home.treasury.gov/news/press-releases/jy0802
3 “Yellen Says Secondary Sanctions on Russia Oil Discussed at G-7.” Bloomberg. 19 May 2022. https://www.bloomberg.com/news/articles/2022-05-19/yellen-says-secondary-sanctions-on-russia-oil-discussed-at-g-7?sref=Pw1Mp35R
4 “EU leaders agree on 90% embargo on Russian oil by the end of the year” Le Monde, 31 May 2022. https://www.lemonde.fr/en/international/article/2022/05/31/eu-leaders-agree-on-partial-embargo-on-russian-oil_5985146_4.html
5 “Explainer: What impact would a Russian debt default have?” Reuters. 31 March 2022. https://www.reuters.com/business/what-impact-would-russian-debt-default-have-2022-03-30/