4 minute read | May.26.2023
The United States has strengthened economic sanctions and export controls targeting Russia, following through on commitments made at a G7 summit this month. The EU and UK also plan to substantially expand measures targeting Russia. That forceful stance – and a commitment from G7 leaders to work together – suggests a coordinated crackdown on people and companies who try to evade sanctions and export controls.
The new restrictions could have a significant effect on companies with business activities in or relating to Russia. They should assess the increased risks and compliance challenges.
The key new U.S. measures:
1. New Blocking Sanctions
The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) imposed blocking sanctions on 22 individuals and 104 entities for attempting to circumvent or evade sanctions and other economic measures. OFAC indicated that these individuals and entities have touchpoints in more than 20 jurisdictions.
The U.S. State Department also imposed blocking sanctions on over 200 entities, individuals, vessels, and aircraft. According to the State Department, these sanctions target “individuals and entities complicit in: sanctions evasion and circumvention; maintaining Russia’s capacity to wage its war of aggression; and supporting Russia’s future energy revenue sources.”
Among other things, these actions target:
U.S. sanctions generally prohibit U.S. persons from engaging in transactions with blocked parties or entities owned 50 percent or more by one or more blocked parties. OFAC has provided limited wind-down authorizations to permit certain dealings with some newly blocked parties.
2. Authorizing Sanctions on Additional Sectors of the Russian Economy
Building on the prior determinations regarding certain sectors of Russia’s economy, OFAC has issued a determination regarding Russia’s architecture, engineering, construction, manufacturing, and transportation sectors.
While a sector determination does not automatically impose sanctions on all persons operating in the sector, it authorizes them. The sectors of Russia’s economy subject to prior determinations are technology, defense and related materiel, financial services, aerospace, electronics, marine, accounting, trust and corporate formation services, management consulting, quantum computing, and metals and mining.
3. Prohibition on Supplying Architecture and Engineering Services to Persons in Russia
Effective June 18, 2023, it generally will be prohibited for U.S. persons – or anyone in the United States – to provide architecture or engineering services to persons in Russia. These restrictions add to prohibitions on providing these services to persons in Russia: accounting; trust and corporate formation services; management consulting; quantum computing; and trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and indemnity), flagging, and customs brokering services as they relate to the maritime transport of crude oil and petroleum products of Russian origin.
4. Significantly Expanded U.S. Export Controls Measures and Guidance to Financial Institutions Regarding Evasion
The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) issued new export controls designed to further limit Russia’s access to items that enable its military capabilities. In particular, BIS:
BIS and the U.S. Treasury Department’s Financial Crimes Enforcement Network issued a supplemental alert, as a follow-up to their initial June 28, 2022 alert, providing U.S. financial institutions further insight on customer due diligence. The alert urges increased vigilance against persons trying to evade U.S. trade controls.
5. New Reporting Requirement Regarding Blocked Russian Sovereign Property
By June 18, 2023, and by June 30 each year after that, U.S. persons must report to OFAC any property in their possession or control in which the Central Bank, the National Wealth Fund or the Ministry of Finance of Russia has an interest. While U.S. persons have been prohibited to engage with such entities since February 2022, the new requirement aims to provide additional information on the Russian frozen sovereign assets.