Fort Lauderdale, Fla. (May 26, 2023) – On May 19, 2023, the G7 announced the coordination of additional sanctions against Russia and various individuals and entities determined to be aiding sanctions evasion. These latest measures create an additional level of legal risk for companies operating in various industries around the world.

Specifically, the leaders of the G7 issued a joint statement committing to broaden restrictions on exports of industrial machinery, tools, and other technology to Russia and to target Russia's manufacturing, construction, transportation, and business services sectors. The leaders also reinforced the G7's commitment to combat sanctions evasion, including by working with the Russian Elites, Proxies, and Oligarchs (REPO) Task Force and Enforcement Coordination Mechanism.

The joint statement indicates alignment between Europe and the U.S. on enforcing secondary sanctions on individuals and entities aiding the evasion of such sanctions. Secondary sanctions impose penalties on persons and organizations not subject to the sanctioning country's legal jurisdiction and are applied against entities engaged in the same dealings prohibited under primary sanctions.

In response to the statement, the U.S. Department of Treasury's Office of Foreign Assets Control (OFAC) identified new sectors of the Russian economy subject to U.S. sanctions including:

  • architecture,
  • engineering,
  • construction,
  • manufacturing, and
  • transportation.

Russia's future extractive and energy production capacity is also the subject of new OFAC sanctions that target entities involved in:

  • geological exploration and oilfield services;
  • drilling and mining equipment companies;
  • developing the Syradasayskoye coal deposit in the Russian Arctic;
  • the future Port of Indiga project;
  • Russia's energy industry;
  • the nuclear-powered icebreaker fleet operator FSEU Atomflot; and
  • energy-related education and research institutes.

Further, to limit Russia's military-related procurement and sanctions evasion, component suppliers for Russia's Orlan drone and other suppliers of electronics or controlled items to Russia's military have also been sanctioned. This includes over 20 Russian defense enterprises and design bureaus and multiple Russian suppliers of electronics, machinery, and synthetic rubber.

Additionally, OFAC designated certain individuals and entities including asset management firms in Russia, Cyprus, Hong Kong, Estonia, the United Kingdom, and the UAE involved in shielding Russian assets from sanctions, as well as Iranian and Russian shipping and maritime service companies.

Other Agency Measures

The Department of Commerce also added 71 entities to its Entity List, which now subjects these entities to a license requirement that denies access to all items in accordance with the Export Administration Regulations, except for food and medicine. Only two of the added companies are not Russian; Medisar (an Armenian importer of chemical products) and Tro.Ya (the Kyrgyz electrical equipment and component supplier).

Furthermore, OFAC made changes to Directive 4 under E.O. 14024 and General License 13 (now GL 13E). Directive 4 now requires any U.S. person to report any property in which the Russian Central Bank, the National Wealth Fund, or the Ministry of Finance has an interest. GL 13E extends the authorization for U.S. persons to pay taxes, fees, or import duties, and to purchase or receive permits or licenses if this is necessary for such U.S. persons' day-to-day operations in Russia until August 17, 2023.

The Treasury's Financial Crimes Enforcement Network (FinCEN) and the Department of Commerce's Bureau of Industry and Security (BIS) also issued a joint supplemental alert, which detailed additional export control evasion "red flags" that financial institutions, companies and individuals should monitor. As we noted in our March 7, 2023 client alert, top officials at the U.S. Department of Justice (DOJ) have already stated that compliance with U.S. sanctions and export control laws and regulations is the "New FCPA [Foreign Corrupt Practices Act]".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.