United States: New US Sanctions On Russia Pack A Punch: US Departments Of State, Treasury, And Commerce Impose Expansive Sanctions Targeting Russia's Military-Industrial Base

On February 25, the Biden administration unveiled a new tranche of sanctions against Russia in response to the ongoing war with Ukraine and the death of opposition politician Aleksey Navalny. The new measures target more than 500 entities and individuals involved in Russia's financial, energy, and defense industries, as well as those involved in sanctions and export control evasion and circumvention. The latest restrictions mark the largest and most comprehensive sanctions package the U.S. has imposed on Russia since its invasion of Ukraine in February 2022.

The new measures, undertaken in parallel by each of the departments of Treasury, State, and Commerce — as well as a corresponding business advisory released by these agencies in partnership with the Department of Labor — are described in the sections below.

Treasury Department

The Treasury Department's Office of Foreign Assets Control (OFAC), acting pursuant to Executive Order (EO) 14024, implemented sanctions targeting entities supporting Russia's military-industrial base; targets and individuals outside of Russia that are associated with helping Russia evade sanctions; and economic sanctions against Russian banks, investment firms, and financial technology companies. The latter group of entities were added to OFAC's Specially Designated Nationals (SDN) List for their involvement in evading financial sanctions, underwriting Russia's development in advanced technology, facilitating foreign and domestic investment in Russia, and providing IT support and software to Russian financial institutions. Included in these designations was the National Payment Card System Joint Stock Company, the state-owned operator of Russia's Mir National Payment System.

OFAC also designated several individuals and entities deemed to be supporting Russia's military-industrial base, including those involved in weapons production, additive manufacturing, manufacturing and metalworking equipment, lubricants, coolants and industrial chemicals, semiconductor and electronics manufacturing, components and research, industrial automation, optics, navigational instruments, information technology and software, energy storage and power supply, aerospace, logistics and cargo transportation, and precious minerals.

In addition, the U.S. continues to target individuals and entities outside of Russia (including those located or based in U.S. allied and partner countries) deemed to be engaging in activities that facilitate sanction evasion and circumvention, including exporters and shippers of restricted equipment and technology to Russia and money laundering networks facilitating Russian-origin precious metal movements. The entities targeted are located in China, Serbia, the United Arab Emirates (UAE), Estonia, Germany, Ireland, Kyrgyzstan, Finland, Azerbaijan, and Liechtenstein.

These latest measures highlight OFAC's focus on "advanced manufacturing and technology such as machine tools, including computer numerically controlled (CNC) machines ... ; additive manufacturing (also known as 3D printing), ... including creating special-purpose 3D printers for the production of [unmanned aerial vehicles (UAVs)], aircraft parts, and other military-related items; bearings, which are an integral component of Russia's military hardware, including its main battle tanks; and other fields such as robotics, industrial automation and software, specialized lubricants, and lasers."

State Department

Pursuant to EO 14024, the State Department also imposed similar sanctions, targeting more than 250 individuals and entities, including engineering and energy entities, as well as individuals associated with Navalny's death.

The State Department also added entities involved in Russia's energy production to the SDN list, including entities involved in the Arctic LNG 2 Project. Specifically, the new restrictions target entities focused on financing and constructing highly specialized liquefied natural gas (LNG) tankers for the operation of the Limited Liability Company Arctic LNG 2, the operator of the Artic LNG 2 project, and others involved in energy-related developments and projects in Russia such as State Atomic Energy Corporation Rosatom subsidiaries.

In parallel with the Treasury Department, the State Department also targeted producers and exporters of items identified by the Commerce Department's Bureau of Industry and Security (BIS) as common high-priority items, such as U.S.-origin aviation parts, industrial machinery and equipment, and electrical components. These items are deemed crucial to sustaining and fueling Russia's war efforts, and the U.S., in concert with the European Union, Japan, and the United Kingdom, have identified 50 items as high priority. The State Department also imposed sanctions on entities involved in Russia's metals and mining, financial, defense, technology, marine sectors, and other state-owned enterprises, as well as individuals with ties to the Russian government. Further, the State Department imposed sanctions on several individuals involved in the unlawful transfer and/or deportation of Ukrainian children to camps in Russia, Belarus, and Russia-occupied Crimea.

Finally, the State Department sanctioned three individuals associated with Navalny's death, namely, the prison warden, Vadim Konstantinovich Kalinin, and regional prison head, Igor Borisovich Rakitin, at Russian Penal Colony IK-3 — the Arctic Circle facility where Navalny was found dead — as well as the deputy director of the Federal Penitentiary Service of Russia, Valeriy Gennadevich Boyarinev, all of whom were added to the SDN List.

Commerce Department

Meanwhile, BIS announced the addition of 93 entities to its Entity List under the Export Administration Regulations (EAR) due to their continued support of Russia's ongoing aggression against Ukraine. Sixty-three of these entities are located in Russia, eight are in China, 16 are in Turkey, four are in the UAE, two are in Kyrgyzstan, and one each is in India and South Korea. All items subject to the EAR require a license to be exported, re-exported, or transferred (in-country) to a designated entity.

In addition, more than 50 of these entities have been identified as Russia/Belarus-Military End Users (MEU) with the requisite Footnote 3 designation. Pursuant to Sections 744.21 and 734.9 of the EAR, Footnote 3 entities are restricted from receiving foreign-produced items that are the direct products of U.S.-origin technology or that are a direct product of a plant or equipment that itself is a direct product of U.S.-origin technology. A license is required for all items subject to the EAR for Russian and Belarusian MEUs and will be reviewed under a policy of denial, except for food or medicine designated as EAR99, which is reviewed on a case-by-case basis.

The latest additions bring the total number of added entities since March 2, 2022 to more than 900. Under Secretary of Commerce for Industry and Security Alan Estevez said BIS "will continue to limit Putin's military options by imposing substantial costs on his ability to repair, replenish, and rearm with high-tech, high-quality equipment."

BIS also added five new Harmonized Tariff Schedules (HTS) Codes to its common high priority list to "highlight for industry that certain machine tools pose a heightened risk of being diverted illegally to Russia because of their importance to Russia's war efforts."

Intra-Agency Business Advisory

In connection with the recent restrictions, the Departments of State, Treasury, Commerce, and Labor released a business advisory to help guide businesses in complying with these new restrictions by making informed decisions regarding the effects of conducting business in or with Russia. The advisory highlights specific categories of risk businesses and individuals may encounter:

• Risk of businesses and individuals becoming exposed to sanctions, export controls, import prohibitions, money laundering vulnerabilities, and corruption
• Risk of businesses and individuals being implicated in the Russian government's violations of international law, including war crimes and crimes against humanity, and human rights abuses
• Risk to businesses and individuals due to the proliferation and implementation of repressive laws in the Russian Federation and the areas of Ukraine it occupies, including measures authorizing expropriation in certain instances or detentions based on spurious grounds

Conclusion

Companies and individuals should take stock of these recent actions and the increasing and continued use of sanctions and export control restrictions. Conducting business with or related to Russia presents increasing legal and financial consequences, but also may give rise to reputation and business risks. Heightened due diligence efforts are essential and should include in-depth and robust compliance mechanisms, such as investigations and audits, as well as a focus on human rights-related due diligence

We will continue to monitor the sanctions and export control restrictions as they emerge.

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.