U.S. Imposes New Russia Sanctions and Export Controls and Warns of Risk of Continued Business with Russia

The U.S. also announced new charges, arrests and forfeiture proceedings against alleged sanctions-evaders and published a multi-agency advisory warning companies of the legal, financial and reputational risks of continued business with Russia.

The U.S. measures were announced shortly after the EU and U.K. announced similarly large sanctions packages on February 22, 2024, which targeted: companies linked to Russia’s ammunition, metals, diamond and energy industries; several foreign companies over allegations that they exported dual-use goods to Russia; and Russian officials allegedly involved in the deportation and reeducation of Ukrainian children.

These combined prohibitions respond to the death of Russian opposition leader and anticorruption activist, Aleksey Navalny, on February 16, 2024 and mark the two-year anniversary of Russia’s invasion of—and continued aggression against—Ukraine. These actions demonstrate the international community’s increased willingness to target broader parts of Russia’s economy and military-industrial complex and commitment to enforcing existing sanctions and export controls against both Russian and third-country evasion networks.

Key Takeaways

Despite the broad geographic reach of the designations—targeting persons in the People’s Republic of China (PRC), Germany, India, Liechtenstein, South Korea and the United Arab Emirates (UAE)—these measures were received as underwhelming in their efforts to target third-country facilitators that continue to do business with Russia (e.g., OFAC sanctioned only 26 third-country persons out of nearly 300). Nonetheless, companies with exposure to Russia or jurisdictions outside the U.S., U.K. and EU that do not comply with Western sanctions should pay close attention to the impact of these designations on those jurisdictions.

Associated actions and statements by the U.S. suggest that the U.S. and international community are focused on targeting third-country facilitators that continue to do business with Russia. In announcing the measures, OFAC expressed its desire “to send a simple message to companies and financial institutions around the world: if you provide material support to Russia’s military we will come after you with every tool at our disposal” and warned companies that they can either “do business with Russia’s military industrial complex or with countries that represent more than 50 percent of the global economy.”^[1]

The U.S. also released a multi-agency Business Advisory, which highlights the risks that companies may face for continuing to transact with blocked persons or otherwise engage in business in Russia. Although the Advisory acknowledges that decisions regarding whether and how to continue operations, suspend commercial operations or exit the Russian market are ultimately up to each business, it issues a stark and unmistakable warning that businesses, individuals and financial institutions who continue operations linked to Russia face significant legal, economic and reputational risks.

These actions build upon the issuance of Executive Order 14114 on December 26, 2023, which amended Executive Order 14024, to authorize secondary sanctions on foreign financial institutions engaging in certain significant transactions with Russia’s military-industrial base—including persons designated pursuant to or operating in the technology, defense and related materiel, construction, aerospace or manufacturing sectors (and additional sectors as may be determined) and persons that support the sale, supply or transfer of certain identified critical items. In announcing the most recent sanctions designations, OFAC specifically highlighted those persons designated for operating, or having operated in, the sectors identified as involving Russia’s military-industrial base and reiterated that foreign financial institutions that conduct or facilitate significant transactions, or provide any service to those persons, run the risk of being sanctioned themselves by OFAC, regardless of any involvement by a U.S. person.

While the U.S. has not yet imposed secondary sanctions on foreign financial institutions pursuant to Executive Order 14114, these new designations are a warning shot that OFAC “will continue to impose sanctions on persons, wherever located, that allow Russia to reconnect to global financial markets using illicit channels . . . Our international coalition is sending a clear message to would-be evaders and circumventers that such actions have and will continue to have consequences.”^[2]

Companies and, in particular, foreign financial institutions, should carefully review the risks outlined in the joint Business Advisory and evaluate ongoing business engagements with Russia. Companies should also assess their operations to confirm that they do not conduct any business with newly designated entities or individuals.

Overview of Prohibitions

Since the start of Russia’s war in Ukraine, the U.S. has designated over 4,000 entities and individuals, added over 900 parties—including 200 third-country companies—to the BIS Entity List and charged more than 70 individuals for violating sanctions and export controls against Russia. The U.S., along with a coalition of allies and G7 countries, also implemented a price cap on Russian-origin oil and petroleum products and has taken other measures against key Russian industries, discussed further in our prior updates.

The U.S. sanctions program has two stated goals—to reduce the revenue available to Russia to fuel its war against Ukraine and disrupt Russia’s ability to obtain the goods it needs to build the weapons for its defense and military action.^[3] The new measures strengthen these efforts in their targeting of over 600 individuals and entities operating primarily in or facilitating Russia’s financial, energy and military-industrial sectors, and showcase the continued efforts by the U.S. to prevent and punish sanctions-evaders and persons continuing to facilitate Russia’s aggression in Ukraine.

Department of the Treasury’s Office of Foreign Assets Control (OFAC)

OFAC added almost 300 individuals and entities to the Specially Designated Nationals and Blocked Persons (SDNs) List for operating in Russia’s finance sector, military-industrial base and other critical sectors, and for participating in networks of domestic and third-country sanctions evaders. U.S. persons are prohibited from engaging in transactions with those persons and required to block any property in their possession or control in which an SDN has an interest. The designations included:

• Banks, investment and venture capital funds, financial technology companies and the National Payment Card System JSC—owned by the Central Bank of Russia and operator of Russia’s Mir National Payment System;
• Companies engaged in activities related to weapons production, critical technology manufacture and development—including robotics, artificial intelligence, semiconductors, IT infrastructure, energy storage and power supply and Russia’s aerospace and transportation sectors;
• Russia-based software conglomerate, IT1 Kholding, the LLC Group of Companies MKC and Russia’s state-owned diamonds and precious metals exporter JSC Foreign Economic Association Almazyuvelirexport;
• Russia-Iran procurement network of Unmanned Aerial Vehicles (UAVs) involving Russia-based JSC Special Economic Zone of Industrial Production Alabuga and Iran’s Ministry of Defense and Armed Forces Logistics (MODAFL);
• PRC-based microelectronics and other key technology suppliers for designated Russia-based entities SMT-iLogic and Uniservice LLC;
• EU-based illicit finance network that assisted Russian clients in laundering funds by buying and selling precious metals for cash; and
• Russia’s state-owned shipping company and fleet operator, JSC Sovcomflot, and fourteen of its crude oil tankers, engaged in Russia’s “shadow operations” designed to skirt the international price cap.

In conjunction with these actions, OFAC issued the following six Russia-related general licenses: GL88A, authorizing the wind down of transactions involving nineteen entities through 12:01 a.m. EDT, April 8, 2024; GL89, authorizing the wind down and rejection of transactions involving eight financial institutions through 12:01 a.m. EDT, April 8, 2024; GL90, authorizing certain transactions related to debt or equity of, or derivative contracts involving, six entities through 12:01 a.m. EDT, April 8, 2024; GL91A, authorizing limited safety and environmental transactions involving six blocked persons and vessels through 12:01 a.m. EDT, May 23, 2024; GL92, authorizing the offloading of cargo from Sovcomflot vessels through 11:59 p.m. EDT April 8, 2024; and GL93, authorizing transactions involving vessels that would otherwise be blocked for being owned 50% of more by SDN Sovcomflot, but that are not themselves SDNs.

Department of State

The State Department took concurrent actions targeting those involved in maintaining Russia’s capacity to wage its war of aggression against Ukraine and facilitating sanctions evasion and circumvention efforts that enable Russia to obtain items critical to its defense-industrial base. The designations included:

• Companies involved in the financing, construction and development of energy projects (g., Arctic LNG 2 Project), including LLC Shipbuilding Complex Zvezda, JSC Far East and Arctic Development Corporation and JSC Rosgeologia;
• Subsidiaries of previously sanctioned State Atomic Energy Corporation Rosatom;
• Companies involved in the piping, gold mining and aluminum industries, including Russia’s leading piping supplier, PJSC Pipe Metallurgical Company, one of Russia’s top ten gold mining companies, PJSC Uzhuralzoloto Group of Companies, and Russia’s largest aluminum products producer, JSC Samara Metallurgical Plant;
• Private Military Company Convoy and AO Konsalt (the new legal form of the PMC Wagner Center) and PMC current and former senior leaders; and
• Individuals determined to be involved in Russia’s expropriation of foreign companies, malign influence campaign in Moldova and the death of Navalny.

The State Department also took steps to impose visa restrictions on Russian authorities involved in the forcible transfer, deportation and confinement of Ukraine’s children in camps promoting indoctrination, and others involved in human rights abuses.

Department of Commerce’s Bureau of Industry and Security (BIS)

BIS concurrently imposed additional export restrictions on entities for their activities in support of Russia’s defense-industrial sector and war efforts. Ninety-three Russian and third-country persons were added to the BIS Entity List, sixty-three of whom are based in Russia, sixteen in Turkey, eight in the PRC, four in the UAE, two in the Kyrgyz Republic, one in India and one in South Korea. Of these entities, more than fifty were also designated as Russian-Belarusian military-end-users, which imposes a policy of denial for nearly all license applications seeking to export to these designated entities.

Additionally, BIS, along with the EU, Japan and the U.K., identified new “common high priority items” that pose a heightened risk of being diverted illegally to Russia due to their importance to Russia’s war efforts, including five computer numerically controlled (CNC) machine tools and components, which are used in Russia’s arms manufacturing industries and critical to Russia’s military-related items.

Department of Justice

The DOJ’s KleptoCapture Task Force also announced an array of new charges, arrests and forfeiture proceedings related to Russia, including:

• In the Southern District of New York, the Department unsealed charges against sanctioned Russian oligarch Andrey Kostin and two of his U.S.-based facilitators;
• In the Middle District of Florida, a sanctioned pro-Russian Ukrainian oligarch, Sergey Vitalievich Kurchenko, was charged in a years-long scheme to violate and evade U.S. sanctions by receiving funds and doing approximately $330 million in business with U.S. persons;
• In the Northern District of Georgia, Atlanta-based U.S. and Russia dual national Feliks Medvedev pleaded guilty to laundering over $150 million through bank accounts and shell companies on behalf of Russian clients;
• In the Southern District of Florida, the U.S. filed a civil forfeiture complaint against two Miami luxury condominium properties, valued at approximately $2.5 million, owned by sanctioned Russian oligarch Viktor Perevalov; and
• In the District of Columbia, a superseding indictment was unsealed charging Vladislav Osipov with bank fraud in connection with a criminal scheme to facilitate the operation of a 255-foot luxury yacht owned by sanctioned Russian oligarch Viktor Vekselberg.

Joint Business Advisory

Lastly, the Departments of Commerce, State, Treasury and Labor released a joint Business Advisory, “Risks and Considerations for Doing Business in the Russian Federation and Russia-Occupied Territories of Ukraine,” which provides information regarding the risks involved in continuing to transact with blocked persons or otherwise engaging in business in Russia. In particular “[t]he specific categories of risks for businesses and individuals regarding Russia and its unlawful invasion and occupation of parts of Ukraine highlighted in this advisory are:

1. Risk of businesses and individuals becoming exposed to sanctions, export controls, import prohibitions, money laundering vulnerabilities, and corruption; 
2. Risk of businesses and individuals being implicated in the Government of Russia’s violations of international law, including war crimes and crimes against humanity, and human rights abuses; and 
3. 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.”

The Advisory focuses not just on Russia’s war against Ukraine but also on Russia’s restrictions on freedom of expression, use of state surveillance and other human rights and forced labor concerns, recommends that businesses and individuals conduct heightened due diligence, including a review of their compliance mechanisms, and provides recommendations to assist companies in mitigating potential risks.