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."
HTS Code | Description |
8457.10 | Machining centers for working metal |
8458.11 | Horizontal lathes for removing metal, numerically controlled |
8458.91 | Lathes, excluding horizontal, for removing metal, numerically controlled |
8459.61 | Milling machines, not knee type, for removing metal, numerically controlled |
8466.93 | Parts and accessories for machine tools, for laser operation, metalworking machining centers, lathes and drilling machines, etc., not specified or included elsewhere |
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.