The United States And The United Kingdom Announce New Wave Of Sanctions Against Russia – Export Controls & Trade & Investment Sanctions – Worldwide

Date:

UNITED STATES

On Friday, February 24, 2023, the United States (U.S.) announced
a new wave of sanctions and export controls restrictions against
Russia aimed at (1) holding individuals and entities accountable
for engaging in sanctions evasion, (2) imposing pressure on
Russia’s key revenue-generating sectors including the energy,
extractive, financial, defense, and technology sectors, and (3)
targeting individuals, financial institutions, and proxy Russian
authorities supporting Russia’s war effort. These measures
reflect the ongoing efforts by the Biden administration, its allies
and partners, to impose strong economic costs on Russia and disrupt
its ability to wage its war of aggression. The Biden administration
also announced billions of dollars in additional military aid for
Ukraine. In parallel, the EU also published the previously
announced tenth package of sanctions on February 25, 2023 (see Winston & Strawn’s client alert
here
).

Sanctions

Striking Russia’s Financial Services
Sector.
In a continued effort to target the financial
services sector, the Department of the Treasury’s Office of
Foreign Assets Control (OFAC) has imposed full blocking sanctions
on over a dozen new Russian financial entities pursuant to
Executive Order (“E.O.”) 14024 of April 15, 2021. Of
importance, the Credit Bank of Moscow Joint Stock Company,
Russia’s largest non-state-owned bank, has been designated.
Other designations include both small and large banks such as:

  • Joint Stock Company Commercial Bank Lanta Bank

  • Public Joint Stock Company Commercial Bank Metallurgical
    Investment Bank

  • Public Joint Stock Company MTS Bank

  • Novosibirsk Social Commercial Bank Levoberezhny Public Joint
    Company

  • Bank Saint-Petersburg Public Joint Stock Company

  • Joint Stock Commercial Bank Primorye

  • SDM-Bank Joint Stock Company

  • Public Joint Stock Company Bank Ural Bank for Reconstruction
    and Development

  • Public Joint Stock Company Bank Uralsib

  • Bank Zenit Public Joint Stock Company (and Russia-based
    financial institutions OOO Zenit Finance, OOO Zenit Leasing, and
    OOO Zenit Factoring MSP, for being owned or controlled or having
    acted or purported to act for or on behalf of Bank Zenit).

Wealth Management-Related Entities &
Individuals
. OFAC has also sanctioned at
least eleven wealth management entities and their founders or
leaders pursuant to E.O. 14024 for providing services such as asset
structuring and wealth management to Russian high-net-worth
individuals and thereby operating in the Russian financial services
sector. Those designated are as follows:

  • CONFIDERI Pte Ltd (and founders Olga Borisovna Raykes and Marat
    Maratovich Savelov)

  • IC Veles Capital LLC (and leaders Dmitry Vitalyevich Bugayenko
    and Aleksei Dmitrievich Gnedovskii)

  • Veles Aktiv OOO

  • Veles Management Ltd

  • Limited Liability Company Veles Trust

  • Veles International Limited

  • Hadlerco Limited

Three high-net-worth individuals have also been subject to
blocking sanctions for their positions in Rosbank, Alfa-Bank, and
Sberbank, respectively: Ulan Vladimirovich
Ilishkin
, Alina Olegovna Nazarova, and
Evgeniya Sergeyevna Tyurikova (finance
professional in Sberbank).

At the same time it designated the financial institutions
mentioned above, OFAC also issued General Licenses (GL) that
authorize:

  • Certain energy-related transactions1 by Bank Zenit
    and Bank Saint-Petersburg (GL 8F).

  • The payment of taxes, fees, or import duties, and the purchase
    or receipt of permits, licenses, registrations, or certifications,
    for transactions involving the Russian Central Bank, the Russian
    National Wealth Fund, or the Russian Ministry of Finance (GL 13D).

  • The wind-down of transactions involving all the designated
    banks except for Public Joint Stock Company MTS Bank and
    Novosibirsk Social Commercial Bank Levoberezhny Public Joint
    Company through May 25, 2023 (GL 60).

  • The wind-down of transactions incident to the divestment or
    transfer of debt or equity of certain designated financial
    institutions through May 25, 2023 (GL 61).

Ramping up efforts to counter sanctions
evasion.
OFAC designated several companies, financial
institutions, and over 30 individuals from third-party countries
for attempts to evade the sanctions regime against Russia.

  • Designations related to the procurement of
    sensitive western technologies and
    equipment
    . OFAC designated Swiss-Italian
    businessman Walter Moretti and Moretti’s
    UAE’s based companies pursuant to E.O. 14024 for covertly procuring sensitive
    Western technologies and equipment for Russian intelligence
    services and the Russian military, including hydraulic presses,
    armament packages, and armor plating. Moretti was also involved in
    procuring equipment for Russia’s nuclear weapons laboratories.
    Other related designations include a Malta-based company (and one
    of its board members) that is owned or controlled by one of
    Moretti’s UAE-based companies and other nationals and entities
    from Switzerland and Germany that provided financial, material, or
    technological support to Moretti.

  • Designations related to the dealing of arms in
    support of Russia and Belarus
    . Pursuant to
    Belarus-related E.O. 14038, OFAC designated a Russian-Turkmen
    arms dealer, Nurmurad Kurbanov, for representing
    OKB TSP in its sales efforts of a short-range air defense system
    and facilitating military and technical cooperation efforts between
    Russia and foreign countries.

  • Designations related to illicit financial
    activity
    . OFAC, pursuant to E.O. 14024, designated Russian businessman
    Aleksandr Yevgenyevich Udodov and his Moscow-based
    management consulting firm, Limited Liability Company
    Aforra Management
    , for providing management consulting
    services in the Russian economy. Udodov has been linked to business
    dealings with Russian Prime Minister Mikhail Mishustin and has been
    investigated for manipulating value-added tax revenues and money
    laundering. Several additional Russia-based companies were
    designated for being owned or controlled by Udodov, or for having
    acted or purported to act for or on his behalf, directly or
    indirectly.

Imposing costs on and restricting Russia’s
military capabilities.
In an effort to further
restrict key entities that support Russia’s military
capabilities, OFAC, pursuant to E.O. 14024, imposed sanctions on individuals
and entities connected to Russia’s defense industries.

  • Designations of Russian entities that produce
    carbon fiber and related materials.
    OFAC designated
    UMATEX, Russia’s largest producer of carbon fibers and
    fiber-based items, for operating or having operated in Russia’s
    technology sector. UMATEX focuses on the production of
    high-technology carbon fiber and other high-technology products.
    OFAC also designated three UMATEX subsidiaries for being owned or
    controlled by, or having acted or purported to act for or on behalf
    of, directly or indirectly, UMATEX. Separately, OFAC also
    designated another entity, UVICOM LTD, for operating or having
    operated in Russia’s technology sector. UVICOM LTD produces,
    and develops technologies for, carbon fibrous materials.

  • Designations of entities that operate in
    Russia’s aerospace sector
    . OFAC designated at
    least five entities for operating or having operated in the
    aerospace sector of the Russian economy. These entities produce
    materials used in aircraft engineering or study and develop carbon
    materials and products as well as composite goods for
    rocket-and-space hardware. OFAC also designated two entities for
    having operated in the defense and related materiel sector of the
    Russian economy. These entities are involved in the development,
    application, or fabrication of weapons, military hardware,
    artillery, and missile systems.

  • Designations of entities operating in Russia’s
    technology & electronics sectors.
    OFAC designated
    at least 6 individuals and 16 entities for operating in the
    technology sector of the Russian economy, specifically entities in
    the cybersecurity space supporting Russia by: providing
    intelligence to Russian intelligence services; working on behalf of
    Russian intelligence services; designing and selling internet
    monitoring and influence technology to the Russian government;
    purchasing U.S. origin equipment on behalf of sanctioned end-users;
    attempting to procure export-controlled equipment from the U.S. for
    the Russian defense industry; manufacturing spectral analytical
    instruments; providing server hardware; developing software to
    enable mobile device monitoring or that support Russia’s
    offensive cyber operations; providing technology equipment and
    consulting services; providing programming services related to
    telecommunications to Russia’s government; assisting Russia in
    obtaining advanced equipment with applications in the
    microelectronics and quantum industries or with nuclear
    applications; or manufacturing electronic instruments for Russian
    amphibious and military aircraft.

  • Designations of other entities supporting
    Russia’s war.
    OFAC has also designated three
    entities for operating in Russia’s defense and materiel sector.
    One of these entities plays an important role in the command and
    control systems of Russia’s armed forces, another one is a
    mercenary group that purports to provide security services, and the
    other one provides insurance services to companies in Russia’s
    defense sector.

Expanding sanctions into the metals and mining
sector.
OFAC has also issued a determination pursuant to E.O. 14024 that
expands sanctions to the metals and mining sector of Russia’s
economy. Furthermore, OFAC designated four entities for operating
or having operated in the metals and mining sector. More
specifically, these entities are involved in the manufacturing of
artillery, metals, armaments, ammunition, and unique metal alloys
and products for Russia’s defense industries.

Export Control Restrictions — Additional Export Restrictions
on Low-technology Consumer Goods

On February 24, 2023, the Commerce Department’s Bureau of
Industry and Security (“BIS”) released the following four
rules to deny the Russian military the materials necessary to
continue its war of aggression:2

Rule 1: “Implementation of Additional Sanctions
Against Russia and Belarus Under the Export Administration
Regulations (EAR) and Refinements to Existing
Controls”

This rule revises the Export Administration Regulations
(“EAR”) to better align the Russian and Belarusian
Russian Industry Sector Sanctions with the U.S. allies’ and
partners’ export controls. In particular, the following
measures were imposed:

  • Expansion of sanctions on luxury
    goods
    —by adding 276 additional luxury items
    such as smartphones, superchargers, laser printers, electric tea or
    coffee makers, electric can openers, microwave ovens, dishwasher
    machines, refrigerators, drying machines, electric hair dryers,
    vacuum cleaners, disk drive units, burglar alarms, record players,
    among many others, that will require a license for export or
    reexport to, or transfers within, Russia or Belarus under
    §§ 746.10(a)(1) and (2).

  • Expansion of sanctions on chemical and biological
    precursors
    —by adding chemical and biological
    precursors to the list of items that require a license under §
    746.5(a)(1)(iii).

  • Expansion of sanctions on commercial and industrial
    items
    —by adding 322 industrial items that will
    require a license for export or reexport to, or transfer within,
    Russia or Belarus under § 746.5(a)(1)(ii).

  • Denial of licenses for oil and gas
    production.
    Under § 746.5, BIS will deny
    applications for the export, reexport, or transfer (in-country) of
    items used “for exploration or production from deepwater
    (greater than 500 feet), Arctic offshore, or shale projects in
    Russia or Belarus that have the potential to produce oil or
    gas.”

  • Exclusion of Taiwan from the Foreign Direct Product
    rules’ license requirements.
    BIS recognized that
    Taiwan has committed to implementing substantially similar export
    controls as the U.S. on Russia and Belarus under their domestic
    laws and, therefore, added Taiwan to the list of countries to the
    list of exempted countries from the new licensing requirements
    pertaining to foreign-produced items under § 746.8.

Rule 2: “Export Control Measures on Iran Under
the Export Administration Regulations (EAR) to Address Iranian
Unmanned Aerial Vehicles (UAV) and Their Use by Russia Against
Ukraine”

This rule imposes new export control measures on Iran in order
to address the use of Iranian UAVs by Russia on the battlefield in
Ukraine.

  • Imposition of license
    requirements
    —by requiring licenses under §
    746.7 for a subset of generally low-technology (EAR99) items,
    including semiconductors that are destined for Iran, whether or not
    a U.S. person is involved in the transaction. These items are
    useful in Iran’s UAV program and manipulated by Russia for its
    invasion of Ukraine.

  • Expansion of products under the FDP
    Rules
    —by revising the § 734.9
    Foreign-Direct Product (FDP) Rules to include “parts” and
    “components” that are used in UAVs, branded as U.S. or
    U.S.-origin, and have been found on the battlefield in
    Ukraine.

  • Imposition of new license
    requirements—
    by establishing a new list of
    items (Supplement No. 7 to part 746) requiring licenses under
    § 746.7 for export or reexport, including radio navigational
    aid apparatus, amplifiers, processors and controllers, etc.

  • Establishment of an “Iran Foreign Direct
    Product (FDP) Rule
    .” Under § 734.9 of the
    EAR, the Iran FDP rule establishes jurisdiction over
    foreign-produced items that are the direct product of U.S.-origin
    software or technology.

  • Revision of the Russia/Belarus FDP
    rule
    —by including the foreign-produced (EAR99)
    items under the Iran FDP rule into the Russia/Belarus FDP rule and
    ensuring that U.S. products are not available for shipment to Iran
    for use in the manufacture of UAVs.

Rules 3 and 4: Additions of Entities to the Entity
List

The Department of Commerce added 86 entities to the Entity List,
pursuant to § 744.11(b) of the EAR, which identifies persons
or entities reasonably believed to be involved, or to pose a
significant risk of being or becoming involved, in activities
contrary to the national security or foreign policy interests of
the U.S. These entities were added for their support of
Russia’s defense-industrial sector and war effort.

  • 76 entities at 88 Fed. Reg. 12155

  • 10 non-Russian entities (under 13 entries) at 88 FR 12170: 5 Chinese entities, 2 Canadian
    entities, 1 French, 1 Luxembourgeois, and 1 Dutch. The list of the
    non-Russian entities includes the following:

    1. Canada: CPUNTO Inc., and Electronic
      Network Inc.

    2. China: AOOK Technology Ltd., Beijing Ti-Tech Science
      and Technology Development Co., Beijing Yunze Technology Co.,
      Ltd.,
      China HEAD Aerospace Technology
      Co.,
      and Spacety Co. Ltd.

    3. France: China HEAD Aerospace Technology
      Co.

    4. Luxembourg: Spacety Co., Ltd.

    5. Netherlands: China HEAD Aerospace Technology
      Co.

UNITED KINGDOM

On Friday, February 24, 2023, the United Kingdom (UK) also
issued a new package of sanctions internationally coordinated
against Russia. The main sanctions announced include:

  • Export bans on every item Russia has been found using on the
    battlefield in Ukraine, including aircraft parts, radio equipment,
    and electronic components.

  • Import bans on 140 goods, including iron and steel products
    processed in third countries.

  • Extension of existing measures against Crimea and the
    non-government-controlled areas of Donetsk and Luhansk to the
    non-government-controlled areas of Kherson and Zaporizhzhia.

  • Designations of 92 individuals and entities pursuant to the Russia (Sanctions) (EU Exit) Regulations 2019
    (S.I. 2019/855)
    .3 Those designated include:

    • Senior executives at Russian state-owned nuclear power company
      Rosatom. Rosatom has deep connections to the Russian
      military-industrial complex firm has reportedly been supplying arms
      manufacturers with the technology and materials needed to resupply
      Russia’s front line, including to defense firms that are under
      sanctions.

    • Executives from Russia’s 2 largest defense companies:
      Rostec, Russia’s multibillion owned defense conglomerate, and
      Almaz-Antey Corporation, a state owned Russian company specializing
      in producing surface to air missiles and firearms for aircraft

    • Several Russian banks, including:

      • Bank St. Petersburg PJSC

      • Bank Uralsib PJSC

      • Bank Zenit PJSC

      • MTS Bank Public Joint-Stock Company


    • Russian entities involved in the manufacture or repair of
      military equipment for Russia’s armed forces, including
      aviation and navy. These include:

      • All-Russian Research Institute of Experimental Physics
        (VNIIEF)

      • AO Izumrud

      • AO Zavod Elekin

      • Federal State Unitary Enterprise Zababakhin All-Russia Research
        Institute of Technical Physics (VNIIITF)

      • Joint Stock Company “Repair Base for Repair of Aircraft
        Instruments and Aerodrome Equipment”

      • JSC Lomo

      • JSC Zvezda

      • LLC Zavod Sokol


    • Senior Iranian executives in Qods Aviation Industry, the
      company manufacturing the drones used in Ukraine

This article was written with significant contributions by
Winston Law Clerk Daimiris Garcia.

Footnotes

1 For the purposes of this general license, the term
“related to energy” means the extraction, production,
refinement, liquefaction, gasification, regasification, conversion,
enrichment, fabrication, transport, or purchase of petroleum,
including crude oil, lease condensates, unfinished oils, natural
gas liquids, petroleum products, natural gas, or other products
capable of producing energy, such as coal, wood, or agricultural
products used to manufacture biofuels, or uranium in any form, as
well as the development, production, generation, transmission, or
exchange of power, through any means, including nuclear, thermal,
and renewable energy sources.

2 See https://www.bis.doc.gov/index.php/component/docman/?task=doc_download&gid=3227.

3 See https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1138500/Notice_Russia_240223.pdf.

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.

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