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Sanctions Against Russia: Recent Developments | 16 September 2022 – Export Controls & Trade & Investment Sanctions


K2 Integrity delivers information and analysis on recent
developments related to sanctions against Russia and key
implications for the public, private, and non-profit sectors as the
United States (U.S.), the European Union (EU), the United Kingdom
(UK), and other G7 countries continue to lead a global sanctions
campaign that has been unprecedented in its speed, complexity, and
impact in responding to Russia’s ongoing war against
Ukraine.

DOLFIN users can visit the updated Russia Sanctions page on DOLFIN to find
additional resources and information on sanctions against Russia,
including sanctions evasion typologies, case studies, and analysis
on other sanctions programs implicating Russian actors, such the
Global Magnitsky Sanctions program targeting human rights
violations and corruption.

Recent Developments Related to Sanctions Against Russia

Since our 4 August update, a number of sanctions-related
actions have taken place and are detailed below. Most notably, on 2
September, Finance ministers (or their equivalents) of countries in
the Group of Seven (G7)—the United States, Canada, France,
Germany, Italy, Japan, and the United Kingdom—issued a
statement confirming their joint intention to finalize and
implement a comprehensive prohibition of services which enable
maritime transportation of Russian-origin crude oil and petroleum
products globally. The provision of such services would only be
allowed if the oil and petroleum products are purchased at or below
a price (the price cap) determined by the broad coalition of
countries adhering to and implementing the price cap.1
The G7 countries announced that they will work immediately to set
the price cap and invited all countries to provide input on its
design and how it can effectively be implemented.

Following the G7 statement, OFAC published preliminary guidance
on the implementation of a price cap for Russian-origin crude oil
and petroleum products (collectively referred to as “seaborne
Russian oil”).2 OFAC anticipates issuing a
determination pursuant to Executive Order (EO) 14071, which would
prohibit services related to the maritime transportation of Russian
seaborne oil if purchased above the price cap amount. The guidance
stated that the price cap on crude oil will go into effect on 5
December 2022, which coincides with the effective date of a
prohibition against the import of Russian crude oil into the EU or
provision of related services announced as a part of EU sixth round
of sanctions in June.

In response to the G7 statement, the Kremlin stated that Russia
would stop selling oil to countries that implement the price
cap.3

As of the date of this publication, the price cap amount and
other details of this measure are yet to be determined. It also
remains unclear whether the United States may seek to impose
secondary sanctions on the dealings in Russian seaborne crude oil
that do not involve a U.S. nexus, but are conducted above the price
cap.

Other U.S. actions include:

  • On 6 September, the White House Press Secretary stated that the
    U.S. would not designate Russia as a state sponsor of terror, a
    label Ukraine has pushed for amid Russia’s ongoing invasion.
    The Biden administration explained that such a designation could
    delay food exports and further jeopardize deals to move goods
    through the Black Sea.4

  • Multiple press reports indicated that in mid- to late August
    Iran shipped military drones to Russia that it was then likely to
    deploy in its war against Ukraine.5 On 8 September, OFAC
    added four entities and one individual in Iran to its Specially
    Designated Nationals and Blocked Persons List due to their
    involvement in the research, development, production, or shipment
    of the drones. The designations subject the targets to blocking
    sanctions and were made pursuant to two executive orders, EO 13882
    (weapons of mass destruction proliferators) and EO 14024 (Russian
    harmful foreign activities).6

  • On 25 August, the Bureau of Industry and Security (BIS) of the
    U.S. Department of Commerce issued a summary of actions it has
    taken since the Russian invasion of Ukraine7 to limit
    Moscow’s ability to access sensitive goods and technologies.
    The announcement did not contain any new restrictions and was
    merely intended to provide a summary of the major actions taken by
    the U.S. government to limit the Russia’s ability to access
    such goods and technologies. In summary, since February 2022, BIS
    has done the following:

    • Issued new regulations imposing export controls on high tech,
      industrial, and luxury goods to Russia and Belarus that resulted in
      a 97 percent decrease by value of U.S. exports;

    • Coordinated with 37 allies and partners to implement similar
      controls;

    • Expedited licensing applications to support Ukrainian defense
      firms;

    • Prevented or interdicted shipments;

    • Added 335 parties to the Entity List for supporting
      Russia’s military; and

    • Issued the first joint alert with the Department of the
      Treasury’s Financial Crimes Enforcement Network (FinCEN) that
      urged financial institutions to conduct additional due diligence
      and highlighted potential red flags, among other actions.


  • On 18 August, OFAC issued two Russia-related General Licenses:

    • General License 38A: Replaced General License
      38, dated 2 June 2022. The updated license now authorizes not only
      all transactions ordinarily incident and necessary to the
      processing of pension payments to U.S. persons, but also non-U.S.
      persons not located in the Russian Federation. The authorization is
      valid if the only involvement of blocked persons is the processing
      of funds by Russian banks blocked pursuant to EO 14024.

    • General License 50: New license that
      authorizes all transactions prohibited by EO 14024 that are
      ordinarily incident and necessary to (i) the closing of an account
      of an individual, who is not a blocked person, held at a financial
      institution blocked pursuant to EO 14024; and (ii) the unblocking
      and lump sum transfer of all remaining funds and other assets of
      such person to another financial institution.


  • On 16 August, BIS issued two sets of Frequently Asked Questions
    addressing red flags that could signal risks of diversion of
    U.S.-origin goods:

    • Commodity, End-user, and Transshipment Country Red Flag
      FAQs:
      This set of FAQs lists the primary commodities of
      concern due to their likelihood to be diverted to an end use in
      Russia or Belarus, including to enhance military and defense
      capabilities of both countries. The FAQs also list a number of red
      flags to help industry identify evasion attempts, as well as list
      18 countries that are prone to being used as transshipment points
      to mask sanctions evasion.8 These locations include, but
      are not limited to, Armenia, Brazil, China, Georgia, India, Israel,
      Kazakhstan, Kyrgyzstan, Mexico, Nicaragua, Serbia, Singapore, South
      Africa, Taiwan, Tajikistan, Turkey, United Arab Emirates, and
      Uzbekistan. The commodities and countries of concern referenced in
      the FAQs are identical to those referenced in the joint advisory
      issued by BIS and FinCEN in June 2022.9

    • Semiconductor Foundry-specific Guidance: This
      single FAQ advises covered persons to be on the lookout for red
      flags and to also use BIS’s Know Your Customer guidance to
      identify instances of companies appearing on the Entity List trying
      to disguise their participation behind third
      parties.10

Other EU-related actions include:

  • On 1 September, the EU Council added two members of the Russian
    State Duma and a member of the Russian Federation Council to the
    list of individuals who are subject to the asset-freezing sanctions
    in the EU.11

Other UK actions include:

  • Between 5 August and 22 August, OFSI issued four General
    Licenses under its Russia sanctions regime:12

    • General License INT/2022/2104808 allowing for
      the payments of bank fees and service charges related to frozen
      accounts.

    • General License INT/2022/1845976 allowing
      Crown servants, contractors, and their family members to carry out
      activities in their personal capacity, which would otherwise be
      prohibited.

    • General License INT/2022/2085212 allowing
      payments to several Russian sanctioned banks or their subsidiaries
      for the purpose of making energy available for use in
      Mongolia.

    • General License INT/2022/2055384 allowing
      persons subject to UK sanctions to make payments to, from, or via
      designated Russian banks exclusively for the purpose of winding
      down business operations in Russia.

Key Implications

The imposition of a price cap on Russian-origin oil and
petroleum products is a major move by the G7 to limit the Russian
government’s revenue and is expected to have a considerable
impact on the global energy market. Some initial takeaways are as
follows:

  • While the OFAC guidance provided the framework for how such a
    price cap would be administered in the U.S., the details of this
    measure are yet to be determined, and other G7 governments have not
    yet issued similar guidance;

  • Even assuming the G7 governments issue additional guidance, the
    practical implementation of the price cap will be challenged by
    policy countermeasures and sanctions evasion efforts undertaken by
    the Russian government and its supporters;

  • As with other tools of economic statecraft, administration of
    the price cap will rely upon multinational corporations and
    financial institutions, including insurance companies, to implement
    the requirements. OFAC’s 9 September guidance strongly
    encouraged a recordkeeping and attestation process for parties
    involved in the sale of Russian oil targeted by the price cap to
    minimize possible enforcement exposure; and

  • At this point the price cap does not cover the gas exported
    from Russia.

As options for trading partners narrow, Russia will rely upon
other nations that do not adhere to western sanctions regimes. This
could include jurisdictions subject to comprehensive sanctions such
as Iran and North Korea or countries that have expressed
frustration with sanctions restrictions. While these risks are not
new, it is imperative that sanctions compliance professionals
understand the evolving risk environment to adapt controls, as
appropriate—including through risk management programs that
squarely address intermediation risks of indirectly dealing with
sanctioned Russian actors, activities, and interests through
correspondent accounts, other third parties, and jurisdictions that
have not committed to implementing or otherwise supporting
sanctions or trade restrictions against Russia.

As the speed of designations and new sanctions measures has
slowed, authorities have shifted their focus to implementation,
including through the publication of guidelines, FAQs, and other
guidance. The issuance of several general licenses by various
authorities indicates that sanctions-imposing countries are trying
to limit the unintended effects of the massive sanctions campaign
against Russia. These efforts will create additional flexibility
for managing Russia-related interests that are not targeted by the
multilateral sanctions campaign against Russia; however, they also
introduce additional complexity for actors implementing such
sanctions or otherwise cooperating in the sanctions campaign
against Russia.

Footnotes

1. G7 Finance Ministers’ Statement on the united
response to Russia’s war of aggression against Ukraine (2
September 2022), https://www.bundesfinanzministerium.de/Content/EN/Downloads/G7-G20/2022-09-02-g7-ministers-statement.pdf?__blob=publicationFile&v=7.

2. Preliminary Guidance on Implementation of a Maritime
Services Policy and Related Price Exception for Seaborne Russian
Oil (9 September 2022), https://home.treasury.gov/system/files/126/cap_guidance_20220909.pdf.

3. “Russia Says It Will Stop Selling Oil to
Countries That Set Price Caps” (Reuters, 2 September 2022), https://www.reuters.com/business/energy/russia-says-it-will-stop-selling-oil-countries-that-impose-price-caps-2022-09-02.

4. “Biden Will Not Declare Russia a State Sponsor of
Terrorism—White House” (Reuters, 6 September 2022), https://www.reuters.com/world/biden-will-not-declare-russia-state-sponsor-terrorism-white-house-2022-09-06/.

5. “With Iranian Drones, Russia Complicates Nuclear
Deal Talks” (AP, 25 August 2022), https://apnews.com/article/russia-ukraine-middle-east-iran-united-states-d7802180c7ecbdbe5cd06ee72c6d18f7.

6. Treasury Sanctions Iranian Persons Involved in
Production of Unmanned Aerial Vehicles and Weapon Shipment to
Russia (8 September 2022), https://home.treasury.gov/news/press-releases/jy0940.

7. Press Release: Six Months into Russian Invasion,
Commerce Actions Making a Difference in Support of Ukrainian People
(25 August 2022), https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3123-2022-08-24-press-release-commerce-actions-in-support-of-ukraine/file.

8. FAQs published by BIS (16 August 2022), https://www.bis.doc.gov/index.php/documents/policy-guidance/3120-best-practices-faq-draft-8-15-22-final/file.

9. FinCEN and the U.S. Department of Commerce’s
Bureau of Industry and Security Urge Increased Vigilance for
Potential Russian and Belarusian Export Control Evasion Attempts
(28 June 2022), https://www.fincen.gov/sites/default/files/2022-06/FinCEN%20and%20Bis%20Joint%20Alert%20FINAL.pdf.

10. FAQs published by BIS (16 August 2022), https://www.bis.doc.gov/index.php/documents/policy-guidance/3119-2022-faq-foundries-and-red-flags-docx0812clean/file.

11. Council Decision (CFSP) 2022/1447 of 1 September
2022, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=uriserv%3AOJ.LI.2022.227.01.0004.01.ENG&toc=OJ%3AL%3A2022%3A227I%3ATOC.

12. OFSI General Licenses, https://www.gov.uk/government/collections/ofsi-general-licences.

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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