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On February 23, 2024, <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2024/02/23/statement-from-president-joe-biden-ahead-of-the-two-year-anniversary-of-russias-brutal-assault-against-ukraine/">the United States imposed a new set of Russia-related sanctions and export controls</a> to commemorate the second anniversary of Russia’s invasion of Ukraine and to respond to the death of prominent opposition leader Aleksei Navalny, who died in a Russian prison on February 16, 2024. The measures, which take particular aim at Russia’s financial sector, energy production revenue streams and the military-industrial complex, represent the largest single tranche of designations since Russia began its invasion of Ukraine three years ago.

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Economic Sanctions Levied by Department of the Treasury and Department of State

Amounting to the largest number of sanctions imposed against Russia since the country initiated its invasion of Ukraine, <a href="https://home.treasury.gov/news/press-releases/jy2117">the Department of the Treasury</a> and <a href="https://www.state.gov/imposing-measures-in-response-to-navalnys-death-and-two-years-of-russias-full-scale-war-against-ukraine/">the Department of State</a>, respectively, combined efforts to sanction more than 500 entities and individuals by having them added to the Specially Designated Nationals and Blocked Persons (SDN) List. The sanctioned entities and individuals span Europe, East Asia, Central Asia and the Middle East.

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In general, many of the entities and individuals targeted by the Treasury were deemed “a major cog in Russia’s financial infrastructure” or entities “who facilitate, orchestrate, engage in, and otherwise support the transfer of critical technology and equipment to Russia’s military-industrial base,” while those sanctioned by the State Department were parties “involved in supporting Russian future energy revenue sources,” “bolstering Russia’s…metals[ ] and mining production,” and “facilitating sanctions evasion and circumvention” of U.S. or Western sanctions and trade controls. Notably, the State Department's sanctions also target individuals connected to Navalny’s death and aim at individuals for their connection to the deportation and confinement of Ukraine’s children.

Out of all the various Russian banks, investment firms, and financial technology (fintech) companies targeted by the departments of the Treasury and State, perhaps the most notable inclusion in the joint sanctions package is the state-owned National Payment Card System Joint Stock Company, which operates Russia’s national payment system, known as Mir.&nbsp;The package also targets two of Russia’s largest companies by revenue: SUEK, a transportation and logistics operation company that serves the Russian military, and Mechel, a major producer of specialty steels.&nbsp;

The sanctions also target SPB Bank, which is owned by SPB Exchange—Russia’s second-largest stock exchange specializing in trading foreign shares—as well as companies involved in the Arctic LNG 2 energy project, and various manufacturers of weapons, metals, lubricants, industrial chemicals, electronics, robotics, ball bearings and batteries used by the Russian military.

As a result of these actions, all property and interests in property of the persons placed on the SDN List that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to the Department of the Treasury’s Office of Foreign Assets Control (OFAC). In addition, any entities owned, directly or indirectly, 50% or more by one or more blocked persons are blocked as well. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC or exempt. These prohibitions include making any contribution or provision of funds, goods or services by, to or for the benefit of any blocked person and receiving any contribution or provision of funds, goods or services from any such person.

OFAC issued two new and two updated Russia-related general licenses, too.

The two new general licenses released by OFAC are General License (GL) 89 and GL 90. <a href="https://ofac.treasury.gov/media/932646/download?inline">GL 89</a> authorizes certain wind-down transactions and “rejection of transactions” involving eight enumerated and newly sanctioned financial institutions and entities they own by 50% or more. However, the authorization conferred by GL 89 expires on April 8, 2024. Similarly, <a href="https://ofac.treasury.gov/media/932651/download?inline">GL 90</a> authorizes certain debt or equity transactions, as well as transactions related to derivative contracts of six specified entities and any entity they own by 50% or more until April 8, 2024.

Meanwhile, OFAC published updated versions of GL 88 and 91: GL 88A and 91A, respectively. <a href="https://ofac.treasury.gov/media/932671/download?inline">GL 88A</a> authorizes certain wind-down transactions with 18 Russian enumerated logistics companies, investment firms, manufacturers, and others, including any entity they own by 50% or more, through April 8, 2024. Likewise, <a href="https://ofac.treasury.gov/media/932676/download?inline">GL 91A</a> permits certain safety- and environmental-related transactions with various sanctioned entities and vessels, along with any entity they own by 50% or more, until May 23, 2024.

Additionally, OFAC also issued three new Russia-related Frequently Asked Questions (<a href="https://ofac.treasury.gov/faqs/added/2024-02-23">FAQs 1164–1166</a>)&nbsp;and eight amended Russia-related Frequently Asked Questions (<a href="https://ofac.treasury.gov/faqs/search/886+887+1019+1022+1025+1027+1092+1154">FAQs 886, 887, 1019, 1022, 1025, 1027, 1092, and 1154</a>), too.

Export Control Restrictions from the Department of Commerce

For its part, the Department of Commerce (Commerce) <a href="https://www.federalregister.gov/documents/2024/02/27/2024-03969/additions-of-entities-to-the-entity-list">added 93 entities under 95 entries to the Entity List</a>.<a href="#note-i">i</a>&nbsp; Although most of the entities added by Commerce hail from Russia (63), other companies and businesses derive from China (8), India (1), Kyrgyzstan (2), South Korea (1), Turkey (16) and the United Arab Emirates (4).

As noted in a <a href="https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3452-2024-02-23-bis-press-release-russia-two-year-actions/file">Press Release announcing the new inclusions on the Entity List</a>, Commerce indicated the 93 companies were added, in general, because of their “ability to repair, replenish, and rearm [the Russian military] with high-tech, high-quality equipment” by exporting or reexporting items to Russia directly, or through other, more nefarious evasive tactics such as diversion. Additionally, these companies often work in the industrial, logistics, electronics and aviation sectors or are involved in scientific research.

A closer inspection of the Federal Register notice proclaiming the additions, however, provides additional details on how, precisely, these companies aid the Russian military. For example, eight entities added to the Entity List were included because of their known “provision[ing] of support to Russia’s industrial sector by procuring U.S.-origin machine tools, electronics test equipment, and machine tool spare parts for Russian end-users without required [] licenses,” thereby enabling Russia’s industrial base “the supplies and manufacturing capabilities it needs to replenish munitions and other military goods while also building [the country’s] wartime economy.”&nbsp; Commerce added another set of companies “for acquiring both radiation-hardened parts and other sensitive electronic components and reexporting those U.S.-origin components to Russia without required licenses.” And, notably, 51 of the entities newly included on the Entity List were also tagged with “a footnote 3 designation” alongside their profile, meaning they are Russian/Belarusian end-users warranting even greater export restrictions, such as through the Russia/Belarus-Military End User Foreign Direct Product rule—46 of which due to “significantly contribut[ing] to Russia’s military and/or defense industrial base by facilitating the diversion of controlled microelectronics to Russia’s military and intelligence authorities in support of Russia’s war in Ukraine.”

Ultimately, with the nearly 100 new additions to the Entity List, Commerce has now placed more than 900 parties on the Entity List since Russia first embarked on its full-scale invasion of Ukraine. As a result, licenses are required from the Department of Commerce’s Bureau of Industry and Security (BIS) for all exports, reexports or transfers (in-country) to these entities for all items subject to the Export Administration Regulations, and BIS will review license applications for such transactions involving these entities under a policy of denial with limited availability of most license exceptions. However, given the changes implemented by Commerce’s February 23, 2024 action, shipments of items removed from eligibility for a License Exception or export, reexport, or transfer (in-country) without a license (NLR) that were already en route abroad a carrier to a port of export, reexport, or transfer (in-country) by or on February 23, 2024 pursuant to actual orders for export, reexport or transfer (in-country) to or within a foreign destination may proceed to that destination under the previous eligibility for a License Exception or export, reexport or transfer (in-country) without a license (NLR) provided that the shipment is completed before March 25, 2024.

Expansion of the Multilateral “Common High Priority Items”

BIS <a></a><a href="https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/3450-2024-02-22-bis-communique-russia-export-controls/file/">also announced an expansion of the multilateral Common High Priority Items List (CHPL)</a> “to cut off Russia’s access to key inputs for its wartime economy…which Russia relies on but cannot produce.” Implemented through coordination with the export control agencies of the European Union, Japan and the United Kingdom, the CHPL enumerates certain items by their six-digit Harmonized System (HS) Codes to alert industry not to ship them to Russia, or even provide logistical, banking or other services to assist those who ship such items to Russia, without prior authorization. The items on the CPHL may seem broad, ranging from microelectronics to ball bearings, but they typically reflect sophisticated equipment Russia seeks to procure for its weapons programs.

Specifically, BIS increased the CHPL from 45 to 50 items to include certain computer numerically controlled (CNC) machine tools and parts Russia “has increasingly turned to circumvention to obtain…[generally] through illicit trade networks, often established in ostensibly neutral jurisdictions.” Moreover, these five new items have been grouped together in <a href="https://www.bis.doc.gov/index.php/2011-09-14-14-10-06/russia-export-controls">a new “Tier 4.B” category</a>, thereby enabling the four-tier system of the CHPL to remain intact.

Importantly, as emphasized by BIS, the CHPL is purposefully arranged by HS Codes because the system is “harmonized around the world and known to every exporter, shipper, and freight forwarder,” but some of the items listed may be dual-use items the U.S. export control agency otherwise considers low-level technology and so designated EAR99 under the U.S.-specific Export Control Classification Number system.

Joint Business Advisory Published by Four U.S. Departments

In addition to the sanctions and export restrictions imposed by the United States, the Departments of the Treasury, State, Commerce and Labor also issued a joint Business Advisory entitled “<a href="https://www.state.gov/russia-business-advisory/">Risks and Considerations for Doing Business in the Russian Federation and Russia-Occupied Territories of Ukraine</a>.” As explained at the beginning of the Business Advisory, the joint publication is necessary because “[b]usinesses, individuals, financial institutions, and other persons—including investors, consultants, non-governmental organizations, and due diligence service providers that operate in or have value chains linked to the Russian Federation or the areas it occupies in Ukraine…face significant operational, legal, economic, and reputational risks associated with their Russian business operations and relationships.” For example, Russia’s kleptocratic environment undermines fair competition and the rule of law, which renders businesses susceptible to extortion and property seizures. More alarmingly, Russia’s business environment may force companies to participate or cooperate in Russia’s military mobilization, meaning businesses could be implicated in Russia’s “commission of war crimes” per its war against Ukraine, as well as Russia’s “crimes against humanity” and “human rights abuses,” such as forced labor, including child labor. And, undergirding these inherent risks, companies continuing to operate in or with Russia or the Russia-occupied territories of Ukraine risk violating a growing list of economic sanctions, export controls, import prohibitions and other trade restrictions imposed by the United States and its allies and partners against Russia, which, in turn, have been accompanied with warnings of increasingly severe civil and criminal penalties in the event of non-compliance.

Accordingly, the Business Advisory is divided into three specific categories of risks for businesses and individuals regarding Russia: (1) risks of “becoming exposed to sanctions, export controls, import prohibitions, money laundering vulnerabilities, and corruption”; (2) risks of “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) risks “due to 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.”

Still, as cautioned by the Business Advisory, businesses and individuals should conduct a heightened form of due diligence that “incorporate[es] both a robust review of compliance mechanisms…and human rights diligence” to not only reduce or mitigate exposure to risks inherent to doing business in or with Russia but also to facilitate increased transparency to all stakeholders of such risks.

The United States was not the only country to escalate economic pressure on Russia to commemorate the second anniversary of the invasion of Ukraine. Adopting its 13th&nbsp;sanctions package against Russia on February 23, 2024, as well, <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_24_963">the European Union designated about 200 entities and individuals</a>&nbsp;connected to Russia’s weapons procurement network. Similarly, <a href="https://www.canada.ca/en/global-affairs/news/2024/02/minister-joly-announces-additional-sanctions-in-response-to-russias-full-scale-invasion-of-ukraine.html">Canada also imposed sanctions</a>&nbsp;against 153 entities and 10 individuals known to support the Russian military through finance, logistics and sanctions evasion on February 23, 2024. Earlier in the week, <a href="https://www.gov.uk/government/news/new-uk-sanctions-mark-two-years-since-russias-illegal-invasion-of-ukraine#:~:text=The%20UK%20announces%20more%20than,Russia%27s%20illegal%20invasion%20of%20Ukraine.&amp;text=The%20Foreign%20Secretary%2C%20David%20Cameron,Putin%27s%20illegal%20war%20in%20Ukraine.">the United Kingdom levied 50 new sanctions</a>&nbsp;against parties linked to Russia’s ammunition supply chain&nbsp;<a href="https://www.gov.uk/government/news/uk-sanctions-heads-of-arctic-penal-colony-where-alexei-navalny-was-killed">and targeted 6 individuals</a> known to oversee the Arctic prison colony where Navalny died.

A day after the United States acted, on February 24, 2024, <a href="https://www.foreignminister.gov.au/minister/penny-wong/media-release/two-years-australia-stands-ukraine">Australia levied sanctions, too,</a> against 37 entities connected to Russia’s defense, energy, media and minerals sectors and procurement networks in Belarus, Iran and North Korea, as well as 55 individuals involved in Russia’s deportation of Ukrainian children from “regions under temporary Russian control.” About one week later, <a href="https://www.foreignminister.gov.au/minister/penny-wong/media-release/additional-targeted-sanctions-following-alexei-navalnys-death-prison">Australia imposed yet another round of sanctions as well,</a> this time targeting three Russian prison officials linked to the Navalny’s death.

However, notwithstanding the multilateral sanctions package imposed, in part, by the United States, there are still ongoing debates by the Western allies about enacting even more aggressive measures to stymie Russia’s economic abilities to continue its invasion of Ukraine.

As Russia’s invasion of Ukraine enters its third year, the sanctions and export restrictions package levied by the United States is meaningful for two main reasons. First, the package reaffirms the commitment made by the United States to provide critical assistance to Ukraine and to hold Russia accountable for its aggression. Second, while less subtle, the package imposed by the United States is significant because it aligns with the ongoing trend of the United States and its allies and partners to levy sanctions and export restrictions against Russia on each anniversary of the invasion.

This advisory bulletin may be reproduced, in whole or in part, with the prior permission of Thompson Hine LLP and acknowledgment of its source and copyright. This publication is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

i The numerical discrepancy stems from the fact that two entities added to the Entity List were enumerated under two respective destinations.

https://admin.thompsonhine.com/wp-content/uploads/2024/03/U.S.-Sanctions-Hundreds-of-Entities-to-Mark-the-Second-Anniversary-of-Russias-Invasion-of-Ukraine.pdf

U.S. Sanctions Hundreds of Entities to Mark the Second Anniversary of Russia’s Invasion of Ukraine

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