On Friday, February 23, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), US Department of Commerce’s Bureau of Industry and Security (“BIS”), and US Department of State announced new sanctions to mark the second anniversary of Russia’s invasion of Ukraine and the death of activist Aleksey Navalny in a Russia prison. In summary, Friday’s actions have added hundreds of individuals, entities, and vessels to OFAC’s Specially Designated Nationals (“SDN”) List and Sectoral Sanctions Identification (“SSI”) List and the BIS Entity List. Dealings with parties added to the OFAC SDN and SSI lists (and entities owned, directly or indirectly, individually or in the aggregate, by them at 50% or greater level) will create issues under primary or secondary US sanctions, unless authorized by OFAC via general or specific license (and OFAC issued several general licenses authorizing certain activities with newly designated entities, as described further below).
For the entities added to the BIS Entity List, a license is required for exports, reexports or transfers (in country) of all items subject to the Export Administration Regulations (“EAR”), with a presumption of denial for license applications, although there is a 30-day savings clause for in transit items. There are not any new sectors of the Russian economy targeted for secondary sanctions purposes nor new types of services or products being restricted as part of this sanctions package.
In a separate action announced later in the day, and as part of the United States’ participation in the multilateral Price Cap Coalition, OFAC designated as an SDN Russia’s state-owned and largest shipping company, Joint Stock Company Sovcomflot (“Sovcomflot”) and 14 crude oil tankers in which Sovcomflot has a property interest.
Concurrent with the designation of Sovcomflot and these vessels, OFAC issued four general licenses (“GLs”) authorizing certain transactions related to wind-down activities, safety and environmental transactions, offloading crude oil and other cargo, and transactions involving non-SDN vessels in which Sovcomflot has a property interest.
Finally, and in concert with the United States, the EU and UK also imposed new sanctions in light of Russia’s continued aggression in Ukraine and the death of Aleksey Navalny. These include updates to EU Council Regulation 833/2014 (as amended) (the “EU Russia Regulation”), EU Council Regulation 2024/753 (as amended) (the “EU Russia Asset Freeze Regulation”), UK designations under its Russian and Belarussian sanctions regimes, and the UK Common High Priority List. Including sanctioning additional persons and entities contributing to or otherwise connected to Russia’s defense and security sector, as well as adding restrictions on certain goods and technologies, the actions of the EU and UK complement those of the US in augmenting the multilateral framework targeting Russia’s military, technological, and industrial capacity.
United States
OFAC Actions:
OFAC has added approximately 300 individuals, entities, and vessels to the SDN List and one entity to the SSI List. This includes several financial institutions and industrial companies in Russia who are not SDNs, such as the National Card Payment System (Mir). Dealings with these parties—and entities owned, directly or indirectly, individually or in the aggregate, by them at 50% or greater level — will create exposure under primary or secondary US sanctions, unless authorized by OFAC via general or specific license.
In connection with these designations, OFAC also issued four new GLs authorizing certain activities in connections with newly-designated entities:
GL 88 authorizes all transactions prohibited by E.O. 14024 that are ordinarily incident and necessary to the wind down of any transaction involving certain, recently designated entities, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest, through 12:01 a.m. eastern daylight time, April 8, 2024, provided that any payment to one of these SDNs is made into a blocked account.
GL 89 authorizes all transactions prohibited by E.O. 14024 that are ordinarily incident and necessary to the wind down of any transaction involving certain, recently designated financial institutions, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest, through 12:01 a.m. eastern daylight time, April 8, 2024, provided that any payment to one of these SDNs is made into a blocked account.
GL 90 authorizes all transactions prohibited by E.O. 14024 that are ordinarily incident and necessary to the divestment or transfer, or the facilitation of the divestment or transfer, of debt or equity issued or guaranteed by certain blocked entities (“Covered Debt or Equity”), directly or indirectly, individually or in the aggregate, a 50 percent or greater interest, to a non-US person through 12:01 a.m. eastern daylight time, April 8, 2024. GL 90 also authorizes all transactions that are ordinarily incident and necessary to wind down derivative contracts entered into prior to 4:00 p.m. eastern standard time, February 23, 2024 that (i) include a blocked person described in GL 90 as a counterparty or (ii) are linked to Covered Debt or Equity through 12:01 a.m. eastern daylight time, April 8, 2024.
GL 91A authorizes all transactions prohibited by E.O 14024 that are ordinarily incident and necessary to (i) the safe docking and anchoring in port of any blocked vessel, (ii) the preservation of the health or safety of the crew of any of the blocked vessels, or (iii) emergency repairs of any of the blocked vessels or environmental mitigation or protection activities relating to any of the blocked vessels through 12:01 a.m. eastern daylight time, May 23, 2024, provided that any payment to a blocked person must be made into a blocked account.
At this time, there do not appear to be new sectors of the Russian economy designated for secondary sanctions purposes, nor new types of services or new types of products being restricted. OFAC has also issued three new Russia-related Frequently Asked Questions (“FAQs”) concerning the “Diamond Jewelry Determination” that was issued under EO 14024 on 8 February 2024 and comes into effect on 1 March, and amended eight Russia-related FAQs (886, 887, 1029, 1022, 1025, 1027, 1092, and 1154).
These actions do not appear to have an immediate impact on activities related to the provision of agriculture or medicine/medical devices and clinical trials as GL 6C is available for such transactions with entities and individuals that have been designated SDNs under E.O. 14024. All of the parties designated on Friday were designated pursuant to E.O. 14024. While the new sanctions designations may not impact these activities directly, some banks may choose to de-risk and refuse to process authorized GL 6C transactions. Further complicating the landscape, GL 6C does not authorize the provision of goods, software or technology to parties on the BIS Entity List, nor does it otherwise authorize export, reexport, or in-country transfer to Russia of products that are restricted under the EAR, even if no sanctioned parties are involved (e.g., any EAR99 items identified by HTS code on Supplement 4 to Part 746 need a separate BIS authorization for export or reexport to Russia).
State Department Actions:
The US Department of State sanctioned three individuals connected to the death of Aleksey Navalny, and imposed sanctions on several hundred other entities and individuals, which were added by OFAC to the SDN List. It also issued a Russia Business Advisory to assist companies in making informed decisions regarding the risks of conducting business in Russia. The Business Advisory states in part that “[s]anctions, export controls, and other economic measures such as the price cap on oil and petroleum products aim to reduce current and future revenue to the Government of Russia, without disrupting exchanges that benefit ordinary Russians or markets for energy, agricultural and medical products, and other essential commodities.” It also includes due diligence recommendations for businesses and individuals, including Human Rights Due Diligence and Compliance Due Diligence for Sanctions and Export Controls and a reminder of US financial institutions requirements to comply with the Bank Secrecy Act, which creates certain reporting requirements that aid in detecting, investigating, and deterring criminal activity. As part of these recommendations, the US State Department recommends heightened human rights due diligence to assess whether their activities may implicate them in violations of international law or human rights abuses or violations committed by the Russian government. To that end, the Business Advisory provides a number of resources on managing supply chains, mitigating the risk of abuses through the business value chain, and identifying high-risk factors and determining appropriate actions to take. Similarly, the Business Advisory provides a number of resources to consult with when creating sanctions compliance programs and engaging in export transactions involving items subject to the EAR.
BIS Actions:
BIS has added 93 entities under 95 entries to the Entity List. This means a license is now required for activities involving all items subject to the EAR. There is a presumption or policy of denial for license applications, and each entity is subject to specific restrictions, which are set forth in BIS’s February 23 notice. These designations include 63 Russian entities, as well as entities in China, India, Kyrgyzstan, South Korea, Turkey, and the UAE.
There is currently a 30-day savings clause for shipments of items that are no longer eligible for export without a license that were en route aboard a carrier, pursuant to an actual order for export, reexport, or transfer (in-country).
SOVCOMFLOT and Related Vessels
In conjunction with the above designations and further to the United States’ participation in the multilateral Price Cap Coalition, OFAC designated as SDNs Sovcomflot and 14 crude oil tankers as property in which Sovcomflot has a property interest. Sovcomflot was designated pursuant to E.O. 14024 for operating or having operated in the marine sector of the Russian Federation economy and for being owned or controlled by, or having acted for or on behalf of, directly or indirectly, the Government of the Russian Federation. OFAC issued a press release explaining the impact of the price cap on Russian oil and outlining how designating Sovcomflot and targeting the specified oil tankers would further the goal of the Price Cap Coalition. As part of these actions, OFAC issued a four GLs, explained below:
GL 88A authorizes all transactions prohibited by E.O. 14024 that are ordinarily incident and necessary to the wind down of any transaction involving, among other SDNs, Socvomflot, or any entity in which Sovcomflot owns, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest, through 12:01 a.m. eastern daylight time, April 8, 2024, provided that any payment to one of these SDNs is made into a blocked account.
GL 91A authorizes all transactions prohibited by E.O. 14024 that are ordinarily incident and necessary to one of the following activities involving certain specified SDNs are authorized through 12:01 a.m. eastern daylight time, May 23, 2024, provided that any payment to a blocked person must be made into a blocked account. The activities are (1) The safe docking and anchoring in port of any vessels in which any specified SDN has a property interest (“blocked vessels”); (2) The preservation of the health or safety of the crew of any of the blocked vessels; or (3) Emergency repairs of any of the blocked vessels or environmental mitigation or protection activities relating to any of the blocked vessels. The specified SDNs covered by General License 91A are, among other listed SDNs, Sovcomflot, as well as any entity in which Sovcomflot owns, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest.
GL 92 authorizes the offloading of crude oil (or other cargo) from these 14 vessels, or any entity in which Sovcomflot owns, directly or indirectly, a 50 percent or greater interest for a period of 45 days, through 11:59 p.m. eastern daylight time, April 8, 2024, provided that the cargo was loaded prior to February 23, 2024.
GL 93 authorizes all transactions involving any vessel that is blocked solely due to a property interest of Joint Stock Company Sovcomflot (“Sovcomflot”) or any entity in which Sovcomflot owns, directly or indirectly, a 50 percent or greater interest, provided that such vessel is not identified on the SDN List.
Sovcomflot is also sanctioned under the EU Russia Sanctions—through its subsidiary SUN Ship Management, Ltd.—and the UK Sanctions List.
European Union
As part of its 13th package of sanctions against Russia, the EU expanded the sectoral sanctions to include: (i) additional strategic items (Annex VII) and industrial materials (Annex XXIII) are subject to an export restrictions; (ii), additional military-related entities (including non-Russian entities representing a diversion risk) are added to Annex IV; and (iii) the exemption from the evidentiary requirement on the origin of iron and steel inputs incorporated in iron and steel products is expanded to include the UK. This exemption already applies to iron and steel products imported from Switzerland and Norway. These amendments are implemented through in Council Regulation (EU) 2024/745 amending the Council Regulation (EU) 833/2014 , as follows:
- Aluminium electrolytic fixed electrical capacitors (excluding power capacitors) classified under CN code 8532.22 are added to Annex VII, making them subject to an export ban.
- Certain electrical transformers, static converters and inductors were added to Annex XXIII, making them subject to an export ban. There is a winddown period available until May 25, 2024 for the execution of contracts concluded before February 24, 2024.
- 27 military-related entities are added to Annex IV, which now contains 649 entities. Annex IV includes the list of persons which are military end-users, form part of Russia’s military and industrial complex or which have commercial or other links with or which otherwise support Russia’s defence and security sector, and which cannot benefit from a broad scope of exemptions and licensing grounds for exports of restricted products and services to Russia. The newly listed entities include 17 Russian companies involved in the development, production, and supply of electronic components, particularly used in connection with drone production, as well as 10 companies from China, Kazakhstan, India, Serbia, Thailand, Sri Lanka, and Turkey which trade in electronic components, and have been involved in circumvention of trade restrictions.
- Finally, the UK is added to the list of countries whose imports of iron and steel are exempted from providing evidence on the origin of iron and steel inputs (Annex XXXVI). Previously, only imports from Switzerland and Norway were exempted from this obligation.
In addition to the sectoral sanctions restrictions, the EU imposed asset freezing measures on an additional 106 individuals and 88 entities, including Russian military-industrial complex entities, entities and individuals engaging in the shipment of armaments from DPRK to Russia and Russian logistics companies involved in circumvention (EU Council Regulation 2024/753).
United Kingdom
Updates to UK Designations under the Russian and Belarussian Regimes
50 persons were designated by the UK under the Russia financial sanctions regime and they are now subject to an asset freeze and trust services sanctions. In addition, two entities were designated under the Belarus financial sanctions regime and they are now subject to an asset freeze.
In a separate action on February 21, 2024, the UK also designated 6 individuals heading up the penal colony where Alexei Navalny died on February 16, 2024. Those individuals are now subject to an asset freeze and travel bans.
Updates to the UK Common High Priority List with Respect to the Russia Regime
The UK Common High Priority List identifies items that Russia is using in its weapons systems and in respect of which the UK Government advises all companies in the UK and their overseas branches to be aware of the risks of circumvention and increase their vigilance and due diligence to avoid sanctioned goods reaching Russia. The List was updated to include five new codes related to Computer Numerical Control Machines under CN 8547.10, 8458.11, 8458.91, 8459.61, and 8466.93.
Updates to the UK Russia Regulation
On February 28, 2024 a new chapter was inserted into the UK Russia Regulation, Chapter 4JC. This chapter contains prohibitions related to certain Russian-origin diamonds which are processed in a third country (that is a country that is not the UK or Russia).
Under Chapter 4JC, it will be prohibited to:
- Import the relevant diamonds into the UK
- Directly or indirectly provide technical assistance relating to the import of the relevant diamonds
- Directly or indirectly provide financial services or funds in pursuance of or in connection with an arrangement whose object or effect is the import of the relevant diamonds
- Directly or indirectly provide brokering services in relation to the provision of financial services or funds in pursuance of or in connection with an arrangement whose object or effect is the import of the relevant diamonds
The above prohibitions apply to diamonds equal to or larger than 0.5 carats in commodity codes (i) 7102 10 (ii) 7102 39 and (iii) 7102 31 (with description “non-industrial diamonds, simply sawn, cleaved or bruted”).
The prohibitions come into force from March 1, 2024 for relevant diamonds equal to or larger than 1 carat, and September 1, 2024 for relevant diamonds equal to or larger than 0.5 carats.
Next Steps
The war in Ukraine is continuing with no end in sight; there are sure to be further updates in the multilateral sanctions and export control regime targeting Russia and those connected to its military, technology, and industry sectors. The February 23 updates augment an already extensive and complex sanctions and export controls regime targeting Russia. Hogan Lovells will continue to monitor the ongoing developments regarding this and future sanctions packages. Please contact any of the Hogan Lovells lawyers listed above with any questions or concerns regarding the potential implications of these updates and other related sanctions and export controls.
Authored by Aleksandar Dukic, Ajay Kuntamukkala, Lourdes Catrain, Aline Doussin, Jamie Rogers, Ashley Roberts, Julia Diaz, Deborah Wei, Kate Poppitt, Stephanie Seeuws, and Josh LaFianza.
