The U.S. Announces New Sanctions and Export Controls on Russia Following Alexei Navalny’s Death and on the Second Anniversary of the Russia-Ukraine Conflict

On February 23, 2024, the Office of Foreign Assets Control (“OFAC”), U.S. Department of the Treasury, imposed new sanctions on Russia targeting nearly 300 individuals and entities on the SDN list (now totaling over 2,000) and the Bureau of Industry and Security, U.S. Department of Commerce, designated additional 93 entities to the Entity List (which now include over 900 Russia related entities). While sanctions on Russia have been ongoing in some form since 2014, these new designations are symbolically significant in terms of its timing: second anniversary of the Ukraine-Russia military conflict and the recent death of Alexey Navalny.  These new U.S. measures also coincide with the U.K. and the EU who also announced new measures this week.

Given that sanctions on Russia are already quite expansive, what is the significance of these new designations of entities and persons who include many non-Russian companies and persons from China, Germany, Serbia, UAE, and elsewhere?

• Focus on cutting off Russia’s military industrial complex from funds, technology services, and goods. Many of the new designations to target the Russian military industrial complex include companies in Russia and elsewhere involved with the UAV industry, electronics, software, metals manufacturing, power supply, IT, and logistics. The BIS Entity List designations also include designation of over 50 entities as Military End Users, which has very strict U.S. export control restrictions.
• Focus on Russia’s manufacturing base. Many of the new designations include Russian and other companies in the additive manufacturing (3D printing); machine tools, lubricants and industrial chemicals, semiconductor and electronics, industrial automation, optics, navigational instruments, aerospace, etc.
• Focus on limiting the Russian financial infrastructure. New measures include many regional banks that are not top banks in Russia as well as venture capital and investment funds. However, OFAC did issue several new General Licenses (General Licenses 88, 89, 90, and 91) authorizing transactions related to the divestment and winding-down of transactions involving certain blocked entities, including new Russian banks that were newly designated.
• Focus on third country companies and persons who are working with targeted Russia sectors or entities. New OFAC sanctions designations include companies in China, Serbia, UAE, Kyrgyzstan, Iran, Germany, and Liechtenstein. New Entity List additions include eight companies in the People’s Republic of China, sixteen in Turkiye, four in the United Arab Emirates (UAE), two in the Kyrgyz Republic, and one each in India and South Korea who will now be cut off from U.S. origin goods, software and technologies.
• Designation of additional vessels and their owners alleged to have violated the Russian oil price cap policy, although General Licenses related to these blocked parties were also issued.

What do all these new measures mean from a practical standpoint?

• The new measures of adding hundreds of new SDNs and over 90 on the Entity List widens the preexisting restrictions on Russia but it did not create any new material change to the Russia sanctions or export controls regime. In fact, so many companies have de-risked from Russia that in many cases, these designations are symbolic in nature.
• However, it does mean that U.S. persons and now more than ever, non-US companies, need to continue to conduct effective due diligence to ensure that they are not transacting with entities outside of Russia that may be owned at least 50% or more by sanctioned persons or entities (which by operation of law means they are also sanctioned).
• Persons exporting goods and technology to third countries other than Russia need to have strong and robust export control compliance programs and measures to ensure that their goods and technologies will not be diverted to Russia for use in sanctioned sectors or by sanctioned entities.
  • Robust due diligence, KYC, end use statements, etc. will continue to be important but there is no one single solution that will be fail safe.
• Even if you are not a U.S. person or business, now it is clear that non-US persons and entities are exposed to secondary sanctions if transacting with targeted Russian sectors and entities.
  • The highest risk area appears to those related to Russia’s military-industrial base.
  • OFAC has also published in the new SDN designations that many of the new SDNs are explicitly subject to U.S. secondary sanctions.
  • Non-U.S. companies need to adopt compliance measures that will protect it from U.S. secondary sanctions risks as well as not violating U.S. export control laws. This means that non-US companies need to incorporate U.S. standard compliance measures when it comes to Russia sanctions, export controls, and the oil price cap policy.

While these new designations do not materially or substantively alter the preexisting Russia sanctions and export controls regimes it does widen the net of persons and entities that are restricted for U.S. persons and now even for non-US persons. Companies will need to continue to strengthen their due diligence, KYC and compliance measures to mitigate their risks in international business so that their products and services do not unintentionally end up in the sanctions targeted sectors of the Russian economy as well.

Law360 have covered this alert. Read the Law360 article here.

This summary is provided for informational purposes only and is not intended to constitute legal advice nor does it create an attorney-client relationship with Rimon, P.C. or its affiliates.

James Min is a partner with Rimon, P.C., in the Washington DC office where he specializes in economic sanctions, export controls, CFIUS, customs and other trade and investment related matters.  James has over two decades of trade and business law experience with Russia.  He currently advises clients on Russia sanctions and export control compliance issues, including representation before OFAC and BIS.  James previously served as a trade attorney with the U.S. Department of Commerce, Treasury and Homeland Security and as the global head of trade law for DHL including oversight of sanctions issues in Russia for the company. James previously also studied in Moscow and worked with various Russian government ministries on trade law matters in the past. Read more here.

Chelsea Ellis is an associate at Rimon, P.C. in its New York office where she specializes in economic sanctions, export controls, CFIUS, and customs matters. Chelsea has many years of experience with Russia including as a student in St. Petersburg and as a summer associate in the Squire Patton Boggs Moscow office. Chelsea previously worked as a contract attorney and trade analyst at the U.S. Trade Representative (USTR) covering Russia. Read more here.