On the eve of the second anniversary of Russia’s full-scale war against Ukraine, February 23, 2024, and also in response to the on February 16, 2024 death of opposition figure Aleksey Navalny, the United States government imposed economic sanctions on hundreds of individuals and entities located around the world, as well as additional export controls measures in relation to the Russian Federation. These actions were undertaken by the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the U.S. Department of State (“State”), and the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”). 

In this article we provide an overview of the OFAC, State, and BIS actions, and relevant compliance considerations. 

OFAC Actions

Predominately pursuant to E.O. 14024, OFAC designated approximately 300 individuals and entities with full blocking sanctions and identified them on its Specially Designated Nationals and Blocked Persons (“SDN”) List, under either of 4 categories of conduct, and organized by the agency by annexes 1-4. These categories and their corresponding annexes are as follows: 

• Key players in Russia’s core financial infrastructure to further curtail Russia’s use of the international financial system, including the operator of the Mir National Payment System and Russian banks (i.e., the National Payment Card System Joint Stock Company), 9 regional financial institutions, 5 investment and venture capital funds related to underwriting Russia’s development of advanced and next-generational technology, and 6 financial technology (“fintech”) companies that provide software and IT solutions for Russian financial institutions. See, Annex 4. 
• 37 Persons outside of the Russian Federation that have engaged or facilitated sanctions evasion, circumvention, and backfill, supporting the transfer of critical technology and equipment to Russia’s military-industrial base. OFAC also emphasized its willingness to continue to impose sanctions on persons wherever located that engage in such activity. Targets included persons in China, Serbia, the U.A.E., and Liechtenstein. See, Annex 3. OFAC also warned foreign financial institutions of the new amendments to E.O. 14024 under E.O. 14114, which authorizes secondary sanctions for those institutions that conduct or facilitate significant transactions or provide any service involving Russia’s military-industrial base, which also includes individuals and entities that support the sale, supply, or transfer of certain items or classes of items. 
• The Alabuga UAV Procurement Network—including numerous entities and their officials—which is the network through which Russia has acquired and produced deadly unmanned aerial vehicles (“UAVs”), including in cooperation with Iran. See, Annex 1.  
• Numerous persons in Russia’s military-industrial base—ranging from the aerospace sector to industrial automation, and lubricants, coolants, and industrial chemicals—and the engineering, electronics, metal and mining, and transportation sectors. See, Annex 2. 

The same day, OFAC also designated JSC Sovcomflot, Russia’s state-owned shipping company and fleet operating, along with 14 of its crude oil tankers as property in which Sovcomflot has an interest. 

All these designated persons are  subject to full blocking sanctions. This means that U.S. persons are prohibited from engaging in virtually any transactions or dealings with any of these designated entities, as well as any entities that are subject to OFAC’s 50 Percent Rule based on such designated persons ownership interests. U.S. persons must block and report to OFAC any such blocked persons’ property interests that are or come within their possession or control. 

State Department Actions

Yes, State also has the authority to impose full blocking sanctions under E.O. 14024, and not just Treasury (through delegated authority to OFAC). Keep in mind however that OFAC still administers the sanctions imposed by State, through its implementing regulations for E.O. 14024, the Russian Harmful Foreign Activities Sanctions Regulations (“RuHSR”), 31 C.F.R. Part 587. All of State’s designations were pursuant to that Order, and are also identified on OFAC’s SDN List. 

State sanctioned three individuals in connection with the death of Aleksey Navalny in the Russian Penal Colony IK-3: the prison warden, regional prison head, and deputy director of the Federal Penitentiary Service of Russia. It also designated more than 250 entities and individuals on OFAC’s SDN List, where a majority of such targets included facilitators of sanctions evasion and circumvention, and those bolstering Russia’s future energy, metals, and mining production. Several of the designated individual also included those involved in the unlawful transfer and/or deportation of Ukrainian children, whom also received U.S. visa restrictions. 

OFAC General Licenses and Guidance

OFAC has issued numerous general licenses (GL’s 88A, 89, 90, 91A, 92, and 93) pursuant to the RuHSR for wind down, rejection, divestment, vessel, and/or environmental related transactions involving some of the foregoing blocked entities. New Frequently Asked Questions (“FAQs”) 1164-1166 were also published, related to Treasury’s February 8, 2024 Determination pursuant to E.O. 14068, which imposes prohibitions related to imports of diamond jewelry and unsorted diamonds of Russian Federation Origin, or otherwise exported from the Russian Federation, effective March 1, 2024. Several existing FAQs were also amended, related to various topics of interest under the RuHSR and its underlying Executive orders. 

BIS Actions

BIS has added more than 93 entities to its Entity List—Supplement No. 4 to 15 C.F.R. Part 744—with a majority in Russia, and the rest in either China, Turkey, the U.A.E., Kyrgyz Republic, India, or South Korea. All items subject to the Export Administration Regulations (“EAR”)—which are broadly speaking items of U.S.-origin—require a BIS license for export, reexport, or transfer (in-country) to any person identified on the Entity List. This includes “EAR99” commodities, software, or technology, which are low-level consumer items. However, more than 50 of the entities that BIS added to the list on February 23, 2024 also received a “footnote 3” designation as Russian-Belarusian military end users. This means that “items subject to the EAR”—i.e., items requiring a BIS license for such listed entities—also includes foreign-produced items that satisfy the Russia/Belarus-Military End User FDP Rule in 15 C.F.R. § 734.9(g). 

In addition, BIS in coordination with international partners, has also increased the “common high priority items” that were initially identified in a joint guidance on countering Russian evasion, from 45 to 50. These items, which are divided into tiers 1-4 (Tier 1 being of highest priority), are identified by their six-digit Harmonized System Codes. BIS and its international partners have assessed that Russia seeks to procure such items the most for its weapons programs, and are considered to be at high risk of unauthorized diversion.The newly added 5 items are certain computer numerically control (“CNC”) machine tools and parts that Russia seeks, with the updated list available here. 

Joint Official Business Advisory 

State, OFAC, and BIS issued a joint Advisory titled, Risks and Considerations for Doing Business in the Russian Federation and Russia-Occupied Territories of Ukraine. This Advisory provides useful information for businesses regarding the risks of conducting business in Russia, including concerns related to sanctions, export controls, import prohibitions, money laundering and corruption, Russia’s conduct in Ukraine, and domestic Russian concerns (e.g., forced labor, state surveillance, and several others). It also includes an annex with due diligence recommendations for concerned persons related to: “Human Rights Due Diligence,” and “Compliance Due Diligence for Sanctions and Export Controls.”

Compliance Considerations

OFAC and BIS expect companies to take a risk-based approach to sanctions and export controls compliance by developing, implementing, and routinely updating a compliance program. The foregoing sanctions and export controls related actions that occurred on February 23, 2024 do not create any new legal authorities that would need to be considered for an existing compliance program. However, in consideration of the hundreds of additions made to the SDN List and Entity List, especially in many third countries for evasion and circumvention reasons, businesses’ existing risk profiles may be impacted. Such businesses will need to ensure that internal controls are sufficiently calibrated. 

For example, businesses whose operations deal in items that are at higher risk of diversion—as discussed in one of my prior articles and in consideration of the additions to BIS’s “common high priority items” list—should assess whether their customers, distributors, resellers, or other sales agents involve any countries that are susceptible to unauthorized diversion. As detailed in my prior article on the topic of diversion to Russian and Belarus, BIS and Treasury’s Financial Crimes Enforcement Network have provided valuable guidance for exporters and financial institutions to follow in preventing unauthorized diversion.

Furthermore, while existing restricted party screening tools should interdict any potential dealings with the many newly listed parties, they may not do so for what is likely to be hundreds of constructively blocked entities under OFAC’s 50 Percent Rule as a result of the SDN List designations. OFAC’s 50 Percent Rule extends relevant blocking sanctions and prohibitions to any entity that is owned 50 percent or more, in the aggregate, by designated or other blocked persons. If a business is at risk of dealing with such constructively blocked entities—especially if the nature of the business involves engaging in cross-border transactions and servicing clients in countries that were most targeted by OFAC/State—it should consider taking additional steps related to beneficial ownership due diligence for its overall screening efforts. 

Businesses that do have a Russia-nexus in their business operations should also carefully consider the Joint Official Business Advisory and the due diligence guidance provided therein. 

The author of this blog post is Kian Meshkat, an attorney specializing in U.S. economic sanctions and export controls matters. If you have any questions please contact him at [email protected].