United States Expands Sanctions Against Russia’s Defense-Industrial Sector and Russian Elites

The United States has further expanded its targeted sanctions on Russia in response to continued Russian aggression in Ukraine. In this latest tranche of sanctions, the U.S. focused on Russia’s defense-industrial sector, members of the Russian State Duma, and other Russian elites.

These new actions build upon earlier sanctions issued over the last month in response to Russia’s invasion of Ukraine, which are discussed in our prior alerts: United States Adds New Sanctions Targeting Russia, United States Expands Sanctions on Russia to Target Energy Sector, Biden Administration Continues to Broaden Economic Sanctions on Russia in Response to Ongoing Aggression in Ukraine, Biden Administration Issues Second Set of Sanctions on Russia Broadly Targeting the Financial and High-Tech Sectors, and Biden Administration Issues Initial Set of Sanctions in Response to Russian Invasion of Eastern Ukraine.

As Russian aggression in Ukraine continues, further economic sanctions and other measures targeting the Russian economy are likely to be forthcoming from the United States and its allies. There is no current indication of the United States imposing comprehensive sanctions on Russia. Nevertheless, the combination of sanctions with the continued unilateral withdrawal by U.S. and European companies from the Russian market is steadily decoupling Russia from the Western economic system.

Sanctions Targeting Russia’s Defense-Industrial Sector

The U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) designated 48 companies that are part of Russia’s defense-industrial base and produce weapons that have been used during Russia’s invasion of Ukraine. These sanctions are intended to have “a deep and long-lasting effect on Russia’s defense-industrial base and its supply chain.” Among the companies sanctioned in OFAC’s recent action are:

• Tactical Missiles Corporation JSC (“KTRV”): a large, state-owned Russian defense conglomerate that produces airborne weapons and weapons systems for Russia’s navy, KTRV’s General Director (Boris Obnosov), and KTRV’s subsidiaries;
• JSC NPO High Precision Systems: a state-owned holding company that develops, produces, modernizes, and repairs weapons and military equipment;
• NPK Tekhmash OAO: a state-owned holding company that produces and supplies ammunition for the Russian Armed Forces;
• Joint Stock Company Russian Helicopters: a state-owned holding company that oversees the design, manufacturing, testing, and maintenance of civilian and military helicopters, and Russian Helicopters’ subsidiaries;
• Joint Stock Company Kronshtadt: a private Russian defense contractor that develops and manufactures equipment, software, and integrated solutions for the unmanned aviation and defense industries of Russia.

Sanctions Targeting Russian State Duma

The United States also designated The State Duma of the Federal Assembly of the Russian Federation (“Duma”) and 328 of its members. The Duma is the Russian Parliament’s lower chamber, which has passed resolutions supporting President Putin’s demand to recognize the self-proclaimed independence of sovereign areas of eastern Ukraine in the so-called Donetsk People’s Republic (“DNR”) and Luhansk People’s Republic (“LNR”). These sanctions build upon OFAC’s March 11, 2022 designation of 12 members of the Duma who appealed to President Putin to recognize the DNR and LNR. 

Importantly, though the Duma, the majority of its members, President Putin and other senior Russian government officials and certain state-owned enterprise are all subject to sanctions, the Government of Russia as a whole has not been sanctioned.

Sanctions Targeting Sberbank CEO Herman Gref

The United States also designated Herman Gref, CEO of Public Joint Stock Company Sberbank of Russia and Chairman of its Executive Board. Gref is a close associate of President Putin and oversees Russia’s largest multi-billion dollar, multinational financial institution and its subsidiaries. 

Implications

These sanctions broaden the pool of individuals and entities that are generally off limits to U.S. persons.

The new sanctions continue the Biden Administration’s approach to date of targeted sanctions. While refraining from imposing comprehensive sanctions on Russia outright, the cumulative effect of these and previous sanctions may coalesce into an informal U.S. embargo, particularly as additional economic sanctions seem likely in light of Russia’s continued aggression in Ukraine. Thus far, the Government of Russia itself is not sanctioned. However, in light of the increasing number of Russian government officials, agencies, and state-owned enterprises that are subject to sanctions, U.S. persons continuing to engage in or wind down activities in Russia should proceed with caution.  

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Greta Lichtenbaum, an O’Melveny partner licensed to practice law in the Distict of Columbia, Tod Cohen, an O’Melveny partner licensed to practice law in California, Randall Edwards, an O'Melveny partner licensed to practice law in California, John Dermody, an O'Melveny partner licensed to practice law in the District of Columbia and California, and Joshua Goode, an O’Melveny associate licensed to practice law in the District of Columbia, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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