United States Issues New Economic Sanctions Targeting Russia and Sanctions Evaders, But Limited Impact Expected

The United States, in coordination with the United Kingdom and European Union, has implemented new sanctions and export controls targeting Russia in response to the death of opposition leader Aleksey Navalny and to mark the second anniversary of Russia’s full-scale war against Ukraine. The U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) and U.S. Department of State (“State”) sanctioned over 500 targets, and the Commerce Department’s Bureau of Industry and Security (“BIS”) imposed export control restrictions on more than 90 additional companies. While this is a significant number of new sanctioned entities, the United States remains steadfast in its strategy of keeping its sanctions targeted. U.S. companies can thus continue to do business in Russia, albeit with care.

These new actions build upon earlier rounds of sanctions issued since the launch of Russia’s invasion in Ukraine in February 2022, discussed in our prior alerts: United States Further Expands Economic Sanctions and Export Controls Targeting Russia As War in Ukraine Continues; United States Expands Sanctions Targeting Russia in Response to Russia’s Purported Annexation of Regions of Ukraine; U.S. Economic Sanctions and Export Controls on Russia and Belarus Expand, with Further Measures Likely; Biden Administration Further Expands Sanctions on Russia as War in Ukraine Continues; United States Expands Sanctions Against Russia’s Defense-Industrial Sector and Russian Elites; 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.

This newest round of economic sanctions are important symbolically and reflect a continued focus on sanctions evaders in third-countries assisting Russia, but are not expected to have a significant impact on Russia. Two years into the conflict, U.S. trade with Russia has dropped nearly 90% from 2021 levels, leaving limited areas of the Russian economy that U.S. economic sanctions can negatively affect. Concerns about the impact on the global economy and the impact on innocent Russian civilians underlies the United States and its allies continued strategy of imposing targeted sanctions, rather than a comprehensive embargo or broad sanctions on Russia’s major oil and gas companies. Such actions would likely cause significant damage to the Russian economy, but would also have undesired collateral effects on Russian civilians and European allies that continue to rely on Russian energy.

New Economic Sanctions and Export Controls

The United States imposed economic sanctions on over 500 targets, including a state-owned operator of the national payment system, regional financial institutions (including several headquarters in Russian military-industrial base hubs), investment and venture capital funds that support Russia’s development of future technology and industry, financial technology companies that provide software and IT for Russian financial institutions, entities involved in the Arctic LNG Project, and companies involved in geological exploration. OFAC also designated Russia’s state-owned shipping company and fleet operator, Sovcomflot, and 14 crude oil tankers, but limited the scope of those measures by authorizing transactions with all other Sovcomflot vessels.

OFAC and State also designated more than two dozen third-country sanctions evaders in Europe, East Asia, Central Asia, and the Middle East that have supported the transfer of technology and equipment for Russia’s military-industrial base. Companies in China, Türkiye, and the UAE, in particular, have been targeted for their roles in facilitating the export and financing of products and technology to Russia in evasion and/or circumvention of economic sanctions.

Concurrently, BIS designated 93 companies to the Entity List (adding to the 815 entities already designated by the Biden Administration since the start of the conflict) in an effort to continue to further cut off the Russian defense industrial base from important supplies.

Implications

As the war in Ukraine continues, the United States and its allies are further expanding economic sanctions and export controls on Russia, while continuing to hold-off on imposing a full-scale embargo or blocking sanctions on major Russian energy companies. Given the current state of trade between the U.S. and Russia, the newest sanctions are not expected to have a significant impact, but create new compliance obligations for firms with a U.S. nexus.

Companies that continue to conduct business in Russia or with business partners that have significant interests in Russia should be mindful of enhanced risk of enforcement action by the U.S. Government for sanctions violations. Concurrent with the new sanctions, State issued a risk advisory warning that the United States “assesses that doing business in the Russia Federation and in Russian-occupied territories of Ukraine poses serious legal, financial, and reputation risks.” Any ongoing business with Russia touchpoints merits enhanced due diligence and de-risking measures to ensure compliance with economic sanctions and export controls.