As Russia’s war in Ukraine passes the one-year mark, and the battles on the ground move forward with escalating levels of ferocity, governments around the world continue to coordinate and respond with increasingly severe sanctions and export controls. Specifically, the United States, European Union, United Kingdom, and other global allies have collaborated to impose escalating trade restrictions and sanctions targeting Russian government assets, broad sectors of the Russian economy, and ever-increasing numbers of individuals and entities, most recently in connection with last week’s one-year anniversary of Russia’s invasion. This cross-jurisdictional collaboration has been strikingly successful in terms of impacting Russia’s economy and supply chains, although not yet appearing to limit Russia’s war. Although there is substantial symmetry in the scope of the sanctions imposed by the Group of 7 (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) (G7), and their ally jurisdictions, each jurisdiction has also imposed unique sanctions on targeted overlapping but not identical sets of Russian individuals and entities. The extent of Russia’s integration with the global economy, the rapidly evolving nature of these sanctions, and the disparities among the precise measures imposed by different jurisdictions have significantly increased compliance complexities for financial institutions and other global companies.
Whether the sanctions will ultimately achieve their goal of curtailing Russia’s aggression in Ukraine remains to be seen, but it is already apparent that the impact of the sanctions on Russia’s economy has been significant, as the country reportedly entered into a recession late last year. In the interim, as Russia edges toward becoming a quasi-comprehensively sanctioned jurisdiction, companies should continue to carefully assess the potential implications of the evolving cross-jurisdictional sanctions on their business, including the enforcement risks associated with potential sanctions violations.
Our December 6, 2022 alert details the implementation of the Russian-origin crude oil price cap, including the guidance and expectations of the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), the European Commission, the UK Treasury’s Office of Financial Sanctions Implementation (OFSI), and Japan. On February 5, 2023, the G7, the European Union, and Australia (the “Price Cap Coalition”) implemented a complementary price cap on Russian-origin petroleum products. While implementation of the price cap has just begun and its long-term impact is uncertain, data from the Russian Ministry of Finance demonstrates that Russian oil revenues have fallen to their lowest level in two years, while oil export volumes have increased.
This Part Two of our Sanctions Year in Review provides a summary overview of the other key sanctions imposed to date by the United States, European Union, and United Kingdom. Part One summarized OFAC’s other major activities and programmatic updates from 2022, and Part Three will summarize OFAC’s key 2022 enforcement actions and lessons learned.
The U.S., EU, UK, and many of their allies acted rapidly to impose a series of new sanctions against Russia over the past year. At an unprecedented pace, the U.S., EU, and UK in particular have adopted both classic and new types of economic sanctions that go far beyond the sanctions issued in 2014 in response to Russia’s illegal invasion of Eastern Ukraine and purported annexation of Crimea and Sevastopol. In parallel, in response to Belarus’s involvement in Russia’s aggression against Ukraine, the allies also expanded their sanctions against Belarus. The sanctions include a panoply of financial, economic, and trade restrictions against Russia and Belarus across a wide range of sectors, goods, services, and activities, including:
Additional details regarding the sanctions imposed by the U.S., EU, and UK are provided below.
Restrictions on Transactions with Russia’s Central Bank: OFAC issued a Directive prohibiting transactions by U.S. persons involving Russia’s Central Bank, limiting its ability to draw on hundreds of billions of dollars of its foreign reserves, as well as transactions involving Russia’s Ministry of Finance and National Wealth Fund.
Blocking Sanctions: OFAC has added over 2,500 Russia-related targets to its Specially Designated Nationals and Blocked Persons List (the “SDN List”) since February 2022, including approximately 2,400 individuals and entities, 115 vessels, and 19 aircraft. As a result of these sanctions, the designated persons’ property and interests in property in the possession or control of U.S. persons must be blocked, and virtually all U.S.-nexus transactions involving these designated persons are prohibited, unless authorized by a specific or general license.
Ban on New Investment and Services: On April 6, 2022, President Biden issued an Executive Order (E.O. 14071) that prohibits new investment in Russia by U.S. persons, wherever located. On June 6, 2022, OFAC published guidance defining “new investment” as the commitment of capital or other assets for the purpose of generating returns or appreciation. For example, the new investment ban prohibits U.S. persons from purchasing both new and existing debt and equity securities issued by an entity in the Russian Federation, but OFAC does not consider the maintenance of a pre-existing investment (including with respect to Russian subsidiaries of non-Russian companies) in the Russian Federation to be a new investment.
Prohibition on Provision of Accounting, Trust and Corporate Formation, and Management Consulting Services: In May 2022, OFAC banned U.S. persons from providing accounting, trust and corporate formation, and management consulting services to any company or person located in the Russian Federation, unless that company or person is owned or controlled by a U.S. person. These services are prohibited in part because wealthy Russians rely on them for their businesses, which generate revenue for the Russian economy and Putin’s war machine. OFAC subsequently issued an FAQ defining the terms “accounting services,” “trust and corporate formation services,” and “management consulting services.” OFAC also clarified that the prohibitions include providing tax preparation and filing services, serving as voting trustees on behalf of, or for shares of, persons located in the Russian Federation, and providing executive search and vetting services.
Targeting Additional Sectors of Russia’s Economy: OFAC has identified nearly a dozen sectors of the Russian Federation economy—metals and mining, quantum computing, accounting, trust and corporate formation, management consulting, aerospace, marine, electronics, financial services, technology, and defense and related materiel—allowing sanctions to be imposed on any individual or entity determined to operate or have operated in those sectors and expanding the ability to swiftly impose additional sanctions.
Export Controls: The U.S. Commerce Department’s Bureau of Industry and Security (BIS) imposed new export controls targeting, in part, Russia’s defense, aerospace, energy, and maritime sectors. In addition, BIS imposed stringent restrictions on sensitive U.S. technologies produced outside the United States that rely on U.S.-origin software, technology, or equipment.
Restrictions on Russian Sovereign Debt: OFAC issued a Directive prohibiting U.S. financial institutions from (1) participating in the primary market for ruble- or non-ruble-denominated bonds issued after June 14, 2021 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation; and (2) lending ruble- or non-ruble-denominated funds to the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation; and (3) participating in the secondary market for ruble- or non-ruble-denominated bonds issued after March 1, 2022 by the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation. In June 2022, these primary and secondary market prohibitions were subsequently subsumed by the broader “new investment” prohibition mentioned above.
Restrictions on Dealings in New Debt or Equity of Major Russian Companies: OFAC issued a Directive in February 2022, prohibiting any transactions or dealings by U.S. persons or within the United States in new debt of longer than 14 days maturity or new equity of certain Russian companies, including Sberbank, AlfaBank, Credit Bank of Moscow, Gazprombank, Russian Agricultural Bank, Gazprom, Gazprom Neft, Transneft, Rostelecom, RusHydro, Alrosa, Sovcomflot, and Russian Railways. Sberbank, AlfaBank, Credit Bank of Moscow, and Alrosa were subsequently designated as SDNs.
Embargo Against the DNR and LNR Regions of Ukraine: In addition to the sanctions imposed against Crimea after the Russian occupation in 2014, the U.S. has now imposed similar comprehensive sanctions against the Donetsk People’s Republic (DNR) and Luhansk People’s Republic (LNR), two so-called states in the Donbas region of Ukraine whose independence Russian President Putin purportedly recognized when he invaded Ukraine in February 2022. These sanctions prohibit virtually all U.S.-nexus transactions and dealings with these regions.
Ban on Imports of Russian Oil: On April 8, 2022, President Biden signed into law the “Ending Importation of Russian Oil Act,” which statutorily prohibits the importation of energy products, including crude oil, liquefied natural gas, and coal, from the Russian Federation. This followed E.O. 14066 of March 8, 2022, which prohibited imports of these products and new investment in Russia’s energy sector.
Trade: President Biden and other leaders of the G7 countries announced their intent to revoke Russia’s most favored nation status (called “permanent normal trade relations” in the United States). On April 8, 2022, President Biden signed into law a bipartisan bill ending normal trade relations with Russia and Belarus, and raising U.S. tariffs on Russian and Belarusian imports.
Luxury Goods: E.O. 14068 prohibits U.S. imports of Russian-origin seafood, spirits, and non-industrial diamonds. E.O. 14068 also prohibits direct and indirect exports from the U.S. or by U.S. persons, wherever located, of luxury goods and U.S.-dollar-denominated banknotes to Russia.
Airspace and Ports: In March 2022, the Federal Aviation Administration prohibited Russian aircraft from entering and using U.S. airspace, and, in April 2022, the Biden administration announced a ban on Russian-affiliated vessel entrance into U.S. ports.
Enforcement: The U.S. Department of Justice has established Task Force KleptoCapture, an interagency law enforcement task force, to investigate and prosecute violations of new and future sanctions imposed in response to the Ukraine invasion, as well as sanctions imposed for prior instances of Russian aggression and corruption; to combat unlawful efforts to undermine restrictions taken against Russian financial institutions, including the prosecution of those who try to evade know-your-customer and anti-money laundering measures; to target efforts to use cryptocurrency to evade U.S. sanctions, launder proceeds of foreign corruption, or evade U.S. responses to Russian military aggression; and to use civil and criminal asset forfeiture authorities to seize assets belonging to sanctioned individuals or assets identified as the proceeds of unlawful conduct. The task force is intended to complement the work of the transatlantic task force announced by the United States, the European Commission, France, Germany, Italy, the United Kingdom, and Canada in February 2022, which has a mission to “identify and seize the assets of sanctioned individuals and companies” around the world.
Financial Measures: Among others, the measures include prohibitions against:
Other financial measures include restrictions on deposits held by Russian individuals and entities (and corresponding reporting obligations for credit institutions) and a ban on the provision of crypto-asset wallet, account, and custody services, as well as trust services, to such persons.
New reporting requirements particularly affect EU credit institutions that, for instance, need to provide a list of deposits exceeding EUR100,000 held by a legal person, entity, or body established outside the Union whose proprietary rights are directly or indirectly owned more than 50% by Russians to the national competent sanctions authorities or the EU Commission (by no later than May 27, 2023, and every 12 months subsequently).
Trade Sanctions Affecting Imports, Exports, and Services: The EU trade sanctions currently in place against Russia cover various significant components of the Russian economy. Targeting goods, technology, and software across the military, industrial, and luxury sectors, the imposed trade restrictions seek to weaken key sources of financing and the military and technological capacities of Russia.
Sector-Specific Restrictions: The EU further adopted restrictive measures targeting specific economic sectors with key economic or political significance for Russia:
Trade Embargo Against the Donbas Region: Effective February 24, 2022, the EU imposed broad restrictions of economic and trade relations on the so-called “specified territories,” the non-Ukrainian government-controlled areas of the Donetsk and Luhansk Oblasts of Ukraine. On October 7, 2022, these broad trade embargos (including a ban on imports of all products originating in the specified regions) were extended to include the Kherson and Zaporizhzhia Oblasts following the illegal annexation of these territories by Russia.
Access to EU Public Sector: Prohibition to enter into government contracts with Russian individuals and entities.
Ban on Holding Posts in the Governing Bodies of Certain Russian State-Owned or -Controlled Organizations and Companies: The ban applies to EU persons and includes posts in entities with which Russia, the Russian government, or the Russian Central Bank have substantial economic relationships.
Ban on Russian Nationals Serving on Governing Bodies of EU Member States’ Critical Infrastructure Companies: This new prohibition was added to restrain Russia’s influence on governing bodies, which could harm the functioning of critical infrastructures in the EU.
Designated individuals and entities:
Authorizations: Among others, the EU authorizes certain transactions for divestment from Russia by EU operators as well as certain wind-down transactions, and also seeks to avoid and combat food insecurity around the world and disruptions in the payment channels for agricultural products.
Enforcement and Anti-Circumvention Measures: To dissuade attempts to violate or circumvent EU sanctions, such violations are generally subject to high fines and potentially criminal liability, including imprisonment. However, the enforcement of sanctions and penalization of violations are not harmonized across the EU, but ultimately fall within the responsibility of each of the 27 EU Member States, which apply their respective (and varying) national rules. Further, there have been cases of divergent interpretation regarding the precise scope of some of the newly adopted sanctions against Russia between EU Member States and the EU Commission. While the EU Commission is regularly updating its Frequently Asked Questions to provide guidance to both EU operators and the sanctions authorities of the EU Member States, such guidance is non-binding, and national authorities may decide to follow a different approach. Companies operating in the EU are also facing a lack of legal certainty and a significant administrative burden when it comes to authorizations to deviate from EU sanctions. As there is no centralized EU licensing authority, nor any centralized process, licenses are issued subject to diverging administrative practices and, in many cases, are valid only in the EU Member State where the authorization was granted.
More recently, the EU has put forward certain instruments to enhance sanctions enforcement, and EU Member States are also ramping up their enforcement capabilities and taking measures to prevent sanctions evasion. For example, EU persons are now required to report to their national sanctions authority any information that would facilitate compliance with an EU asset freeze measure, including information about frozen funds and economic resources within the EU that have not been treated as frozen, contrary to EU sanctions. In order to ensure uniform application of the prohibition of transactions relating to the management of reserves and assets of the Central Bank of Russia, EU persons are also required to provide their national sanctions authority, and the EU Commission with any information they may have on Central Bank of Russia frozen assets.
The EU Commission has also launched a whistleblower tool to facilitate the reporting of potential sanctions violations. In addition, the EU Member States have been obliged to provide for appropriate measures of confiscation of the proceeds of sanctions violations, which would also include violations by the sanctioned individuals and entities themselves of their newly introduced obligation to report their frozen funds and economic resources to the competent national sanctions authorities. This reporting obligation constitutes a first step to build the legislative framework for the EU’s broader goal to confiscate frozen assets linked to its Russia sanctions, where legally possible, and potentially use these assets to finance the reconstruction of Ukraine and the needs of refugees.
Changes to Designation Criteria: The UK government’s efforts to strengthen the Russia sanctions regime began in early February 2022 in anticipation of the invasion, with the broadening of the definition of “involved person” under the Russian (Sanctions) (EU Exit) Regulations 2019 (the “UK Russia Regulations”). This significantly increased the range of persons who could be subjected to sanctions under the regime, by including those involved in obtaining a benefit from or supporting the government of Russia, and persons carrying on business of economic significance, or in sectors of strategic significance, to the government of Russia. The UK government introduced further legislation to streamline the designation process, including by enabling designation by description (i.e., designation as a group rather than individually) in March 2022. A new urgent designation procedure was introduced via the Economic Crime (Transparency and Enforcement) Act 2022 (the “ECA 2022”) which allows for a person to be designated under the UK regime where: (i) the person is subject to corresponding or similar sanctions under the sanctions regime of the U.S., the EU, Australia, Canada, or any other specified country; and (ii) it is in the public interest to make such a designation, while evidence is gathered to sanction them under the UK’s own standard procedure.
New Designations: New sanctions designations in the UK have predominantly focused on Russian oligarchs and their family members, members of the Russian Duma, Putin’s political allies, propagandists, and key Russian financial institutions. Designated Russian banks now subject to an asset freeze include VTB Bank, Sberbank, Bank Rossiya, Credit Bank of Moscow, AlfaBank, and Gazprombank. The UK has also designated a number of individuals and entities operating in the Russian energy, defense, agriculture, transport, and manufacturing sectors. Designations of note include Vladimir Potanin, owner of the major Russian conglomerate, Interros, and a key supporter of the Kremlin, and Roman Abramovich, the former owner of Chelsea Football Club.
Financial and Investment Restrictions: On March 1, 2022, the UK government implemented a package of amendment regulations, introducing new, and extending existing, sanctions, covering key Russian institutions, industries, and activities, including financial and investment services. For example, UK credit and financial institutions were prohibited from: (i) establishing or continuing correspondent banking relationships with designated persons or subsidiaries; and (ii) processing sterling payments to, from, or via a designated person or its subsidiaries, including UK and non-UK credit and financial institutions. As part of this package of financial sanctions, the UK government further extended the restrictions on dealing in transferable securities or money-market instruments issued by specified Russian entities (“Specified Entities”), which have been in place since 2014, to include transferable securities or money-market instruments issued after March 1, 2022: (i) by UK subsidiaries of Specified Entities (this particular restriction applies only to transferable securities or money-market instruments with a maturity exceeding 30 days); (ii) by persons “connected with” Russia (which includes any individual ordinarily resident or located in Russia, any entity incorporated or constituted in Russia (except where that entity is domiciled outside Russia), any entity which is a branch or subsidiary of an entity incorporated in Russia (except where the parent entity is domiciled outside Russia), or any entity (including a non-Russian entity) which is owned by or acting on behalf of any of the aforementioned categories of persons); and (iii) by or on behalf of the government of Russia. The scope of the prohibitions on issuing new loans or credit was also expanded to include such persons.
On July 19, 2022, the Russia (Sanctions) (EU Exit) (Amendment) (No. 12) Regulations 2022 came into effect, introducing a prohibition on certain investment activities in relation to Russia, including: (i) directly (or indirectly for the purpose of making economic funds available to, or for the benefit of, a person connected with Russia) acquiring any ownership interests in land located in Russia or any ownership interest in an entity connected with Russia or other entities with a place of business located in Russia; (ii) directly or indirectly establishing any joint venture with a person connected with Russia; (iii) opening a representative office or establishing a branch or subsidiary located in Russia; or (iv) providing investment services directly related to any of these activities.
Restrictions Relating to Energy: Another key area of focus for the UK government has been goods and services relating to energy. In addition to targeting certain energy companies and their board executives, such as Rosneft, with sanctions, the UK government announced on April 6, 2022 that it will end all UK dependency on Russian coal and oil by the end of 2022, and end imports of gas as soon as possible thereafter. By June 2022, the UK had already reduced Russian gas imports by 75% compared with the same period the previous year and halved the proportion of its oil imports from Russia. As part of its targeting of the Russian energy sector, the UK government also banned the export, supply, or transfer of oil refining goods and technology to, or for use in, Russia, or to a person connected with Russia. The scope of these energy-related trade prohibitions was expanded on July 21, 2022 to capture: (i) the export of energy-related goods to, or for use in, Russia; (ii) the making available of energy-related goods to a person connected with Russia; and (iii) the provision of technical assistance, financial services and funds, and brokering services related to these activities. The provision of energy-related services to all oil and gas exploration and production projects in Russia is also prohibited.
Wider Trade Prohibitions: The UK government extended existing trade restrictions, which previously applied only to military goods and technology, to cover critical industry goods, dual-use goods, aviation and space goods, oil refining goods, and quantum computing and advanced materials goods, and all related technology (among others). The export of such goods to, or for use in, Russia is now prohibited, as is the direct or indirect supply or delivery of such goods from a third country to a place in Russia. In addition, the UK government has at various junctures announced further trade sanctions against Russia, expanding the list of products facing import bans and increasing tariffs. The measures include import bans on iron and steel products, silver, wood products, and high-end products such as caviar, from Russia. Further, on July 15, 2022, the Russia (Sanctions) (EU Exit) (Amendment) (No. 11) Regulations 2022 entered into force, introducing various new restrictions, including prohibitions on the provision of technical assistance, financial services, or brokering services in relation to certain iron and steel products; trade in interception and monitoring goods and technology; and the export, supply, or making available of banknotes to persons connected with Russia or for use in Russia.
Aircraft and Ships: In addition to imposing asset freezes on specific airlines, such as Aeroflot, Ural Airlines, and Rossiya Airlines, a prohibition on Russian aircraft flying over or landing in the UK has been introduced, as has a ban on Russian ships entering UK ports. Legislation was also introduced to prevent sanctioned Russian oligarchs from accessing technical assistance in respect of their aircraft and ships.
Enforcement: Significant changes to the enforcement of UK sanctions have been brought about by the ECA 2022. Significantly, as of June 15, 2022, liability for civil breaches of sanctions legislation operates on a strict liability basis, meaning that OFSI no longer needs to prove that a person had knowledge or reasonable cause to suspect that they were in breach of financial sanctions in order to impose a financial penalty. The ECA 2022 also empowers OFSI to publish information pertaining to financial sanctions breaches occurring on or after June 15, 2022, even where no monetary penalty is imposed, provided it is in the public interest to do so.
While Russia continues its bloody invasion of Ukraine, governments around the world will continue to increase pressure on the Putin regime through new and unprecedented sanctions and export controls. As more sanctions are imposed and enforcement trends develop, Morrison Foerster’s National Security practice stands ready to assist you in navigating this complex and ever-evolving landscape.
 The new restrictive measures came about in the form of so-called “EU sanctions packages.” The EU’s first package of restrictive measures was adopted on February 23, 2022. The following packages were adopted on February 25 (second package), February 28 and March 2 (third package), March 9 (compliance package), March 15 (fourth package), April 8 (fifth package), June 3 (sixth package), July 22 (maintenance and alignment (seventh) package), October 6 (eighth package), December 16 (ninth package), and February 25, 2023 (tenth package). With each package, the EU added a significant number of individuals and entities to the sanctions list and adopted unprecedented measures.
 The full export ban through denial of authorizations is extended to a total of 506 Russian entities closely linked to the Russian military-industrial complex to cut off their access to sensitive dual-use and advanced technology items. This list includes seven Iranian entities known to have been using EU components and providing Russia with military “Shahed” drones to attack civilian infrastructure in Ukraine.