On May 22, 2023, the Department for Business and Trade’s Export Control Joint Unit published new guidance on trade sanctions circumvention under the UK’s Russia sanctions regime (the “Guidance”).  While direct trade between the UK and Russia reportedly has fallen significantly since the introduction of a broad package of trade sanctions in response to Russia’s invasion of Ukraine, there is a growing associated risk of displacement of trade and diversion of goods to Russia via indirect routes.

The Guidance seeks to prevent the trade sanctions, export controls, and other measures implemented in response to Russia’s invasion of Ukraine being undermined by raising awareness of the risks associated with trade in goods subject to UK trade sanctions and export controls and the obligations that trade in such goods places on those subject to UK jurisdiction to conduct appropriately robust due diligence that considers certain key risks associated with the product, customer, and destination.

Continue Reading UK Issues New Russia Trade Sanctions Circumvention Guidance

On May 19, 2023, in conjunction with the G7, Australia, and other international partners, the US government announced a range of new export controls and sanctions and added 71 entities to the Entity list, primarily for supporting Russia’s military and defense sectors.  The new export controls – and new sanctions, which are the subject of a separate blog post – reflect the continued efforts of the US (in coordination with international allies) to target those attempting to circumvent or evade sanctions or export controls against Russia and Belarus.  The new measures are intended to further undermine the Russian and Belarusian industrial bases and counteract their ability to continue to support the war in Ukraine and to further limit Russia’s energy revenue and future extractive capabilities.  

Also on May 19, 2023, the Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) and the Department of Commerce’s Bureau of Industry and Security (“BIS”) issued a Joint Supplemental Alert entitled “FinCEN and the U.S. Department of Commerce’s Bureau of Industry and Security Urge Continued Vigilance for Potential Russian Export Control Evasion Attempts” (the “Supplemental Alert”), which is intended to assist financial institutions in the risk-based screening of export-related financial transactions in order to determine whether customers and transactions may be connected to export controls evasion.

Continue Reading BIS Expands Export Controls on Russia and Belarus and Issues New Joint Alert with FinCEN

On May 19, 2023, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) and the US Department of State announced a new round of multifaceted sanctions against Russia.  These sanctions actions were announced alongside additional export controls imposed by the US Commerce Department’s Bureau of Industry and Security (“BIS”) and the publication of a new joint alert by BIS and the Treasury Department’s Financial Crimes Enforcement Network (“FinCEN”), which are the subject of a separate blog post.

The new sanctions include expanded secondary sanctions authorities targeting additional sectors of the Russian economy; designations of more individuals and entities on the List of Specially Designated Nationals and Blocked Persons (“SDN List”); the inclusion of additional services among those that are prohibited for export to Russia; and new reporting requirements for US holders of property in which Russia’s Central Bank, Finance Ministry, or National Wealth Fund have an interest.

US persons, and others doing business that involves US jurisdiction, should continue to be vigilant against transacting with SDNs or entities that are owned by 50% or more by SDNs.  US and non-US persons alike should also carefully consider whether any of their business could constitute operations in one of the newly sanctioned sectors of Russia’s economy.

Continue Reading OFAC and State Department Significantly Expand Russia-Related Sanctions

On April 18, 2023, Matthew Axelrod, Assistant Secretary for Export Enforcement at the Department of Commerce’s Bureau of Industry and Security (BIS), issued a memorandum outlining two important changes to BIS’s settlement guidelines when significant potential violations of the Export Administration Regulations (EAR) are identified. Specifically, BIS announced that (1) the deliberate non-disclosure of a significant potential violation will now be treated as an aggravating factor in civil enforcement cases, and (2) whistleblowing of significant potential violations by another party that ultimately results in a BIS enforcement action will be considered a mitigating factor in any future enforcement action involving the whistleblower, even for unrelated conduct. The policy changes are intended to incentivize the submission of disclosures to BIS when industry or academia uncovers significant EAR violations (i.e., those reflecting possible national security harm, as opposed to minor, technical violations).

BIS’s new policy of treating non-disclosure of significant potential violations of the EAR as an aggravating factor marks a potential sea change in the voluntary self-disclosure (VSD) risk calculus for exporters and reexporters. By reorienting the purpose of the VSD to serve as both carrot and stick, BIS has now interjected more complexity into the voluntary disclosure decision making process. Companies that may have been inclined, previously, to remediate significant potential violations but not disclose may now face a more difficult choice. While it may take years for the civil penalty data to demonstrate the concrete costs of non-disclosure of significant potential violations of the EAR, consideration of that factor is likely to weigh heavily in any future BIS VSD decisions.

Continue Reading A Carrot and a Stick: BIS Clarifies Policy on Self-Disclosures and Whistleblowing

The Department of the Treasury’s recently issued Illicit Finance Risk Assessment of Decentralized Finance is principally intended to provide insight on how illicit actors are abusing decentralized finance (DeFi) services, as well as anti-money laundering (AML) and countering the financing of terrorism (CFT) vulnerabilities unique to DeFi.  However, the report also contains critical insight on how Treasury, and, presumably, the Financial Crimes Enforcement Network (FinCEN) within Treasury, view the applicability of existing US AML/CFT regulations, issued pursuant to the Bank Secrecy Act (BSA), to DeFi projects. 

Continue Reading Risk Assessment Offers Treasury’s Most Extensive Comments to Date on DeFi Regulation

On March 21, 2023, HM Treasury’s Office of Financial Sanctions Implementation (“OFSI”) designated all individuals and entities that currently are subject to an asset freeze under the Russia (Sanctions) (EU Exit) Regulations 2019 (the “Regulations”) for the additional purpose of the trust services sanctions measures outlined in Regulation 18C(1) of the Regulations.  As a result, persons subject to UK sanctions jurisdiction are now prohibited from providing trust services to, or for the benefit of, those UK designated persons absent an available exception or licence.  OFSI also has issued a wind down General Licence and updated its Russia Sanctions Guidance (“OFSI Guidance”) to address the interaction between the asset freeze, trust services, and professional and business services prohibitions. 

In a blog post announcing the measure, OFSI indicated that the move represents a conscious effort close off perceived loopholes in the existing trust services prohibitions in response to intelligence from enforcement agencies suggesting that UK-based trust service providers have been offering their services to persons for the purpose of reducing the impact of sanctions in the event that they become subject to them.   

Continue Reading UK Expands Designations of All Subject to Asset Freeze Sanctions Under the Russia Regime to Include a Ban on the Provision of Trust Services

On March 16, 2023, HM Treasury’s Office of Financial Sanctions Implementation (“OFSI”) published an updated version of its Enforcement and Monetary Penalties for Breaches of Financial Sanctions Guidance (“OFSI Guidance”).  The OFSI Guidance outlines OFSI’s compliance and enforcement approach as well as providing an overview of the civil monetary penalty regime and how potential financial sanctions breaches are assessed.  The latest update to the OFSI Guidance sets out the framework within which OFSI will assess breaches of UK financial sanctions that flow from, or involve, an incorrect assessment of the ownership and control of an entity by a UK designated person. 

The publication of the updated OFSI Guidance follows repeated calls for clarity regarding the ownership and control test and OFSI’s enforcement stance in relation to it, particularly following the significant expansion of the Consolidated List in response to Russia’s invasion of Ukraine in February 2022 and the UK’s introduction of strict civil liability for financial sanctions breaches in June 2022.

Continue Reading OFSI Updates Enforcement and Monetary Penalty Guidance to Address the Assessment of Ownership and Control

On 8 March 2023, the General Court granted Violetta Prigozhina’s request to annul the restrictive measures imposed via Council Regulation (EU) 2022/260 implementing Regulation (EU) No 269/2014 (“the contested Regulation”).

Ms. Prigozhina was placed on the list of designated persons on 23 February 2022, along with members of the government, banks, businesspersons, and Members of the State Duma, who are deemed to have supported Russia’s aggression against Ukraine. As a result, she was made subject to a travel ban in the EU, an asset freeze, and a prohibition for EU persons to make any of her funds or economic resources available to her.

Continue Reading EU General Court annuls the listing of the mother of Wagner group chief Yevgeny Prigozhin

On March 14, 2023, the UK High Court issued a judgment in the first challenge to a UK sanctions listing under Section 38 of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”).  The challenge was brought by LLC Synesis, a Belarusian technology company (“Synesis”) and followed an unsuccessful ministerial review of Synesis’ UK designation.  The High Court rejected the challenge on the grounds that the decision to maintain Synesis’ designation was reasonable and proportionate.  Mr. Justice Jay’s judgment addressed both the threshold for a UK listing and the standard of review the court is required to undertake when assessing a designation decision under Section 38 of SAMLA, points which will have broader relevance to future UK delisting cases.

Continue Reading UK High Court Rejects First Challenge to a UK Sanctions Listing

After weeks of going back and forth, the Council of the European Union (“Council”) was finally able to adopt the 10th package of sanctions against Russia in time to coincide with the first anniversary of Ukraine’s invasion on Friday, 24 February. Since a unanimous decision by the Member States is required in order to move forward with the sanctions, the adoption of the tenth package was delayed due to differences between certain countries over parts of the package.

The new set of measures include additional designations, trade and financial restrictions, reporting obligations, and further restrictions on Russian nationals. Most of the rules entered into force on 26 February 2023, the day following their publication in the Official Journal of the EU. The key measures described below can be found in the following documents:

Continue Reading EU adopts 10th package of sanctions