On February 23, 2024, the United States issued a broad set of new Russia-related sanctions and export controls in response to the second anniversary of Russia’s invasion of Ukraine and the February 16, 2024, death of opposition leader, Aleksey Navalny, in Russian custody.

The Treasury Department’s Office of Foreign Assets Control (OFAC), the Commerce Department’s Bureau of Industry and Security (BIS), and the State Department all issued new designations.  The agencies also issued an inter-agency advisory warning non-Russian companies from doing business in or with Russia.

Treasury Department Designations

Pursuant to Executive Order (EO) 14024, OFAC designated almost 300 entities and individuals as Specially Designated Nationals (SDNs).  OFAC’s sanctions targeted Russia’s financial infrastructure, more than two dozen entities and individuals seen as involved in sanctions evasion and circumvention, Russia’s (and Iran’s) unmanned aerial vehicle procurement network, Russia’s military-industrial base, and other Russian industry sectors.

Financial infrastructure designations included the National Payment Card System Joint Stock Company (NSPK), the state-owned operator of the Mir National Payment System, and Russian banks, investment firms, and financial technology companies.  The entities designated for sanctions evasion included a number of entities in Europe, East and Central Asia, and the Middle East. Other Russian industry sectors The designated entities included those involved in machine tools, additive manufacturing, metal-working equipment, lubricants and chemicals, semiconductors and electronics, industrial automation, optics, navigation instruments, aerospace, logistics and cargo. 

The designations in the defense sector included weapons production, military energy storage and power, and military information technology and software. The new SDNs include 26 third-country entities and individuals in 11 countries, including China, Estonia, Finland, Germany, Ireland, Liechtenstein, Serbia, and the United Arab Emirates for allegedly facilitating, orchestrating, engaging in, and otherwise supporting the transfer of critical technology and equipment to Russia’s military-industrial base.  These targets include third-country exporters and transhippers of technology, equipment, and parts to Russia, a freight forwarder allegedly involved in weapons shipments to Russia, and a transnational money laundering network allegedly facilitating the illicit movement of Russian-origin precious metals.

OFAC also designated JSC Sovcomflot, Russia’s state-owned shipping company and fleet operator.  Along with that designation, OFAC identified 14 vessels on the SDN List as property in which Sovcomflot has an interest.

Concurrently with these designations, OFAC issued a number of General Licenses authorizing transactions otherwise prohibited by EO 14024.

General License (GL) No. 88A authorizes the winding down of any transaction involving the following entities through 12:01 am eastern daylight time on April 8, 2024, provided that any payment to a blocked person is made into a blocked account:

  1. PJSC Transcontainer;
  2. Publichnoe Aktsionernoe Obshchestvo Mechel;
  3. JSC SUEK;
  4. ILLC Geopromining Investment;
  5. LLC Holding GPM;
  6. JSC Samara Metallurgical Plant;
  7. JSC Rimera;
  8. PJSC Pipe Metallurgical Company (a.k.a. TMK);
  9. Vostochnaya Stevedoring Company LLC;
  10. JSC Rosgeologia;
  11. National Payment Card System JSC;
  12. LLC BSF Capital;
  13. LLC Investment Consultant Elbrus Capital;
  14. LLC Orbita Capital Partners;
  15. Nonprofit Organization Investment and Venture Fund of the Republic of Tatarstan;
  16. Obshchestvo S Ogranichennoi Otvetstvennostyu Guard Kapital;
  17. LLC Shipbuilding Complex Zvezda;
  18. JSC Sovcomflot; and
  19. Any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest.

GL 88A does not authorize transactions prohibited by EO 14024 Directive 2 or 4, or otherwise prohibited by the Russia Harmful Foreign Activities Sanctions Regulations (RuHSR).

GL No. 89 authorizes, through 12:01 am eastern daylight time on April 8, 2024, the winding down of any transaction involving the following financial institutions blocked on February 23, 2024, subject to the same conditions as GL 88, including the requirement that any payment to a blocked person be made into a blocked account:

  1. Avangard Joint Stock Bank;
  2. Bank RostFinance;
  3. Joint Stock Commercial Bank Chelindbank;
  4. Joint Stock Commercial Bank International Financial Club;
  5. Joint Stock Commercial Bank Modulbank;
  6. JSC Databank;
  7. Maritime Joint Stock Bank Joint Stock Company;
  8. PJSC Bystrobank; and
  9. Any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest.

GL 89 also authorizes US persons to reject, rather than block, funds transfers where a financial institution described in the GL is the originating, intermediary, or beneficiary institution, until 12:01 am eastern daylight time on April 8, 2024.

GL No. 90 authorizes, through 12:01 am eastern daylight time on April 8, 2024, divestment or transfer of debt or equity issued or guaranteed by:

  1. LLC Holding GPM;
  2. LLC Geopromaining Verkhne Menkeche;
  3. JSC Sarylakh Surma;
  4. JSC Zvezda;
  5. ILLC Geopromining Investment;
  6. PJSC PIK Specialized Homebuilder; and
  7. Any entity in which one or more of the above persons own, directly or indirectly, individually or in the aggregate, a 50 percent or greater interest.

GL 90 further authorizes, through 12:01 am eastern daylight time on April 8, 2024, the  clearing and settling of trades of debt or equity of the entities described in the GL, provided the trades were place before 4:00 pm eastern standard time on February 23, 2024.  GL 90 also authorizes, through 12:01 am eastern daylight time on April 8, 2024, the wind-down of derivative contracts with an entity described in the GL or linked to debt or equity of such an entity, provided that any payments to a blocked person are made into a blocked account.

GL No. 91A authorizes, through 12:01 a.m. eastern daylight time on May 23, 2024, enumerated safety and environmental transactions involving blocked vessels in which certain enumerated SDNs (and any entity owned 50 percent or greater by one or more of the enumerated SDNs) have a property interest.

GL No. 92 authorizes the delivery and offloading of cargo from any vessel identified on the SDN List that is blocked solely due to a property interest of Sovcomflot, or any entity in which Sovcomflot owns, directly or indirectly, a 50 percent or greater interest, through 11:59 p.m. eastern daylight time on April 8, 2024, provided that the cargo was loaded prior to February 23, 2024. The GL does not authorize the entry into new commercial contracts involving the property or interests in property of blocked persons, any transactions prohibited by EO 14024 Directives 2 or 4, and any other transactions prohibited by the RuHSR.

In addition, GL No. 93 authorizes transactions involving any vessel that is blocked solely due to a property interest of Sovcomflot or any entity in which Sovcomflot owns, directly or indirectly, a 50 percent or greater interest, provided that such vessel is not on the SDN List.  Unlike GL No. 92, GL No. 93 would apply to vessels blocked solely due to a property interest of Sovcomflot and that are not explicitly included on the SDN List.  GL No. 93 does not authorize any transactions prohibited by EO 14024 Directives 2 or 4, or any other transactions prohibited by the RuHSR.  Notably, certain entities that are known to manage Sovcomflot vessels — such as SUN Ship Management D Ltd. and Oil Tankers (SCF) Management FZCO — were previously designated as SDNs; GL 93 does not authorize transactions involving those other entities or the vessels they manage.

OFAC also issued new Frequently Asked Questions (FAQs) No. 1164-1166 related to the Diamond Jewelry and Unsorted Diamonds Determination and the Diamonds Determination issued under EO 14068.  FAQ 1164 describes the import prohibitions and the effective date of such prohibitions for non-industrial diamonds of Russian Federation origin (any weight); non-industrial diamonds of Russian Federation origin, regardless of whether such diamonds have been substantially transformed in third countries; unsorted diamonds of Russian Federation origin or exported from Russia; and diamond jewelry of Russian Federation origin or exported from Russia.

FAQ 1165 clarifies that the diamond-related prohibitions extend to the importation into the United States of non-industrial diamonds that were mined, extracted, produced, or manufactured wholly or in part in the Russian Federation with a weight of 1.0 carat or greater, even if such diamonds have been substantially transformed into other products outside of the Russian Federation, effective March 1, 2024.  The importation of Russian non-industrial diamonds with a weight of 0.5 carats or greater, even if such diamonds have been substantially transformed into other products outside of the Russian Federation, is also prohibited effective September 1, 2024. 

FAQ 1166 explains that the Diamond Jewelry Determination prohibits the importation and entry into the United States of diamond jewelry and unsorted diamonds of Russian Federation origin, as well as diamond jewelry and unsorted diamonds that were exported from the Russian Federation, regardless of where the diamonds originated.

OFAC also amended eight Russia-related FAQs.

State Department Designations

Pursuant to EO 14024, the State Department designated over 250 entities and individuals, with a focus on seven areas of concern:  (i) individuals connected to Navalny’s death; (ii) companies involved in Russia’s Arctic LNG 2 project and companies involved in or supporting Russia’s future energy projects; (iii) certain subsidiaries of Russia’s state-owned nuclear energy corporation, Rosatom (although not Rosatom itself or other significant subsidiaries involved in Rosatom’s uranium enrichment or other civil nuclear activities); (iv) sanctions evasion and circumvention networks to procure critical components for its weapons systems; (v) certain companies involved in Russia’s metals and mining sector, including Russia’s largest pipe producer and its subsidiaries; (vi) certain companies and individuals operating in Russia’s defense and related materiel sector or supporting Russia’s defense industry, as well as entities or individuals involved in arms related transfers between Russia and the DPRK and Iran, and (vii) individuals involved in the transfer of Ukrainian children away from their families.

  1. Targeting Individuals Involved in the Death of Aleksey Navalny

Pursuant to section 1(a)(iii)(A) of EO 14024, the State Department designated three officials of the Federal Penitentiary Service of Russia allegedly involved in the death of Aleksey Navalny:  Valeriy Gennadevich Boyarinev, Igor Borisovich Rakitin, and Vadim Konstantinovich Kalinin.

  1. Targeting Entities Involved in the Arctic LNG 2 Project and Other Future Energy Projects in Russia

To constrain Russia’s future energy production and exports, the State Department designated entities involved in the Arctic LNG 2 project and other future energy projects in Russia.  This included two major entities involved in the financing and construction of highly specialized liquefied natural gas (LNG) tankers designed specifically for Limited Liability Company Arctic LNG 2 and the operator of the Arctic LNG 2 project.  Several other entities associated with the Arctic LNG 2 project were also designated including three Cyprus-based shipping companies that intended to acquire a vessel supporting exports from the Arctic LNG 2 project.

In addition, the State Department designated entities involved in other Russian future energy projects, including Limited Liability Company Globaltek, which was involved in the future Yakutia Gas Project, and OOO Ruskhimalyans and its subsidiary Limited Liability Company New Communal Technologies (NKT), which were involved in the development and operation of Russia’s Ust-Luga LNG terminal

Moreover, the State Department designated JSC Rosgeologia, a Russian state-owned geological exploration company and its several subsidiaries and affiliates, and identified several vessels as property in which these SDNs have an interest.

  1. Targeting State Atomic Energy Corporation Rosatom subsidiaries

The State Department designated three subsidiaries of Rosatom supporting Russia’s development of the Arctic region, future business development, and an enterprise of Russia’s nuclear weapons complex.  

  1. Targeting Russia’s Sanctions Evasion and Backfilling Efforts

To disrupt Russia’s efforts to evade sanctions and procure technology and equipment from third countries to support its war efforts, the State Department designated producers, exporters, and importers of items critical to Russia’s defense-industrial base, including items on the Common High Priority Items List (CHPL), a list of items maintained by the United States, along with the European Union, Japan, and the United Kingdom, to aid countries and companies in conducting necessary due diligence.  

Designated entities include a network of Russia-based entities which are alleged to have procured microelectronics to develop products for the Russian military (as well as Kazakhstan and Germany-based companies), and several Turkey, UAE, and China-based companies for operating or having operated in the sanctioned sectors of the Russian Federation economy by supplying common high-priority items, aircraft parts, and electronic components to Russia-based companies. This, in particular, is notable because it suggests that entities outside of Russia engaged in supply-side activities can be designated for having “operated in” the sanctioned sectors of the Russian economy.

  1. Targeting Russia’s Metals and Mining Sector and Pipe Producers

With a stated aim of reducing Russian government revenues, the State Department designated individuals and entities involved in Russia’s metals and mining sector, as well as Russia’s largest pipe producer, including PJSC Pipe Metallurgical Company (also known as TMK), Russia’s leading supplier of steel pipe, piping solutions, and related services, along with its 20 subsidiaries.

The State Department also designated several Russian entities for operating or having operated in the metals and mining sector of the Russian Federation economy including one of Russia’s top ten gold miners, Russia’s largest producer of semi-fabricated aluminum products, and a network of Russian mining companies connected to the wealthy Russian Trotsenko family, believed to be close to Russian President Vladimir Putin.

  1. Targeting Russia’s Defense Sector and Military Industrial Base

In an effort to disrupt and degrade Russia’s military industrial base, the State Department designated nearly 60 entities and individuals involved in the manufacture of weapons, ammunition, and associated materiel.  Such entities include dozens involved in the development of advanced technologies and high-tech machine tools being used to produce goods Russia can no longer import, as well as entities involved in the manufacture of weapons and ammunition supporting Russia’s defense industry.  For example, the State Department designated several entities that are involved in the development of additive manufacturing (3D printing) and computer numerical control (CNC) technologies.

The State Department also targeted several companies that were involved in the ongoing military cooperation between Iran and Russia, furthering Russia’s war efforts against Ukraine, as well as arms transfers between the North Korea and Russia, and several Russian private military companies and individuals supporting Russia’s war aims against Ukraine.

  1. Targeting Several Russian State-owned Companies

Several Russian state-owned enterprises in the automotive sector, which continues to play a significant role in the Russian military industrial base, as well as the state-owned enterprise involved in the development of the Russian Far East and Russian Arctic regions were also designated.  The newly designated SDNs include JSC Far East And Arctic Development Corporation, the management company responsible for coordinating investment projects in the Free Port of Vladivostok, the Special Administrative Region on Russky Island, and the advanced special economic zones in the Far Eastern and Arctic regions of Russia, along with its 10 subsidiaries and affiliates.

  1. Promoting Accountability for Malign Actors

The State Department also designated individuals and entities that supported Russia’s war efforts and other malign activities.  These SDNs include a Russian proxy authority in occupied territories of Ukraine; individuals supporting Russia’s expropriation of foreign companies; Marina Tauber, who was allegedly involved in subversion of Moldova’s electoral process; and the networks of two Russian businessmen, Sergey Gordeev and Andrey Komarov.

  1. Targeting Individuals Involved in the Forced Transfer, Deportation, and/or “Re-education” of Ukraine’s Children

Seven persons alleged to be involved in the forcible transfer and/or deportation of Ukraine’s children to camps promoting indoctrination of children in Russia, Belarus, and Russia-occupied Crimea were also designated, and the State Department imposed visa restrictions on five Russian officials allegedly involved in human rights abuses in connection with the transfer of Ukrainian children away from their families.

Entity List Additions and Addition of 5 Items to the Common High Priority Items List (CHPL)

Separately, BIS added 93 entities to the Export Administration Regulations (EAR) Entity List in an effort to continue cutting off the Russian defense industrial base and military from even low-technology consumer goods.

Over 50 of the entities added to the Entity List received a “footnote 3” designation as being Russian-Belarusian military end users.  Where the end user is a footnote 3 entity, US export controls jurisdiction applies to a broader set of foreign-produced items made from US software or technology, or from plants or plant components made from US software or technology.

In addition to the 63 Russian entities added to the Entity List, BIS added sixteen entities in Turkey, eight in China, four in the UAE, two in Kyrgyzstan, and one each in India and South Korea.  With this action, BIS has targeted entities facilitating the export of controlled microelectronics, machine tools, electronics test equipment, machine tool spare parts, and other items to Russia, and several entities in diversion or transshipment networks involving U.S.-origin goods.  With the addition of these new entities, over 900 entities have been added to the Entity List in response to Russia’s war on Ukraine.

As part of its further tightening of export controls on Russia, five HTS codes were added to the existing 45 HTS codes on the multilateral CHPL to include certain CNC machine tools and parts:

  • 8457.10 Machining centers for working metal
  • 8458.11 Horizontal lathes for removing metal, numerically controlled
  • 8458.91 Lathes, excluding horizontal, for removing metal, numerically controlled
  • 8459.61 Milling machines, not knee type, for removing metal, numerically controlled
  • 8466.93 Parts and accessories for machine tools, for laser operation, metalworking machining centers, lathes and drilling machines, etc., not specified or included elsewhere

Prior to their inclusion in the CHPL, these items were already listed in Supplement No. 7 to Part 746 of the EAR and therefore required a license for export to Russia and Belarus.  Nevertheless, inclusion on the CHPL demonstrates an elevation of these items as items of concern.

Interagency Advisory on Doing Business in the Russian Federation and Russia-Occupied Territories of Ukraine

In connection with the other sanctions and export controls measures taken by the Biden Administration, the Departments of State, Treasury, Commerce, and Labor published an advisory entitled Risks and Considerations for Doing Business in the Russian Federation and Russia-Occupied Territories of Ukraine.  The advisory largely summarizes the existing sanctions and export controls imposed on Russia, as well as other business and reputational risks including those related to import prohibitions into the United States, money laundering, and corruption, and points to various resources for use by industry in understanding those risks and undertaking due diligence.

The advisory takes a notably stern tone and suggests that companies continuing to do business in Russia may face a number of significant risks, even if the conduct in question is entirely lawful.  The advisory begins by expressing, “The United States assesses that doing business in the Russia Federation and in Russia-occupied territories of Ukraine poses serious legal, financial, and reputational risks.”  It adds that while any decisions to do business in Russia “are ultimately up to businesses, individuals, and organizations, the U.S. government wants to highlight risks associated with doing business in or linked to the Russian Federation or the areas it occupies in Ukraine.”

The advisory then highlights three broad categories of risks, including:

  1. Risk of businesses and individuals becoming exposed to sanctions, export controls, import prohibitions, money laundering vulnerabilities, and corruption;
  2. Risk of businesses and individuals being implicated in the Government of Russia’s violations of international law, including war crimes and crimes against humanity, and human rights abuses; and
  3. Risk to businesses and individuals due to the proliferation and implementation of repressive laws in the Russian Federation and the areas of Ukraine it occupies, including measures authorizing expropriation in certain instances or detentions based on spurious grounds.

The advisory goes into detail on each of these risk categories, outlining the various ways that industry may violate US law or otherwise face business or reputational risks.

The advisory repeatedly highlights the importance of robust due diligence for persons continuing to do business in Russia and includes an annex containing a variety of due diligence recommendations broken into two categories:  (1) human rights due diligence and (2) compliance due diligence for sanctions and export controls.  For specific best practices and due diligence standards, the advisory primarily directs industry to preexisting guidance from various US government agencies, international organizations, and industry groups, such as the UN’s  Office of the High Commissioner for Human Rights guide onThe Corporate Responsibility to Respect Human Rights and OFAC’s A Framework for Compliance Commitments.

While the advisory does not provide much new in terms of outlining specific restrictions or highlighting specific compliance measures, it does provide a fairly comprehensive overview of risks and a helpful compilation of compliance resources.  The stern tone of the advisory is seemingly intended to dissuade industry from doing business in Russia absent robust due diligence on a variety of potential risks.