On July 18, 2022, further amendments to the UK’s Russia sanctions regime came into force in response to Russia’s invasion of Ukraine.  The new measures introduced under the Russia (Sanctions) (EU Exit) (Amendment) (No. 13) Regulations 2022 (“Amendment 13”) include an expansion of the designation criteria pursuant to which individuals and entities can be made subject to UK asset freeze sanctions and the introduction of a new trade sanctions exception for humanitarian assistance activity in non-government controlled areas of the Donetsk and Luhansk oblasts.  Amendment 13 also expands certain definitions in relation to the interpretation of the concept of “ownership” of ships and aircraft subject to UK sanctions measures.

On July 19, 2022, new financial sanctions measures also came into force targeting certain new investment activities in relation to Russia.  The measures, made pursuant to the Russia (Sanctions) (EU Exit) (Amendment) (No. 12) Regulations 2022 (“Amendment 12”), include restrictions on the acquisition of any ownership interest in land in Russia and in entities connected with – or having a place of business in – Russia, as well as a prohibition on the establishment of commercial arrangements such as branches in Russia and joint ventures with persons connected with Russia.  Investment services directly related to those activities also are prohibited by Amendment 12.

Continue Reading UK Expands Powers of Designation Under Russia Sanctions Regime; Prohibits Additional Types of New Investment in Russia and Introduces New Trade Sanctions Exception for Humanitarian Assistance

On June 28, 2022, 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 Alert entitled “FinCEN and the U.S. Department of Commerce’s Bureau of Industry and Security Urge Increased Vigilance for Potential Russian and Belarusian Export Control Evasion Attempts” (“Joint Alert”).  The Joint Alert marks the first time FinCEN and BIS have collaborated on an alert of this nature and has important implications for both financial institutions and exporters/international trade parties.

Continue Reading New Joint Alert Puts Export Compliance Focus on Financial Institutions

The National Economic Crime Centre (NECC), a multi-agency unit in the National Crime Agency (NCA), and HM Treasury’s Office of Financial Sanctions Implementation (OFSI) have published a “red alert” on financial sanctions evasion typologies by Russian elites and enablers (Red Alert) that synthesizes information from a range of UK law enforcement agencies as well as industry to identify common techniques designated persons and their enablers are suspected to be using to evade financial sanctions.

The Red Alert provides a series of sanctions evasion indicators identified from real world case studies.  It also sets out recommendations as to the level and type of due diligence that companies should perform on higher risk transactions and counterparties.  The stated purpose of the Red Alert is to combat and disrupt financial sanctions evasion by complementing the private sector’s existing knowledge of these issues and facilitating preventative action in the form of enhanced business processes and procedures to identify and mitigate the significant exposure that many sectors of industry have to sanctions evasion following the unparalleled volume of sanctions designations introduced since the start of the Russian invasion of Ukraine.

In practical terms, the Red Alert offers a timely reminder of the challenges companies can face in effectively identifying and mitigating the sanctions risks posed by higher risk transactions and counterparties and underscores the importance of companies undertaking robust due diligence that is calibrated to address appropriately the sanctions risks, including sanctions evasion risks, posed by such transactions and business relationships.  In particular, companies should carefully consider whether their existing sanctions compliance processes take into consideration the sanctions evasion warning flags and due diligence recommendations outlined in the Red Alert.

Continue Reading UK “Red Alert” on Russian Financial Sanctions Evasion Offers a Timely Reminder of the Importance of Risk-Based Due Diligence

On 5 July 2022, the UK Government introduced a further round of financial, trade and transport sanctions against Belarus in response to its continuing support of Russia’s invasion of Ukraine.  The new sanctions measures were implemented pursuant to The Republic of Belarus (Sanctions) (EU Exit) (Amendment) Regulations 2022 (“Amended Regulations”), which extends a range of sanctions measures previously introduced against Russia to Belarus.

Continue Reading UK Introduces Further Economic Sanctions Against Belarus Including Financial, Trade & Transport Sanctions

The Department of Commerce’s Bureau of Industry and Security (BIS) has announced policy changes designed to strengthen its administrative enforcement of U.S. export controls. In a memorandum released on June 30, Matthew Axelrod, Assistant Secretary for Export Enforcement at BIS, outlined four new policy changes including (1) significantly higher penalties for egregious violations, (2) elimination of no admit/no deny settlements, (3) offering non-monetary settlement agreements in cases where the violations “do not reflect serious national security harm” but are more serious than cases that receive warnings or no-action letters, and (4) implementation of a dual-track processing system for Voluntary Self Disclosures (VSDs) involving minor or technical infractions and those involving potentially more serious violations. These changes have the potential to significantly increase export enforcement risks for U.S. and non-U.S. companies, and suggest it is time for exporters and reexporters to conduct internal audits, assessments, and monitoring for potential compliance gaps. It may be necessary for some exporters to consider tailoring and enhancing internal export compliance programs, processes, and resources to avoid costly penalties, investigations, business disruptions, and brand damage.

Continue Reading Revamping BIS’s Administrative Enforcement Authorities: Time to Consider More Investment in Internal Corporate Compliance

On 29 June 2022, HM Treasury’s Office of Financial Sanctions Implementation (OFSI) announced that a monetary penalty of £15,000 was imposed on 19 May 2022 against Tracerco Limited (Tracerco) for breaches of The Syria (European Union Financial Sanctions) Regulations 2012 (the UK Regulations).  Tracerco is a UK registered company based in the UAE and a subsidiary of Johnson Matthey, also a UK company.

According to OFSI’s penalty report, Tracerco made two payments to Syrian Arab Airlines (SAA) for an employee’s flights home between May 2017 and August 2018.  According to OFSI, the payments, which had a total value of £2,956.43, resulted in funds being made available for the benefit of a person designated under Council Regulation (EU) No 36/2012 (i.e., SAA).  Tracerco booked the flights through a UAE-based travel agency and then refunded the travel agency for the cost of the flights.

The Tracerco case represents the seventh use of OFSI’s civil monetary penalty powers since they were introduced under Part 8 of the Policing and Crime Act 2017 (PACA).  Several useful hints as to OFSI’s enforcement priorities can be discerned from the Tracerco case.

Continue Reading UK Oil Services Company Becomes Seventh Company to Receive OFSI Monetary Penalty for Sanctions Breaches

The Uyghur Forced Labor Prevention Act (UFLPA) supports the existing prohibition on the importation of goods into the United States made with forced labor under Section 307 of the Tariff Act of 1930 (19 U.S.C. § 1307).  Enforcement of the UFLPA began on June 21, 2022.  Companies with supply chains that have links to Xinjiang specifically and China more generally should be concerned about the implications of UFLPA enforcement.

The UFLPA requires U.S. Customs and Border Protection (CBP) to apply a presumption that imports of all goods, wares, articles, and merchandise mined, produced, or manufactured wholly or in part in the Xinjiang Uyghur Autonomous Region of China (Xinjiang), or by entities on the UFLPA Entity List (described below), are prohibited from entry into the United States under 19 U.S.C. § 1307.  The scope of the UFLPA extends to goods made outside of or shipped through China that include inputs made wholly or in part in Xinjiang.  There is no de minimis exception.  Priority enforcement areas include polysilicon, cotton, and tomatoes.

Continue Reading Uyghur Forced Labor Prevention Act, Part II: Enforcement

On June 23, 2022, the UK government adopted its latest package of trade sanctions measures against Russia in response to its continued military aggression in Ukraine.  The new sanctions measures were implemented pursuant to The Russia (Sanctions) (EU Exit) (Amendment) (No. 10) Regulations 2022 (“Russia Regulations Amendment No. 10”), which introduce a tranche of new trade sanctions, as well as adding new items to various existing restrictions and expanding existing prohibitions on military goods and technology to the non-government controlled Ukrainian territory.  Additionally, the UK government has this week updated its guidance on the aviation and space goods and technology insurance ban.

For more information on how these developments could impact your organization, contact the author of this post, Alexandra Melia, in Steptoe’s Economic Sanctions team in London.

For additional resources can be found on Steptoe’s “Sanctions against Russia: Implications for Business and International Trade” page.

New Trade Sanctions

The Russia Regulations Amendment No. 10 have introduced a new tranche of trade sanctions measures, which includes bans on:

  • the export, supply, delivery and making available to Russia and non-government controlled Ukrainian territory of interception and monitoring and internal repression goods and technology (as specified in Part 2 and Part 3, respectively, of Schedule 3C) as well as the transfer of such technology. The provision of related services also is prohibited, including interception and monitoring services;
  • the export, supply, delivery and making available to Russia and non-government controlled Ukrainian territory of goods relating to chemical and biological weapons (as specified in Part 4 of Schedule 3C), with a carve out for medicinal products and medical devices. The provision of related services also is prohibited;
  • the export, supply, delivery and making available of maritime goods and technology (as specified in in Chapter 4 (Navigation Equipment) and Chapter 5 (Radio-Communication Equipment) of Annex 1 of the Merchant Shipping Notice 1874) for placing on board a Russian-flagged vessel and transfer of maritime technology to a Russian-flagged vessel;
  • the export to or for use in Russia, making available in Russia, or to a person connected with Russia, of Sterling or EU denominated banknotes;
  • the provision of technical assistance, financial services or brokering services relating to iron and steel products;
  • the export to or for use in Russia of jet fuel and fuel additives (as specified under the relevant heading in Part 8 of Schedule 2A), as well as the provision of related services;
  • the import, acquisition or supply and delivery of revenue generating goods (as specified in Schedule 3D) that originate in or are consigned from Russia, and the provision of related services; and
  • the provision of services relating to iron and steel imports.

Addition of Products to Existing Trade Sanctions Prohibitions

The Russia Regulations Amendment No. 10 also has added new products to existing trade sanctions prohibitions on:

  • critical industry goods and technology;
  • oil refining goods and technology (including certain cold boxes, exchangers, pumps and process units for use in the LNG process); and
  • energy-related goods (including hydraulic fracturing items and high pressure pumps).

Extension of Certain Existing Russia Prohibitions to Non-government Controlled Ukrainian Territory

Finally, The Russia Regulations Amendment No. 10 has expanded the existing prohibitions on exporting, supplying, delivering and making available military goods and technology, and transferring military technology, to apply to non-government controlled Ukrainian territory as well as Russia.  The provision of related services also is prohibited.

New Guidance Published on Aviation and Space Goods Insurance Ban

On June 22, 2022, the UK government revised its statutory guidance on the UK’s Russia sanctions regime and, in particular, its guidance in relation to the prohibition on providing insurance and reinsurance services in relation to certain specified aviation and space goods and technology.

The revised guidance clarifies that the prohibition would not apply when:

  • the insurance in question is for the benefit of the non-Russian owner of the goods/technology, rather than the user or operator of such goods/technology; or
  • the items remain in Russia as the result of the termination of a lease and against the lessor’s will, or are being flown out of Russia in the process of being returned to their owner.

On June 15, 2022, the United Kingdom will introduce a strict civil liability standard for violations of UK financial sanctions committed after that date.  In anticipation of this important change to the enforcement powers of HM Treasury’s Office of Financial Sanctions Implementation (OFSI), the OFSI enforcement and monetary penalties for breaches of financial sanctions guidance (Monetary Penalties Guidance) has been updated and will take effect from June 15.  OFSI Director, Giles Thomson, also has outlined OFSI’s enforcement approach in light of these imminent changes in a blog post.

For more information on how these developments could impact your organization, contact the author of this post, Alexandra Melia, in Steptoe’s Economic Sanctions team in London.

Continue Reading UK Updates Sanctions Enforcement Guidance in Readiness for Imminent Introduction of Strict Civil Liability for Financial Sanctions Breaches

On 16 May 2022, the Council of the EU (the Council) decided for the third time to prolong its restrictive measures against cyber-attackers threatening the EU, its Member states or its allies. The measures are set to remain in place for a further three years until May 18, 2025. The Council’s press release on this is available here.

As mentioned in our previous post on the topic, the EU set up a cyber diplomacy toolbox (Toolbox) that enables the EU and its Member states to trigger measures from the Common Foreign and Security Policy (CFSP). The CFSP is the foreign policy framework of the EU, whereby Member states agree common positions on defense diplomacy and common positions on how to respond to security threats. This enables the Council to impose restrictive measures in order to prevent, discourage, deter and respond to malicious cyber activities that target the integrity and security of the EU and its member states. If necessary, the CFSP and the toolbox permit the Council to impose sanctions on those responsible for cyber-attacks from third counties or international organizations.

Sanctions were first imposed in July 2020, following an attempted cyber-attack against the Organisation for the Prohibition of Chemical Weapons (OPCW) by those publicly known as ‘WannaCry’, ‘NotPetya’, and ‘Operation Cloud Hopper’. Later that year, in October 2020, sanctions were imposed on two individuals and one entity for a cyber-attack against the German Federal Parliament in 2015. Those responsible were suspected to be working for Russian military intelligence. To date, eight individuals and four entities are subject to the Council’s sanctions regime that includes asset freezes, travel bans and bans on EU persons making funds available to them. This list will be re-assessed on May 18, 2023.

The purpose of this new extension is to send out a strong signal to hackers; cyberattacks are not tolerated.