New U.S. Trade Restrictions on Second Anniversary of Russia’s Invasion of Ukraine: Five Key Takeaways

On February 23, 2024, in response to the two-year anniversary of Russia’s invasion of Ukraine and the death of Russian opposition politician Aleksey Navalny, the United States issued a broad set of Russia-related export controls and sanctions measures, including sanctions on over 500 individuals and entities. The sanctions target both Russian and non-Russian actors, including parties involved in supporting Russia’s future energy revenue sources, parties assisting or supporting Russia’s capacity to continue the war effort, and parties facilitating sanctions evasion and circumvention. Additionally, the U.S. recently issued measures imposing new import restrictions on Russia related to diamonds and diamond jewelry.  

Since the invasion in 2022, the Departments of State, Treasury, and Commerce have together designated over 4,000 individuals and entities related to Russia’s war in Ukraine. During this time, the U.S. and its allies, including the European Union (EU) and the United Kingdom (UK), have continued to increase pressure on Russia by continuously implementing novel and wide-ranging types of restrictions.  

Also last week, to mark the second anniversary of Russia’s invasion of Ukraine, the U.S. Department of Justice (DOJ) announced a set of new charges, arrests, and forfeitures in connection with Russia. Specifically, among other actions, the DOJ announced forfeiture actions involving $2.5 million in luxury properties, arrested two U.S. residents for helping a Russian violate sanctions, and charged two sanctioned oligarchs with violating U.S. sanctions restrictions.

Below we highlight five takeaways with respect to the latest round of sanctions, export controls, and other restrictions on Russia.

1. The U.S. Is Targeting an Increasing Number of Non-Russian Persons

New sanctions issued by the Department of the Treasury Office of Foreign Assets Control (OFAC) target a significant number of non-Russian persons for assisting Russia to evade or circumvent U.S. sanctions or otherwise supporting Russia’s war effort.  

The U.S. has in the past year dedicated significant efforts to detect, deter, and address circumvention and evasion of Russian sanctions. Consistent with these efforts, newly sanctioned non-Russian parties include, among others, exporters and transhippers of technology, equipment, and parts to Russia; a freight forwarder involved in weapons shipments to Russia; and a transnational money laundering network that facilitated movement of Russian-origin precious metals. These sanctioned individuals and entities span 11 countries, including China, Serbia, the United Arab Emirates, Germany and Liechtenstein. See generally the Department of Commerce, Department of the Treasury, and Department of Justice Tri-Seal Compliance Note of March 2023, “Cracking Down on Third-Party Intermediaries Used to Evade Russia-Related Sanctions and Export Controls.” 

OFAC is also placing increased pressure on foreign (including non-Russian) financial institutions operating in Russia or supporting Russian persons. In particular, under Executive Order (EO) 14114 of December 22, 2023, OFAC has the authority to sanction foreign financial institutions determined to be conducting or facilitating significant transactions or providing any service “involving Russia’s military-industrial base” or to persons sanctioned for “operating or having operated in the technology, defense and related materiel, construction, aerospace, or manufacturing sectors of the Russian Federation economy.”¹  

In light of these measures focusing on the actions of non-Russian persons, companies should note that even if they have left the Russian market or are not operating in Russia or engaging with Russian persons, they may still be exposed to Russia-related sanctions by dealing with sanctioned non-Russian parties.  

2. The U.S. Continues to Target the Russian Financial and Shipping Sectors and Expands Sanctions Targeting the Supply Chains for Russia’s Defense Industry   

Even prior to the latest round of sanctions, a significant number of Russian financial institutions was subject to U.S. sanctions measures. On February 23, the U.S. sanctioned an additional nine financial institutions in Russia as well as the National Payment Card System Joint Stock Company, the state-owned operator of the Mir National Payment System. As a result, it is becoming increasingly difficult to make payments to or receive payments from even non-sanctioned Russian persons.  

Also on February 23, the U.S. sanctioned Russian shipping company and fleet operator Sovcomflot, Russia’s largest shipping company. OFAC stated that the sanctions on Sovcomflot were in furtherance of the U.S. goal of reducing Russia’s revenue from oil sales. OFAC simultaneously sanctioned 14 Sovomcomflot crude oil tankers but otherwise authorized through a general license transactions with all other vessels owned by Sovcomflot. The license has the effect of narrowing some of the impact of the sanctions to Russia’s oil and gas industry rather than the shipping industry more broadly.  

In addition to the financial and shipping sectors, the recent sanctions target the supply chain for Russia’s defense industry. OFAC observed, “[a]s Russia’s overheating war economy continues to cannibalize non-defense-related production at the expense of future economic prospects for the Russian people, an increasing number of entities across Russia are directly or indirectly contributing to Russia’s war machine.”²  To this end, OFAC has targeted though the latest round of sanctions entities in ancillary industries that do not necessarily operate in or primarily for the defense sector but have nevertheless been involved in assisting the Russian war effort. These ancillary industries include additive manufacturing; machine tools and other manufacturing and metalworking equipment; lubricants; semiconductor and electronics manufacturing; industrial automation, optics, and more.

3. Recent Sanctions Measures Include Non-List-Based Actions 

In addition to the list-based sanctions discussed above, recent sanctions measures include new non-list-based actions. Specifically, on February 8, 2024, OFAC issued the “Diamond Jewelry and Unsorted Diamonds Determination.” The determination prohibits the import and entry into the U.S. of diamond jewelry and unsorted diamonds that are either of Russian origin or were exported from Russia. This prohibition includes jewelry that was manufactured in Russia, even if the diamonds originate from outside of Russia, as well as nonindustrial diamonds mined in Russia but “substantially transformed” (such as being by cut, polished, or faceted) in a third country.

These actions highlight that compliance programs that simply screen individuals and entities against sanctioned or restricted party lists may be insufficient to capture the wide-ranging set of Russia-related sanctions measures. Companies should consider different approaches to compliance in order to capture the risks associated with nontraditional sanctions, such as import restrictions and service-related restrictions. For more information on restrictions on the export of services, see Sidley’s client alert here. 

4. New Export Control Restrictions Targeting Russia May Further Complicate Compliance Efforts

The U.S. Department of Commerce Bureau of Industry and Security (BIS) added 93 new entities to the Entity List related to their support of Russia. While the majority of the additions are Russian entities, additions to the list also include entities in China, Turkey, and the United Arab Emirates.³   

BIS is considering a new rule that would impose export control restrictions on persons sanctioned under the authority of EO 14024, which includes, among others, most of the persons and entities sanctioned in connection with Russia and a majority of the parties sanctioned by OFAC on Friday.⁴  Specifically, this proposed rule would require authorization from BIS for export of items subject to U.S. jurisdiction to persons designated under EO 14024. In practice, this may mean that even if the export is otherwise authorized under a sanctions-related general license issued by OFAC, the export may need to be licensed by BIS as well.  

The proposed rule would likely also affect persons not already subject to U.S. sanctions jurisdiction if they are dealing in items subject to U.S. jurisdiction. That is, while such persons may not be restricted under U.S. sanctions, they could nevertheless be captured by U.S. export controls jurisdiction based on the items involved in a given transaction. Depending on the final rule promulgated, this regulation could extend to exports of even low-level, nonsensitive goods. This rule is still under regulatory review, and there is no timeline on the expected issuance of such rule.

5. U.S. Actions Taken in Parallel With Our European Allies to Maximize Pressure on Russia

The UK and the EU also implemented new measures last week in response to the second anniversary of Russia’s invasion of Ukraine. Similar to the U.S. measures, the UK and EU measures focus on penalizing entities supplying Russia’s war effort, restricting revenue streams to Russia, and targeting circumvention efforts.⁵  

Specifically, the UK announced over 50 new sanctions targeting Russia. The EU adopted its 13th package of sanctions measures targeting Russia. The new EU measures (1) target Russia’s military and defense sector, Russian companies supporting the war effort, and Russian parties assisting to circumvent sanctions, (2) expand the list of products subject to export restrictions, and (3) in an attempt to further curb circumvention, subject to enhanced export restrictions various non-Russian parties deemed to have facilitated sanctions elusion, including entities in China, India, Indonesia, Sri Lanka, Turkey, Serbia, and Kazakhstan. The 13th package follows significant new sanctions measures implemented under the 12th package, issued at the end of 2023. The 12th package included, among other things, an expansion of restrictions on the export of services to Russia as well as new limitations on previous exemptions and authorizations under such measures.  

Because the measures implemented by the UK and the EU are similar, but not identical, to the measures implemented by the U.S., parties with exposure to each of these jurisdictions will need to continue to ensure compliance with all three regimes. 

³ “Additions of Entities to the Entity List,” 89 Fed. Reg. 14385 (Feb. 27, 2024), https://www.govinfo.gov/content/pkg/FR-2024-02-27/pdf/2024-03969.pdf. 

⁴ U.S. Department of Commerce, “Imposition of Restrictions on Exports, Reexports and Transfers (In-Country) to Persons Whose Property and Interests in Property are Blocked Pursuant to Executive Order 14024,” https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202310&RIN=0694-AI82.

⁵ Press Release, “New UK sanctions mark 2 years since Russia’s illegal invasion of Ukraine” (Feb 22, 2024), https://www.gov.uk/government/news/new-uk-sanctions-mark-two-years-since-russias-illegal-invasion-of-ukraine. Press Release, “EU adopts 13th package of sanctions against Russia after two years of its war of aggression against Ukraine*,” (Feb. 23, 2024), https://neighbourhood-enlargement.ec.europa.eu/news/eu-adopts-13th-package-sanctions-against-russia-after-two-years-its-war-aggression-against-ukraine-2024-02-23_en.  

⁶ Press Release, “EU adopts 12th package of sanctions against Russia for its continued illegal war against Ukraine” (Dec. 19, 2023), https://neighbourhood-enlargement.ec.europa.eu/news/eu-adopts-12th-package-sanctions-against-russia-its-continued-illegal-war-against-ukraine-2023-12-19_en.