Sanctions Weekly Update – Ukraine/Russia Conflict – May 22, 2023

US Sanctions | EU Sanctions | UK Sanctions | Russia/Ukraine Sanctions | Other Notable Developments

Week of May 22, 2023

I.  US SANCTIONS 

• Biden Administration Imposes Over 300 New Sanctions on Russia Targeting Evasion, Military-Industrial Supply Chain and Energy Revenues: On May 19, in coordination with the G7 and other international partners, the Biden administration announced that it is imposing over 300 new sanctions and restrictive economic measures on Russia, targeting Russia’s attempts to circumvent existing sanctions, channels to acquire critical technology, future energy extraction capabilities, and access to other necessary goods and services.  This new package includes sanctions on 22 individuals and 104 entities by the Treasury Department’s Office of Foreign Assets Control (OFAC), nearly 200 designations of blocked property by the Department of State, and the addition of 71 entities to the Entity List by the Department of Commerce’s Bureau of Industry and Security (BIS). Read more>> Read more>> and Read more>>
• BIS Refines Existing Export Controls to Align with Allies and Partners: On May 19, concurrent upon the newly imposed sanctions package, the Department of Commerce’s Bureau of Industry and Security (BIS) issued a new rule to strengthen the existing Russian and Belarusian Industry Sector Sanctions by adding license requirements for additional items outlined in the Export Administration Regulations (EAR), further aligning U.S. controls with controls implemented by U.S. partners and allies.  Specifically, the rule added three new harmonized tariff system (HTS) chapters and certain additional chemicals to the EAR, expanded the list of foreign-produced items that require a license to Russia and Belarus, as well as expanded the destination scope of the Russia/Belarus Foreign-Direct Product Rule to include the region of Crimea.  Read more>> and Read more>>
• OFAC Amends Russia-Related Directive, Issues New General Licenses, Determinations and FAQs: On May 19, concurrent upon the newly imposed sanctions package, the Treasury Department’s Office of Foreign Assets Control (OFAC) issued the following new or amended Russia-related directive, general licenses (GL), determinations, and FAQs:
• The amended Russia-related Directive 4 under Executive Order (E.O.) 14024 – imposing an additional annual reporting requirement on U.S. persons holding, directly and indirectly, assets of entities subject to the directive. The requirement enters into force on June 18. The OFAC also updated FAQs 998-1002, 1004-1005, and 1118 to reflect this amendment;
• Four new Russia-related GL:
  GL 13E, “Authorizing Certain Administrative Transactions Prohibited by Directive 4 under Executive Order 14024;”
  GL 66, “Authorizing the Wind Down of Transactions Involving Public Joint Stock Company Polyus;”
  GL 67, “Authorizing Certain Transactions Related to Debt or Equity of, or Derivative Contracts Involving, Public Joint Stock Company Polyus;” and
  GL 68, “Authorizing the Wind Down of Transactions Involving Certain Universities and Institutes;”

• Two new Russia-related Determinations – one pursuant to Section 1(a)(i) of E.O. 14024, and another pursuant to Section 1(a)(ii) of E.O. 14071.  The OFAC also published FAQs 1126-1128, amended FAQs 1059 and 1061-1062, and removed FAQs 964, 1037, and 1085. These changes consolidate OFAC’s general guidance pertaining to Russia-related sector and service determinations; and
• One new FAQ (1129) in relation to a designated person.  Read more>>

• FinCEN and BIS Issue Joint Supplemental Alert Warning Continuous Evasion of Russian Export Controls: On May 19, concurrent upon the newly imposed sanctions package, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and the Department of Commerce’s Bureau of Industry and Security (BIS) issued a joint supplemental alert urging continued vigilance for potential evasion of Russian export controls.  The new alert builds upon the first FinCEN-BIS joint alert issued in June 2022 and provides updates on new export controls, details evasion typologies, introduces new high priority Harmonized System codes, and identifies additional red flags indicating suspicious transactions.  Read more>>
• OFAC Sanctions Head of Russia’s Wagner Group in Mali: On May 25, the Treasury Department’s Office of Foreign Assets Control (OFAC) announced that it is imposing sanctions on Ivan Aleksandrovich Maslov, the head of Russian Private Military Company ‘Wagner’ (Wagner Group) paramilitary units and its principal administrator based in Mali.  The Wagner Group and its leader, Yevgeniy Viktorovich Prigozhin, have been sanctioned under multiple authorities, including for support of Russia’s war against Ukraine.  The OFAC alleges Wagner Group of acquiring military equipment for use in Ukraine, through footholds in Mali and other African countries. Read more>>  
• President Biden Meets Ukrainian President Zelenskyy at G7 Summit: On May 21, President Biden met with President Volodymyr Zelenskyy of Ukraine at the G7 summit in Hiroshima, Japan.  President Biden underscored U.S. readiness to continue delivering security assistance to meet Ukraine’s immediate battlefield needs, and to build Ukraine’s long term capacity in defending against Russian aggression.  The leaders also discussed a joint effort by the U.S. and its allies and partners to train Ukrainian pilots on fourth-generation fighter aircrafts, further strengthen Ukraine’s air defenses as Russia continues to its missile and drone attacks, as well as the support from the U.S. and other G7 nations on Ukraine’s war reconstruction and internal reforms.  Read more>>
• Biden Administration Announces Additional Security Assistance for Ukraine: On May 21, concurrent upon President Biden and Ukrainian President Zelenskyy’s meeting at Hiroshima, Japan, the Biden administration announced that it is authorizing the 38^th drawdown of U.S. arms and equipment for Ukraine.  This security assistance package, valued at up to $375 million, includes additional ammunition for High Mobility Artillery Rocket Systems, artillery ammunition, anti-tank weapons, armored medical treatment vehicles, trucks and trailers to transport heavy equipment, spare parts and other field equipment.  Read more>> and Read more>>
• Treasury Releases Progress Report on Oil Price Cap Policy: On May 18, the Treasury Department’s Office of Terrorist Financing & Financial Crimes and Office Economic Policy released a progress report on the effect of Russian oil price cap in achieving its dual goals – reducing Russia’s revenue and keeping the global energy market stable.  Specifically, the report highlighted that the Russian government recorded a significant decrease in federal oil revenue despite increased export volumes, and that Russia has been forced to alter the way it taxes oil such that it institutionalizes the discounted value of Russian crude, proving that the price cap policy had been successful.  Read more>>
• Ukraine Defense Contact Group Holds 12^th Meeting: On May 25, the Ukraine Defense Contact Group held its 12^th meeting.  During the meeting, defense leaders from 50 countries discussed military training and security assistance provided to Ukraine so far, the current situation on the Ukraine battlefield, and the critical capability gaps that the country is facing.  Read more>> and Read more>>
• U.S. Senator Urges Serbia to Adopt Western Sanctions Against Russia: On May 25, U.S. senator Chris Murphy urged Serbia to adopt Western sanctions against Russia over its invasion of Ukraine, saying that the country has “no future” in an alliance with Moscow, according to reports.  To date, Serbia is the only country in Europe that has not imposed any sanctions on Russia, maintaining direct air links to Russian cities.  It is also almost completely reliant on Russia for energy supplies.  Read more>>

II. EU SANCTIONS

• EU High Representative Issues Clarification on Circumvention of EU Sanctions: According to the EU High-Representative, this week member states discussed the EU’s 11th sanctions package against Russia which is essentially about closing loopholes and how best to address the issue of circumvention and the rerouting of trade in banned products. The High Representative also states that the EU has to look at what economic operators within the EU are doing and that “If Indian refiners are selling, that is because European companies are buying, directly or through an intermediary. We should be well aware of how complex real life is and try to look for solutions on that basis”. Read more>>
• European Banking Authority Issues New Reporting Template: The EBA revised the templates for reporting of deposits subject to Russian and Belarusian economic sanctions. Read more>>
• EU General Court Rejects Four Requests for Annulment of EU Sanctions: On 24 May 2023, the EU General Court rejected four requests for annulment against EU asset freeze measures imposed in the context of sanctions against Belarus. Read more>>  Read more>> and Read more>>
• EU Parliament Committee Votes on to Speed Up the Freezing and Confiscation of Criminal Assets: MEPs on the Civil Liberties, Justice and Home Affairs Committee adopted a draft position on new legislation on seizing criminal assets that would ensure fast and efficient freezing operations everywhere in the EU, and quicker compensation for victims. Compared to existing legislation, the new directive would also cover trafficking in firearms, certain crimes committed as part of a criminal organization and the violation of EU sanctions. The committee authorizes the opening of inter-institutional negotiation with the aim of reaching an agreement with other institutions on the final text of the new legislation. Read more>>
• Kazakh Banks do not Merit EU Sanctions over Russia Links, Argues Central Bank: Kazakhstan's banks do not merit inclusion in the next round of EU sanctions, as they are complying with existing sanctions and are not working with sanctioned Russian banks, according to deputy governor Berik Sholpankulov. Read more>>
• EU will 'React as Appropriate' to Russian Nukes in Belarus: The EU has condemned plans by Belarus to host Russian nukes, following an agreement signed between Minsk and Moscow. Read more>>
• Hungary's Prime Minister Criticizes EU's Sanctions Policy Targeting Russia: Criticizing the EU's sanctions against Russia, Hungarian Prime Minister Viktor Orban said, "sanction policy of EU simply does not work." It is not reasonable to introduce sanction packages for the 11th time hoping that the outcome will be different, Urban said at Qatar Economic Forum. Read more>>
• Council Adopts Renewal of Temporary Trade Liberalisation and Other Trade Concessions: The Council adopted on 25 May a Regulation which renews the suspension of all customs duties, quotas and trade defense measures on Ukrainian exports to the EU for another year, until June 2024. Read more>>
• Commission Approves EUR 1 Billion Polish Scheme to Support Agricultural Producers in the Context of Russia's War Against Ukraine: The European Commission has approved an approximately EUR 1 billion (PLN 4.7 billion) Polish scheme to support the liquidity of agricultural producers in the context of Russia's war against Ukraine. The scheme was approved under the State aid Temporary Crisis and Transition Framework. Read more>>
• Commission Approves EUR 9 Million French Scheme to Support Lavender Producers in the Context of Russia's War Against Ukraine: The Commission has authorized a French aid scheme worth EUR 9 million to support the lavender sector in the context of Russia's war against Ukraine. The scheme was authorized under the Temporary Crisis and Transition Framework. Read more>>

III.  UK SANCTIONS

• New UK Guidance on Trade Sanctions Circumvention: On May 22, 2023, the UK Department for Business and Trade published guidance which sets out how traders should consider the risk of Russia seeking to procure restricted goods via other routes. As part of their due diligence process trades should take into account the potential risks of Russia attempting to evade trade sanctions. The guidance includes key risk indicators (relating to customer, product and jurisdiction) and a procurement cycle illustrating the different stages and types of entities likely to be used to acquire goods covertly. Read more>>
• OFSI Issues New General Licence Covering Prior Obligations: On May 22, 2023, OFSI issued General Licence (GL) INT/2023/3024200 under Regulation 64 of the Russia (Sanctions) (EU Exit) Regulations 2019 and Regulation 32 of the Republic of Belarus (Sanctions) (EU Exit) Regulations 2019. The GL permits a UK person who is owed funds or economic resources by a designated person (DP) under the Russia or Belarus regimes, under a contract that was signed before the DP in question was designated, to receive payment, provided that:
  • the contractual obligation was signed before the DP in question became designated;
  • the payment is for the benefit of a UK person;
  • the value of the payments does not exceed £200,000;
  • DP correspondent banks or financial institutions are permitted to transfer funds or economic resources in line with the permissions of the GL;
  • no other UK person can use the GL to receive funds or economic resources arising from the same contractual obligation; and
  • certain types of contracts are not applicable under this GL as outlined in Annex A; this includes professional legal fees, bonds, derivatives, and credit default swaps.

This GL took effect from 22 May 2023 and expires on 21 November 2023.  Read more>>

• High Court Permits Redemption of Loan Notes Held by Sanctioned Entity by Payment into Court: On May 12, 2023, the High Court handed down a judgement in Fortenova Grupa D.D. v LLC Shushary Holding & Ors. Fortenova Grupa sought to redeem loan notes of €400m issued to Shushary in August 2019 before their maturity date in September 2023 but could not make payments to Shushary because it is a subsidiary of sanctioned VTB Bank PJSC. The Court made an order in proceedings under Part 8 CPR for the moneys to be paid into court (covered by the General Licence permitting positions with Shushary to be wound down) so it would then be for Shushary to apply to OFSI for the moneys to be released when sanctions are lifted. Shushary was concerned that OFSI might take a long time to licence payment from court to Shushary once sanctions were lifted but the judge held that was not a reason to refuse the order as alternatives such as an EU frozen account had not been possible because none could be found. The court did not order default interest because Fortenova had been willing to pay but unable to do so because of sanctions. Read more>>
• UK Designates 86 Russian Individuals and Entities and Announces Future Ban on Diamonds and Metals: On May 19, 2023, the Foreign, Commonwealth and Development Office added 86 individuals and entities to UK Consolidated List under the Russia Financial Sanctions regime. The designations target individuals and organisations connected to Russia’s energy, metals, defence, transport, and financial sectors.  The designations include:
  • 9 organisations connected to Russia’s state-owned nuclear energy company, Rosatom, including UMATEX, TRINITI, ATOMFLOT, VNIIINM, JSC SSC RIAR, RENERA, YAFI;
  • Oleg Romanenko, a lead official at the Zaporizhzhia Nuclear Power Plant, the Operating Organisation of Zaporizhzhia Nuclear Power Plant, 13 members of the Gazprom-Neft board of directors, and 5 members of the Transneft board of directors;
  • Igor Altushkin, owner of the Russian Cooper Company, and 8 companies connected to metals production in Russia;
  • 24 individuals and entities connected to Russia’s transport services, including Pawell Shipping Co LLP, the State Grain Corporation (GZO) and their director Nikita Busel who is allegedly connected to the systematic theft of Ukrainian grain;
  • 6 major Russian shipping companies, including Sun Ship Management;
  • 20 defence executives and companies, amongst them, Alan Valerievich Lushinkov and Vladimir Nikolaevich Lepin, who are both Directors of JSC Concern Kalashnikov, and JSC BMZ and JSC Motovilikhinskiye, companies producing military equipment and weapons; and
  • 5 financial institutions, including JSC Dom RF, which acts under the instruction of the Russian government, and Metallurgical Investment Bank, which is supporting Russia’s industrial exports.  Read more>>

• OFSI Publishes New Guidance on the Counter-Terrorism Sanction Review Process: On May 25, 2023, OFSI published guidance on how to request variation or revocation of a financial sanction designation under the Counter-Terrorism (Sanctions) (EU Exit) Regulations 2019. The guidance sets out among other things (i) who can apply for a variation of a designation; (ii) information on how to submit a Sanctions Review Form; and (iii) the evidence required to support the variation request. Read more>> 

IV.  RUSSIAN/UKRAINE SANCTIONS

• Volkswagen to Sell Russian Assets to Local Company: On May 19, 2023, it was reported that German carmaker Volkswagen completed the sale of its Russian assets to local dealership group Avilon, as part of its exit from Russia. The sale includes the flagship Kaluga factory southwest of Moscow, which employs around 4,000 people and has the capacity to build 225,000 vehicles per year. Germany's Handelsblatt financial newspaper reports that the carmaker would receive around 125 million euros ($135 million) from the sale — well below the actual value of VW's Russian assets. Read more>>
• Famed Armenian Cognac Brand Halts Exports to Russia: On May 19, 2023, it was reported that Yerevan Brandy Company, the producer of the iconic Armenian cognac brand Ararat, will halt exports to Russia. The Russian market accounts for about 80% of all Ararat exports and the embargo is expected to negatively impact Armenian cognac grape suppliers. Yerevan Brandy Company's parent company, the French wine and spirits group Pernod Ricard, condemned the Kremlin’s invasion of Ukraine and stopped all exports of its international alcohol brands to Russia in April to comply with Western sanctions. Read more>>
• Putin Signs Off on Sanctioned Tycoons’ Shared Yandex Stake: On May 22, 2023, it was reported that President Vladimir Putin has agreed on the sale of a majority stake in the Russian side of splintered tech giant Yandex to three sanctioned billionaires and the state-owned VTB Bank. Yandex, often referred to as the “Russian Google,” was split into two entities — a company overseeing operations in Russia and a second, Western-oriented, Amsterdam-based firm — following sanctions over the invasion of Ukraine. Moscow’s wartime exit fee on foreign businesses has lowered Yandex’s value from its peak of $30 billion to $7.6 billion. It was reported that Russia’s richest man Vladimir Potanin and oil tycoon Vagit Alekperov will join steel magnate Alexei Mordashov and VTB Bank to form the so-called “consortium of billionaires”. Read more>>
• Russian Energy Giant Gazprom Posts Big Drop in Profit: On May 23, 2023, it was reported that Russian energy giant Gazprom, whose gas exports plummeted in 2022 published a statement attributing the 41% net profit loss to an increase in tax. The company reported a profit of 1.2 trillion rubles ($15 billion) for 2022, down from 2.1 trillion rubles in the previous year. Read more>>
• Russia Central Bank Head Visits Iran to Strengthen Bilateral Banking Ties: On May 24, 2023, Iran’s state-run Mehr News Agency reported that the head of Russia’s Central Bank visited Iran for the first time Wednesday for talks on expanding economic ties between the two countries. Elvira Nabiullina met with her Iranian counterpart Mohammad Reza Farzin to discuss the use of national currencies in bilateral trade, banking cooperation and the expansion of currency transactions between the countries. Read more>>
• Novak Admitted That the Price of Brent Oil Will Exceed $80 by the End of the Year: On May 25, 2023, Deputy Prime Minister Alexander Novak announced that the price of Brent crude oil by the end of 2023 will be above $80 per barrel. Novak gauges that the rise is due to an increase in demand in the summer, when fuel consumption is growing in transport, transportation, air traffic, and agriculture.  Read more>>
• Wintershall Dea's Board Member to Resign After Her Decision to Leave Russia: On May 25, 2023, it was reported that Thilo Wieland, a member of the board of the German oil and gas company Wintershall Dea, who is responsible for its activities in Russia, Latin America and gas transportation projects, decided to leave his post. This happened after Wintershall Dea announced its intention to completely withdraw from the Russian market.  Read more>>
• "Kommersant" Learned About the Shortage of Top Managers in The Russian Labor Market: On May 25, 2023, it was reported that the largest number of requests for personnel among top managers comes from companies engaged in oil production, metals, chemical production and agribusiness, but on average, a vacancy can take up to six months to be filled. According to Dina Akimova, managing partner of the Ruspartners recruiting agency the significant number of top managers left towards the end of 2022. Moreover, among managers with a salary of more than 60 million rubles, a third left a year; among managers with a salary of 20-60 million rubles, about a quarter. Read more>>
• The Fund Allowed the Imminent Transfer of Abramovich's Money to the Victims in Ukraine: On May 25, 2023, it reported that the £2.35 billion received from the sale of the Chelsea football club by Russian businessman Roman Abramovich may go to victims of the conflict in Ukraine as early as June 2023. Read more>>

V.  OTHER NOTABLE DEVELOPMENTS

• G7 Pledges Unity in Response to Russia’s Aggression in Ukraine: On May 19-21, the G7 nations held their annual summit in Hiroshima, Japan.  In the G7 leaders’ released statements, among other things, they pledged to stay united in their response to Russia’s aggression in Ukraine, including the continuous imposition of new sanctions and export controls on Russia, and coordination with other nations on international peace and security, including the support of grain exports from Ukraine and Russia amid the ongoing food security crisis.  The G7 also urged Russia not to deploy nuclear weapons in Belarus and/or Ukraine, calling on Russia’s recommitment on the New START Treaty which aims to strategically reduce the number of nuclear arms worldwide.  Read more>> Read more>> Read more>> and Read more>>
• Canada Imposes More Than 70 New Sanctions on Russia: On May 19, upon the G7 summit in Hiroshima, Japan, Canada joined other international partners in imposing more than 70 new sanctions on Russia.  According to the Prime Minister’s Office, those that are sanctioned include 17 individuals and 18 entities linked to Russia companies that provide assistance to Russia’s military and affiliates of the Kremlin elite, as well as 30 individuals and 8 entities involved in Russia’s ongoing human rights violations, including the transfer and custody of Ukrainian children in Russia.  Read more>> and Read more>>
• Australia Imposes New Sanctions and Machinery Export Ban on Russia: On May 19, in coordination with international partners meeting at the G7 summit this week, Australian Prime Minister Anthony Albanese and Foreign Minister Penny Wong announced that the Australian government is imposing financial sanctions and an export ban on Russia, targeting sectors of economic and strategic significance to the country.  The new sanctions target 21 entities and 3 individuals that are aiding Russia’s nuclear efforts, generating revenue in support of Russia’s ability to wage war, and involved in military and defence support to Russia; the export ban targets all machinery and related parts to Russia and areas under Russian control.  Read more>>
• Japan Announces Additional Sanctions Against Russia: On May 20, the Japanese government announced additional sanctions against Russia, a day after leaders of G7 issued a joint statement pledging to expand sanctions and export controls on the country in support of Ukraine.  According to media reports, Japan will ban the provision of Russia with building and engineering services, sanction 100 people for circumventing existing sanctions on Russia, and prohibit the supply of goods to approximately 80 organizations associated with the Russian military.  Read more>> and Read more>>
• Russia and China Seal Economic Pacts Amid Western Criticism: On May 24, Russia’s prime minister Mikhail Mishustin signed a set of economic agreements with China, after meeting with President Xi Jinping and Premier Li Qiang in a trip to Beijing, according to reports.  The Russian Prime Minister was the highest-ranking Russian official to visit Beijing ever since Moscow sent troops to Ukraine in February 2022, saying that relations between the two countries today are “at an unprecedented high level.”  The memorandums of understanding signed included an agreement to deepen investment cooperation in trade services, a pact on export of agricultural products to China, and another on sports cooperation.  Read more>>
• UAE Becomes Key Trade Hub of Russian Gold: On May 25, Reuters reported that the United Arab Emirates (UAE) is becoming a key trade hub for Russian gold, since Western sanctions over Ukraine cut Russia’s more traditional export routes.  According to Russian customs records, the Gulf state imported 75.7 tonnes of Russian gold worth $4.3 billion in 2022, compared to only 1.3 tonnes in 2021, with China and Turkey as the next biggest destinations.  Read more>>