Sanctions Weekly Update - Ukraine/Russia Conflict - August 14, 2023

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

I. US SANCTIONS

• OFAC Russia Updates:
  • On August 11, 2023, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced SDN designations of four individuals who have served on the supervisory board of the Alfa Group Consortium, one of the largest financial and investment conglomerates in Russia. These individuals were previously sanctioned by Australia, Canada, the European Union, New Zealand, and the United Kingdom. OFAC also released and FAQ related to the individual designations and designated the Russian Association of Employers the Russian Union of Industrialists and Entrepreneurs (RSPP). Read more >> and Read more >>
  • On August 16, 2023, OFAC and the State Department announced designations of three entities tied to a sanctions evasion network attempting to support arms deals between Russia and the Democratic People’s Republic of Korea. Read more >> and Read more >>
  • On August 17, 2023, OFAC announced designations of four individuals responsible for the August 2020 poisoning of Russian anti-corruption activist Aleksey Navalny. The State Department announced concurrent visa restrictions on these individuals as well. Read more >> and Read more >>

• US Announced $200 Million in Security Assistance to Ukraine: On August 14, the United States announced a $200 million additional security assistance package to aid Ukraine, pursuant to the previously authorized Presidential Drawdown Authority. The package includes air defense munitions, artillery rounds, anti-armor capabilities, and additional mine-clearing equipment. Read more >>

• USDA Report Forecasts Russia Gaining Global Grain Export Share from Ukraine: On August 11, 2023, the US Department of Agriculture (USDA) released its latest global crop forecast. The report forecasted that Ukraine would produce 21 million metric tons of wheat this year, down to about two-thirds of Ukraine’s pre-war level; while Russia is projected to export 48 million tons of wheat and nearly 9 million tons of coarse grains in the 2023-24 marketing year, a rise from the 2021-22 season, when it exported 33 million tons of wheat and 7.6 million tons of coarse grains. Read more >>

• US Asks Iran to Stop Supply of Drones to Russia: The Financial Times reported that during indirect talks with the Iranian regime in Qatar and Oman this year, the US has been pushing Iran to stop selling armed drones to Russia as part of discussions on a broader “unwritten understanding” between Washington and Tehran to de-escalate tensions and contain a long-simmering nuclear crisis. Read more >>

• State Department Officials Speak with American Hostages in Russia; Limited Russian Interest in Prisoner Swaps: On August 16, 2023, US Secretary of State Antony Blinken spoke by phone with American Paul Whelan, who is wrongfully detailed in a remote prison camp in Russia. Blinken reportedly told Whelan to “keep the faith and we’re doing everything we can to bring you home as soon as possible.” This the second time Blinken has spoken to Whelan, who has been detained in Russia for more than four years Read more >>. Additionally, on August 14, 2023, US Ambassador to Russia Lynne Tracy visited with imprisoned Wall Street Journal reporter Evan Gershkovich on Monday Read more >>. Separate reporting from the Wall Street Journal the same day stated that US officials have faced difficulties in reaching agreements with Russia on possible prisoner swaps. Read more >>

• Russian News Reports Espionage against American Former Pharmaceutical Executive: On August 17, 2023, Russian state news agency Tass reported that the Russian government had charged a former pharmaceutical executive with espionage, after he had admitted to a bribery charge last year in Russia and was sentenced to 3.5 years in prison. The State Department said in a statement that it was aware of reports of charges against a US citizen in Russia. Read more >>

• Former FBI Leader Please Guilty to Aiding Russian Oligarch Oleg Deripaska: On August 16, 2023, former FBI head of counterintelligence in New York Charles McGonigal, pled guilty to one charge of conspiring to violate sanctions on Russia. McGonigal continues to face separate charges in federal court in Washington, D.C. with concealing at least $225,000 in cash he allegedly received from a former Albanian intelligence official while working for the FBI. Read more >>

II. EU SANCTIONS

• EU Welcomes the Alignment of Certain Countries with EU Sanctions Established in View of Iran's Military Support to Russia: On August 11, 2023, the EU High Representative/Vice-President (HRVP) Josep Borrell welcomed on behalf of the EU the alignment of candidate countries to the EU such as North Macedonia, Montenegro, Albania, Ukraine, Republic of Moldova and Bosnia and Herzegovina, as well as of Iceland and Liechtenstein, members of the European Economic Area, with the EU sanctions imposed in view of Iran’s military support to Russia. Read more >>

• EU Took Note of the Deepening of the Dialogue between Cuba and Russia but Counts on Cuba to Be More Active in Supporting the Territorial Integrity of Ukraine: On August 14, 2023, the HRVP Josep Borrell stated that the EU took note of the deepening of the dialogue between Cuba and Russia on matters including economy, markets and business, as well as of Cuba's voting record on UN resolutions related to Ukraine, including a number of abstentions, and Havana’s vote against a World Health Organization resolution condemning Russian attacks on Ukrainian health systems. The HRVP urged Cuba to be more active in supporting the territorial integrity of Ukraine in view of the country's professed commitment to international law and a ruled-based international order. Read more >> 

• Three Individuals Are Likely to Be Delisted from EU Sanctions Due to Weak Cases Tough Hungary Pushes for More Removals: The EU is set to delist three individuals Aleksandr Shulgin, Farkhad Akhmedov, and Grigory Berezkin ahead of the September periodical renewal of its sanction measures. Blacklisted in April 2022, the three individuals have taken their cases to the European Court of Justice and are reportedly likely to win in court. Hungary pushes though for more individuals to be delisted and repeatedly uses its veto power to adjust or water down EU sanctions on Russian individuals and entities. Due to Hungarian opposition, and despite efforts of various EU member states to put him on the EU list of sanctioned individuals, Belarusian oligarch Alyaksandr Moshensky remains absent from the list. Read more >> 

• Proposed Derogation for the Import of Belarusian Potash Was One of the Main Reasons for the Delay in Agreeing a New Round of Sanctions on Belarus: The main reason for the delay in agreeing a new round of sanctions on Belarus, apart from the loopholes that needed to be closed, was reportedly a proposed derogation that would allow for the import of Belarusian potassium chloride (potash), a key ingredient in fertilizers. While Lithuania's refusal to agree on any potash derogations was backed by Estonia, Latvia, and Poland, there was a bigger group within the EU led by Portugal and other European countries with large ports, that was pushing for the derogation to the EU ban on imports of potash from Belarus. After some intense trade-offs, the new round of EU sanctions on Belarus that took effect on August 3, 2023, include no exceptions for potash. Read more >>

III.UK Sanctions

• HMG Issues Legal Advisory Services General Licence: On August 11, 2023, the UK Export Control Joint Unit published the General Trade Licence (GTL) Russia Sanctions – Legal Advisory Services, authorising the provision of legal advice in relation to sanctions imposed by any jurisdiction. The GTL addresses the concern raised by the Law Society that the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023 prevented UK lawyers from providing advice on whether a client’s proposed activity was prohibited by sanctions from other jurisdictions if the activity is prevented by UK sanctions. The GL authorises the provision of legal advisory services to any person:
  • as to whether an act or proposed act complies with (or could trigger punitive measures in relation to) sanctions, export and import controls on or concerning Russia or the non-government controlled Ukrainian territory, imposed by any jurisdiction; and/or
  • in relation to compliance with any laws of Russia that have as their object or effect the frustration of any sanctions, export and import controls on Russia imposed by any jurisdiction; and/or
  • in relation to any criminal law imposed by any jurisdiction; and/or
  • in relation to the discharge or compliance with UK statutory or regulatory obligations.
    
    OFSI has also updated their Russia sanctions guidance to reflect the new GTL. Read more >>, Read more >> and Read more >>
• Financial Sanctions Update: Russia: On August 17, 2023, the Foreign, Commonwealth and Development Office updated the UK Sanctions List. Under the Russia sanctions regime, the entry amended the statement of reasons for individual Igor Viktorovich Makarov. Read more >>
• UK Exports to Russia’s Ally Kyrgyzstan Soar by 4,000%: On August 11, 2023, it was reported that government trade data showed that UK goods exports to Kyrgyzstan jumped by more than 4,000 per cent in 2022/23, leading to concerns that Western goods were being exported into Kyrgyzstan, before being sent on to Russia. Read more >>

IV.Russia/Ukraine Sanctions

• Russia Exploits Billion-Dollar Oil Cap Loophole: On August 13, 2023, it was reported that inflated shipping costs are enabling Russian companies to earn far more from crude oil sales to India than previously recognised. analysis which suggests that the charges may have raised more than $1bn in a single quarter. Russia has, until recently, appeared to comply on this route with western measures designed to curb its revenues which were introduced after its full-scale invasion of Ukraine. Its oil producers have been selling crude to India for below the $60-per-barrel price cap. Read more >>
• Rouble Hits 16-Month Low as Military Spending Rises and Exports Fall: On August 14, 2023, it was reported that the rouble has fallen to a 16-month low against the dollar as a surge in Russian military spending and a collapse in export revenues add pressure to a currency suffering under western sanctions and an escalation of capital outflows. Russia’s currency has lost about 25 per cent of its value in 2023 and weakened past 101 roubles to the dollar in early trading on August 14, 2023, as the impact of the war with Ukraine bites. The decline has more than offset the rouble’s rise last year when Russia’s initial invasion of Ukraine was followed by a sharp increase in oil and gas prices. Read more >>
• Russia's Alrosa Reports Strong Diamond Sales Despite Sanctions: On August 14, 2023, it was reported that the sanctions-hit Russian diamond mining company Alrosa kept diamond sales in the first half of 2023 at the year-ago levels. Efforts to reduce Russia's revenue from diamond exports and to build on Washington's existing sanctions on Alrosa, the world's largest producer, have been subject to discussions among leaders of the Group of Seven (G7) nations. Alrosa's first-half revenue totalled 188.2 billion roubles ($1.9 billion), up 0.2% from January-June 2022, and up 3.5% from the same period of 2021. Net profit fell 35% year-on-year to 55.6 billion roubles. Read more >>
• Russian Court Bans UBS, Credit Suisse from Subsidiary Disposals: On August 15, 2023, it was reported that a Moscow court has banned UBS and its recently acquired Swiss rival Credit Suisse from disposing of shares in their Russian subsidiaries, court documents showed, after a request from Zenit Bank which is concerned about losing out if they exit Russia. Zenit told the court in a statement that it believed the Russian subsidiaries of UBS and Credit Suisse were preparing to terminate their activities in Russia, which would leave it at risk of a loss relating to a loan made in October 2021. Read more >>
• Russia Raises Interest Rates to Halt Collapse in Rouble: On August 15, 2023, it was reported that Russia’s central bank has raised its key interest rate 3.5 percentage points to 12 per cent at an extraordinary meeting, after the rouble fell below Rbs100 to the dollar. The currency strengthened ahead of and immediately after the large rate rise on August 15, 2023, which exceeded market expectations, before paring some gains to trade at Rbs98 to the dollar. Read more >>
• Russia Could Reintroduce Compulsory Sale of FX Revenues 'At Any Moment': On August 16, 2023, it was reported that Russian authorities are discussing bringing back the compulsory sale of foreign currency revenues for exporters. The need to reintroduce stringent capital controls comes as Russian authorities grapple with a sharply weakening rouble, which tumbled past 100 to the dollar. An emergency 350-basis-point rate hike by the central bank, to 12%, seems to have only slowed the currency's slide. A similar measure was adopted shortly after Russia sent tens of thousands of troops into Ukraine in February 2022, requiring exporters to convert 80% of FX revenues and helping send the rouble to its strongest in over seven years in June 2022. Read more >>
• Carriers Discuss Problem of Disabling the "Aviation SWIFT": On August 17, 2023, it was reported that the domestic and foreign carriers operating flights between Russia and other countries may face difficulties in providing such flights in the autumn. This could lead to the disconnection of Russia from telecommunications channels owned by the global provider of services for civil aviation, the Swiss company Societe Internationale de Telecommunication Aeronautiqes (SITA). Read more >>
• The Russian Government to Regain Control over the Companies “Lost” by Russians: The Russian President ordered to launch a mechanism for the return of control over Russian companies to Russians, if they are now controlled from abroad as a result of the actions of other countries. According to Vladimir Putin’s instructions following the results of the St. Petersburg International Economic Forum, the transfer of business assets, especially in key industries and sectors of the economy, to Russian jurisdiction should be accelerated. Read more >>
• Putin to Discuss Currency Controls as Rouble Slides: Vladimir Putin is to discuss ramping up currency controls with Russian authorities on Wednesday, after an extraordinary 3.5 percentage point rate hike failed to halt the rouble’s slide. Russia’s president, will hear out proposals from Russia’s finance ministry to require exporters to convert some of their foreign currency earnings, most of which are currently held abroad, in exchange for roubles. The rouble, which briefly weakened beyond 100 to the dollar on Monday, is under sustained pressure from ballooning deficits caused by increased military spending, falling export revenues and a growing reliance on imports. Read more >>
• Russian Central Bank Threatened to Revoke Licenses for Schemes to Withdraw Frozen Assets from Russia: The Bank discussed with market participants compliance with the decrees of the President of Russian No. 81 and 138, which establish a number of restrictions on transactions with “unfriendly” non-residents. The Bank stated that attempts to circumvent the financial restrictions set by the Russian Government might lead to revocation of licenses of the Russian financial market participants. It is noted that such a radical position of the Central Bank may be associated with the regulator's own plans for the blocked assets of foreigners. Read more >>
• EUR 135 Million Initially Planned for Programmes with Russia and Belarus will be Transferred to Strengthen Cooperation with Ukraine and Moldova: The European Commission has decided to transfer €135 million of the Neighbourhood, Development and International Cooperation Instrument, originally planned for 2021-2027 Interreg NEXT programmes with Russia and Belarus, to other Interreg programmes with Ukraine and Moldova. This funding may support a range of activities, including Solidarity Lanes and the development of cross-border transport links, health services, education and research projects, social inclusion schemes, as well as reinforcing the institutional capacity of Ukrainian and Moldovan public authorities. Read more >>
• Ukraine Will Not Negotiate Gas Transit from Russia: Ukraine does not intend to negotiate with Russia on the extension of the contract for gas transit to Europe, Energy Minister Herman Galushchenko said. The Minister considers 2024, when the contract expires, to be indicative in terms of "Europe's ability to function without Russian gas at all." The current contract was concluded in 2019 for a period of five years. It expires at the end of 2024. Read more >>
• Ukraine Added Alibaba Group Holding Limited to the List of International Sponsors of the War: Ukrainian National Agency for the Prevention of Corruption included the Chinese Alibaba Group Holding Limited into the list of international sponsors of the war. It is emphasized that Alibaba Group not only continues to work in the Russian Federation, but also provides its platforms for the sale of goods made from copper exported from the occupied territories of Ukraine. Read more >>
• Moscow is Progressing Toward its Goal of Mass-Producing UAVs with Assistance from Iran: Moscow’s aim is to domestically build 6,000 drones by summer 2025 — enough to reverse the Russian army’s chronic shortages of unmanned aerial vehicles. Documents leaked from the program indicate that, despite delays and a production process that is deeply reliant on foreign-produced electronic components, Moscow has made steady progress toward its goal. Over 90 percent of the drone system’s computer chips and electrical components are manufactured in the West, primarily in the United States. Read more >>

V. Other Notable Developments

• Switzerland Implements 11^th Package of Sanctions against Russia: On August 16, 2023, the Federal Council decided to enact further sanctions against Russia. This aligns Switzerland with the EU, which adopted these latest measures as part of its 11^th package of sanctions. Already on June 28, 2023, Switzerland, implemented sanctions on more than one hundred additional individuals and entities. The main aim of the latest measures that took effect on August 16, 2023, is to prevent and combat the circumvention of sanctions in third countries and by third countries. Read more >>
• Kazakhstan-based Freedom Holding Announced Plans to Continue Work with Non-Sanctioned Russian Clients: Kazakhstan-based, NASDAQ-listed Freedom Holding, plans to keep working with non-sanctioned Russian clients despite a critical report from short-seller Hindenburg Research that Freedom describes as speculative and unsubstantiated. CEO Timur Turlov told Reuters that the company had disclosed data on how it works with sanctioned customers during around seven inspections by Kazakhstan's financial regulator in the past year. Read more >>
• Google Blocks Workspace Apps for Sanctioned Russian Firms: On August 11, 2023, it was reported Google has started blocking its popular workplace apps for Russian companies under US sanctions. Around 30% of Russian companies’ corporate information is stored on Google Workspace services, which include Gmail, Docs, Sheets, Drive and other cloud-based tools. Read more >>
• Carlsberg ‘Shocked’ at Seizure of Russian Subsidiary: On August 16, 2023, Carlsberg chief executive Cees ’t Hart announced the brewer was “shocked” at the seizure of its Russian subsidiary, Baltika Breweries. Baltika, which comprises eight breweries employing 8,000 staff, had not been nationalised but was still under state management and Carlsberg was looking for ways to engage with Russian authorities on the unit’s future. Read more >>
• Microsoft to Freeze License Extensions for Russian Companies: In a letter sent to Russian businesses on August 10, 2023, Microsoft that it will no longer process payments via wire transfer to a local bank account for its services in Russia. Microsoft customers now have two months to find an alternative vendor. “Please take the necessary steps to secure your data before the expiration date of your current subscription," said the company’s letter. Microsoft suspended the sale of its products and services in Russia in March of last year and said it would "slowly reduce its presence in the country until it's gone completely." Forbes Russia estimates that up to 90% of corporate clients in the country still use Microsoft products. Without Microsoft software updates, Russian services will become more susceptible to cyberattacks, experts warn. The lack of alternatives will also encourage businesses to use pirated tools. Read more >>
• Export of Cars from Japan to Russia Increased by 84% in July: In July, car exports from Japan to Russia grew by 84% year-to-year. The sharp increase in exports occurred against the background of the expansion of anti-Russian sanctions by Japan. Since August 9, Tokyo has banned the export of gasoline and diesel cars with an engine capacity of more than 1.9 liters, as well as hybrid cars, into Russia. The restrictions apply to both new and used cars. Read more >>