Sanctions Weekly Update – Ukraine/Russia Conflict – July 3, 2023

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

I. US SANCTIONS

• US Treasury Department Warned Hong Kong Banks on Technology Exports to Russia: On July 6, reports emerged that US Department of the Treasury officials visited Hong Kong in 023 2 to urge the city’s central bank, financial institutions, law firms, consultancies and industry groups to curb the flow of advanced US-made technology into Russia. According to a report by Nikkei Asia, three officials from the Treasury’s terrorist financing and financial crimes department held meetings on June 15 and 16 in Hong Kong, asking banks and regulators to help identify US high-tech items being shipped to Russia via the city, and to strengthen due diligence when dealing with transactions related to items on the US export control list. Since the beginning of the war in Ukraine, the US has imposed restrictions on some Chinese companies accused of supplying components eventually used by Russia during the war. Read more>> and Read more>>
• US Condemns Brutal Attack on Russian Journalist and Attorney in Chechnya: On July 6, the Department of State condemned the brutal beating of renowned journalist Yelena Milashina and attorney Alexander Nemov in Chechnya on July 4, 2023. It urged the Russian government to conduct a prompt, impartial, and transparent investigation into the circumstances of the attack and ensure that those responsible are brought to justice, adding that the violent attack is an affront to respect for freedom of expression, and a continuous violation by the Russian government of its international human rights obligations and vows it made to its people. Read more>> and Read more>>
• US Protests Moscow’s Designation of Anglo-American School as “Foreign Agent”: On July 5, the Department of State voiced its protest against the Russian government’s decision to designate the Anglo-American School of Moscow a “foreign agent,” the latest in a series of Russian government actions that have forced the closure of the Anglo-American School. According to reports, dozens of the School’s teachers had been denied work visas since July 2019; then US Ambassador to Russia Jon Huntsman accused the nation of using schoolchildren as “pawns in a diplomatic dispute.” Read more>> and Read more>>

II. EU SANCTIONS

• EU Updates Sanctions FAQs: The European Commission published updates to several FAQs on application of sanctions against Russia and Belarus. The covered topics include road transport, provision of services, oil imports, investment services and trade in securities, insurance and operation of investment funds. The update also covered the Guidance on application of the oil price cap. Read more>> and Read more>>
• EU Publishes List of Goods Economically Critical for the Russian Economy and List of Battlefield Items Subject to Third Country Concerns: The list of economically critical goods is comprised of mainly industrial goods subject to EU’s restrictive measures for which anomalous trade flows via certain third countries to Russia have been detected. The list of high priority battlefield items includes a number of prohibited dual-use goods and advanced technology items used in Russian military systems found on the battlefield in Ukraine or critical to the development, production or use of those Russian military systems. The Lists are aimed at support of due diligence and effective compliance by exporters and targeted anti-circumvention actions by compliance agencies. Read more>> and Read more>>
• Two Sanctions Russian Banks Challenge EU Sanctions before CJEU: Two Russian sanctioned banks Rosbank and Alfa-Bank, as well as a sanctioned individual Piotr Aven, brought actions before the Court of Justice of the European Union (CJEU) against the Council of the European Union demanding to annul the Regulations imposing sanctions. The claimants state that the sanctions were imposed due to erroneous assessment of the facts and lack legal grounds. Read more>>, Read more>> and Read more>>
• International Centre for the Prosecution of Russia's Crime of Aggression against Ukraine Starts Operations: The International Centre for the Prosecution of the Crime of Aggression against Ukraine (ICPA) started its operations in the Hague on 3 July 2023. The newly established Centre will be key to investigate Russia's crime of aggression against Ukraine and facilitate case building for future trials. Read more>>
• EU Parliament’s Civil Liberties Committee Approves Draft Law on Responsibility for the Breach of Sanctions: The EU Parliament’s Civil Liberties Committee adopted a draft negotiating mandate on violating and circumventing EU sanctions. The draft law would introduce a common definition of violations and minimum penalties to ensure that they are punished as criminal offences everywhere in the EU. Once approved by the whole Parliament, it will become the MEPs’ position for the talks on the final shape of the legislation. Read more>>
• EU Weighs Concession to Russian Agricultural Bank over Black Sea Grain Deal: The European Union is considering a proposal for the Russian Agricultural Bank to set up a subsidiary to reconnect to the global financial network as a sop to Moscow. With the bank under sanctions, the move aims to safeguard the Black Sea grain deal that allows Ukraine to export food to global markets. Read more>>
• Report: Tobacco and Food Giants Made Billions in Russia after Ukraine Invasion: Major international corporations that stayed in Russia after the invasion in Ukraine made $214 billion in revenue and paid $3.5 billion in taxes, finds study by Ukrainian civil society and Kyiv School of Economics. Those figures are “only the tip of the iceberg, and likely a substantial underestimate of the total tax bill," according to the report. The bonanza comes despite the European Union's efforts to curtail the Kremlin's revenues by passing 11 packages of sanctions. Read more>>
• European Commission Amends the Croatian Scheme and Provides €42 Million to the Lithuanian Scheme to Support Exporters Amid the War in Ukraine: On 3 July 2023 the European Commission has approved an amendment to an existing Croatian scheme to support the liquidity of exporting companies in the context of Russia's war against Ukraine. On the same date the Commission approved a €42 million Lithuanian scheme. The amendment was approved under the State aid Temporary Crisis and Transition Framework. Read more>>
• EU Authorities Announced Freezing of Russian Assets for €207 Billion since Beginning of War: Since the beginning of the war, the EU countries have frozen €207 billion of Russian assets, including the assets of the Central Bank, the European Commission reported. The EC is currently discussing the possibility of using the proceeds from these funds to restore Ukraine. It is stated that the EU expects to receive up to €3 billion annually from investing the blocked assets. Read more>>
• German Customs Targets Private Cars of Russians Nationals: Entry into Germany by a private car from Russia is regarded by the German customs authorities as the basis for the arrest of the car. This follows from the response of the German customs, which stated that “the import of passenger cars from Russia to the EU is prohibited in accordance with Art. 3i of Regulation 833/2014 defining the embargo against Russia. In this context, the expression "importation" actually covers any movement of goods or cargo.” Read more>>

III. UK SANCTIONS

• UK Ministry of Justice Webinar On 14 July on New UK Restrictions on Legal Advisory Services: The Ministry of Justice is holding a webinar at 10am (UK time, BST) on Friday July 14, 2023, with HMG officials, who will detail the new UK legal advisory services restrictions imposed on 30 June 2023. There will be speakers from the Ministry of Justice; Department for Business and Trade; and the Foreign, Commonwealth and Development Office. If you are interested in attending, please register and submit your questions here. Read more>>
• Oligarch Hit by Ukrainian Sanctions Has UK Residency and Was Given ‘Golden Visa’: On June 30, 2023, it was reported that Pavel Fuks, a Ukrainian national who had Ukrainian sanctions imposed in 2021, is also under criminal investigation for fraud and tax evasion in his home country was granted a so-called golden visa in 2012, followed by indefinite leave to remain in the UK in 2017. The EU, US and UK have not placed restrictions on Fuks, which means that as a UK resident he can conduct business in Britain and travel to and from London. Read more>>
• Guidance on New UK Russia Sanctions Legal Services Restrictions: On July 3, 2023, the Foreign, Commonwealth & Development Office and the and Department for Business & Trade added further guidance to the UK’s new Russia legal advisory services restrictions, under the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023. The guidance provides clarity on complying with professional and business services sanctions relating to Russia. Read more>> and Read more>>
• UK Consultation on AML/CTF Supervisory Regime Including Sanctions: On July 4, 2023, HM Treasury published a consultation document inviting views from the AML regulated sector on the Anti-Money Laundering and Counter-Terrorism Financing Supervisory Regime (AML/CTF), in line with a commitment in the Economic Crime Plan 2023-6. Chapter 7 of the consultation document, Sanctions Supervision, considers that given the change in the sanctions context in the UK following Russia’s invasion of Ukraine, and the significant growth in the number and complexity of UK sanctions, as well as the global focus on preventing routes for sanctions evasion and non-compliance, it may be that a more formalised system of sanctions supervision is now required. The consultation document asks: 
  
  • Given the change in the sanctions context in the UK since Russia’s invasion of Ukraine, have supervisors changed their approach to oversight of sanctions systems and controls amongst regulated populations? If so, what activity has this entailed? 
  • Do supervisors need additional powers to monitor sanctions systems and controls effectively, or can this be done under existing powers? What would any new powers need to consist of? 
  • Aside from legislative powers, do you foresee any other barriers to supervisors effectively monitoring sanctions systems and controls? 
  • Should any new potential supervisory powers relating to sanctions broadly cover all types of UK sanctions?
    
    To respond to the consultation ahead of the closing date on September 30, 2023, you can use the online form here or email anti-moneylaunderingbranch@hmtreasury.gov.uk. Read more>>

• UK Announces Financial Sanctions Update for Russia: On July 6, 2023, the Foreign, Commonwealth and Development Office updated the UK Sanctions List. Under the Russia sanctions regime, the list was updated to remove individual Lev Aronovich Khasis, the former first deputy chairman of Sberbank from the designation. Read more>>

IV. RUSSIA/UKRAINE SANCTIONS

• Ukraine Expands Sanctions List: Ukraine added 309 legal entities and 192 individuals to the sanctions list. The amendments were implemented by the Orders of the President of Ukraine dated 1 July and 5 July 2023. The sanctions cover the companies of Alfa-Group and the Georgian Airways. Read more>> and Read more>>
• Zelensky Sanctions 18 Holding Companies with Ties to Russia: On July 5, 2023, President Volodymyr Zelensky announced that he had signed a decree to impose sanctions on 18 holding companies associated with Russia. The President's Office lists a number of holding companies located in Russia, Cyprus, and other locations that were sanctioned. According to the document which lists the sanctioned holding companies, they will be subject to having their assets in Ukraine blocked, meaning that they will not be able to withdraw their capital outside of Ukraine. Read more>> 
• Ukraine Lists Unilever as International Sponsor of War: The National Agency of Ukraine for the Prevention of Corruption included Unilever corporation in the list of international sponsors of the war. The agency states that the company pays significant taxes to the Russian state budget, thereby supporting its economy and continuation of war against Ukraine. Read more>>
• Georgia Calls Ukrainian Sanctions against Georgian Airways Unfair: The imposition of sanctions against the airline Georgian Airways by Ukraine is an unfair decision in relation to the Georgian people, said Chairman of the Georgian Parliament Shalva Papuashvili. On the afternoon of July 1, Ukrainian President Volodymyr Zelensky imposed sanctions on Georgian Airways and its management after resuming flights to Russia. Read more>>
• Research Finds Ukrainian Grain Worth Millions of Euros Exported to the EU by Dubious Companies: Ukrainian "black" grain worth millions of euros is exported to the EU by dubious companies - Ukraine is checking hundreds of companies that allegedly sold Ukrainian grain without proper registration or payment of taxes. This is stated in the investigation of the Organized Crime and Corruption Reporting Project. Read more>>
• The Central Bank of Russia Considering Buying Out Frozen Assets of Russian Investors as Priority: The Central Bank of Russia is considering the option of unblocking assets of Russian investors as a priority. It considers an option to buy out the frozen securities of Russian investors with funds from foreign investors placed on the accounts of type C. This was announced on the sidelines of the Financial Congress of the Central Bank by Deputy Chairman of the Regulator Philip Gabunia. Read more>>
• Gazprom Threatened Naftogaz of Ukraine with Sanctions: Gazprom considers it pointless to participate in arbitration proceedings with Naftogaz over the transit of Russian gas to Europe, but if Ukraine continues to try to hold a trial, Russia will impose sanctions, said Alexey Miller. In April, an arbitration court in the Hague ordered Russia to pay compensation to Naftogaz, the amount of which should be equal to the fair market value of the company's assets in Crimea until they were expropriated. Read more>>
• Gazprom Subsidiary Files Lawsuits against Deutsche Bank and Commerzbank: On July 5, 2023, it was reported that RusKhimAlyans, a subsidiary of Russian gas giant Gazprom, has filed lawsuits seeking a total of 31 billion roubles ($348 million) from Deutsche Bank and Commerzbank. RusKhimAlyans, in which Gazprom has a 50% stake, is seeking more than 22 billion roubles from Deutsche Bank and over 8 billion roubles from Commerzbank, according to the documents filed at the Court of Arbitration of St Petersburg and the Leningrad Region. Read more>>
• Raiffeisen Bank Hopes War Ends 'Soon' to Avoid Costly Russia Exit: Austria’s Raiffeisen Bank is hoping the war in Ukraine will end “soon” to avoid a costly exit from Russia. Austrian officials are resisting pressure from the European Central Bank (ECB) for Raiffeisen to spin off its Russian subsidiary by September. Vienna privately thinks restoring long-standing relations with Russia while publicly supporting Kyiv during Moscow’s 16-month invasion will still be possible. Read more>>
• Russia Updating Its Shadow Fleet of Oil Tankers: Russia's "shadow fleet" of tankers that carry sanctioned oil around the world is getting younger, bucking a months-long trend of using the world's oldest and most dangerous vessels. This month the average age of tankers sold to unknown buyers — one of the defining characteristics of a ship that is part of the Russian Navy's dark fleet — dropped to 15 years, according to VesselsValue. Read more>>
• Russia to Cut Oil Exports in August: On July 3, 2023, it was reported that Russian Deputy Prime Minister Alexander Novak announced that that Moscow will voluntarily cut oil exports by 500,000 barrels per day, building on previously announced production cuts. Brent crude oil spiked as much as 1.6% to $76.60 a barrel after the Russian announcement and a statement from Saudi Arabia that it would extend its voluntary output cut of 1 million barrels per day for another month to include August. Read more>>
• Russia Planning 10% Spending Cut For 2024 Budget Redistribution: On July 5, 2023, it was reported that the Russia's finance ministry has proposed expenditure cuts to its 2024 budget, a step that would free up funds to spend on areas such as the military and national security. Faced with a January-May budget hole of $42 billion Russian officials have acknowledged the need to rein in the deficit, agreeing at an economic forum in June 2023 that some spending cuts would be inevitable, while viewing increased domestic borrowing or higher taxes as less appealing alternatives. Read more>>
• The Ministry of Transport Has Denied Plans to Introduce A New Fee on Air Passengers: On July 5, 2023, it was announced by the Russian Ministry of Transport that it is not working to create a reserve fund to help passengers in case of bankruptcy of airlines. The ministry recalled that the leading Russian airlines opposed the creation of such a fund, since such actions would not help increase the availability of air transport for the population. Read more>>
• Russia Car Sales Jump 151.8% Year over Year in June: On July 5, 2023, it was reported that car sales in Russia rose 151.8% year-on-year in June 2023, continuing to rebound from a dramatic car industry slump in 2022. Sales of new cars plunged 59% last year and many foreign automakers withdrew from the Russian market entirely. Read more>>
• Russia to Decrease Daily Forex Sales in Coming Month: On July 5, 2023, Russia’s Finance Ministry announced that it would sell 1.7 billion roubles' ($18.9 million) worth of foreign currency a day between July 7 and August 4, 2023, a decrease in the volume of daily operations from June 2023. Read more>> 
• Russian Residents Allowed to Sell Foreign Currency Received from Non-residents at Exchange Rate Different from Official Rate: Residents will be able to sell to banks the currency received from non-residents under foreign trade agreements at the exchange rate different from the rate of the Central Bank, contrary to the previous rules. To that end, the Russian Government has amended the “Rules for Cash Settlements between Residents and Non-Residents”, approved in December 2022. Read more>>
• Mutiny Aftermath Jolts Ruble as $43.5 Billion Outflow Takes Toll: On July 5, 2023, it was reported that the Russian ruble crashed through its “comfort zone” after a mutiny that briefly threatened President Vladimir Putin’s power compounded months of capital outflows. Russia’s currency weakened on July 5, 2023, to trade close to 91 per dollar after depreciating almost 2% to levels last seen in March 2022. It’s among the worst performers in emerging markets this year with a loss of about 18%. In June 2023, First Deputy Prime Minister Andrey Belousov described a range of 80-90 per dollar as “optimal” for the Russian economy. Read more>>
• In Russia, Prices for Air Tickets Abroad Have Decreased after the Hype In 2022: On July 6, 2023, it was reported that average prices for flights to the most popular international destinations from Russia in June 2023 decreased compared to June 2022. The three most popular destinations among Russians in June were Turkey, Armenia and Kazakhstan. The average price of a round-trip flight between Russia and Turkey decreased by 14%, to 34.3 thousand rubles. Read more>>
• Importers Warned of Rising Alcohol Prices Due to the Ruble Exchange Rate: On July 6, 2023, it was reported that large importers of alcoholic beverages may raise prices due to the weakening of the ruble. The Moscow Brewing Company announced that from July 17, 2023, they are going to raise prices due to the growth of the exchange rate. Read more>>

V. OTHER NOTABLE DEVELOPMENTS

• Japan Exempts Three Russian Energy Projects with Ties to Japanese Companies from Japanese Sanctions: On July 3, Japan’s Economy Ministry announced that it has excluded from sanctions three Russian energy projects in which Japanese companies are actively participating, namely Sakhalin 1, Sakhalin 2, and Arctic LNG 2, according to reports. The Minister of Economy, Trade and Industry said that the exempted service operations are identified as “particularly necessary to ensure the energy security of [Japan].” The measure will apply to service operations starting on or after September 30, 2023. Read more>>
• Australian Coal Miner Sues Government over Russian Import Restrictions by Australian Government: On June 30, it was reported that Australian coal miner Tigers Realm Coal had announced on June 26, 2023, that it had filed a court case against the Commonwealth, seeking to prove that its operations in Russia are not in breach of sanctions. In the company’s ASX release, the company said that it “does not agree with DFAT’s indicative assessment that its operations comprise a sanctioned import,” and claimed that it had not applied for an exemption permit because it does not consider its operations to be in breach of Australia’s sanctions regime. Read more>>
• Indian Refiners Start Yuan Payments for Russian Oil Imports: On July 3, Reuters reported that Indian refiners have begun paying for some oil imports from Russia in Chinese yuan, as Western sanctions force Russia and its customers to find alternatives to the dollar for settling payments, according to sources with knowledge of the matter. While Western sanctions on Russia are not recognized by India and its purchases of Russian oil may not violate them, Indian banks are wary of clearing payments for such imports. Read more>>
• Switzerland Questions Oil Trader over Sidestep of Russian Sanctions: On July 4, Financial Times reported that Swiss authorities are probing prominent Geneva-based oil trader Paramount Energy’s legal arrangements to sidestep Russian sanctions, one of the first known efforts by a European authority to investigate compliance with the western sanctions regime on Russian oil. According to the report, Switzerland’s State Secretariat for Economic Affairs (SECO) questioned Paramount Energy on its relationship with one of its overseas subsidiary in the United Arab Emirates (UAE), which had consistently exported crude from eastern Russia above the G7 price cap. Paramount Energy replied that the companies were “separate legal entities” and “do not share directors,” but the SECO stressed that these do not guarantee that Swiss courts will view the subsidiary as “legally independent” and, hence, falling within the sanctions exemptions under Swiss law. Read more>>
• Shell Continues to Trade Russian Gas Despite Pledge to Stop: On July 3, BBC News reported that Shell is still trading Russian gas more than a year after pledging to withdraw from the Russian energy market. While Shell said that the trades, the most recent being on May 9, 2023, were the result of “long-term contractual commitments” and hence do not violate laws or sanctions, Oleg Ustenko, an adviser to Ukrainian President Vladimir Zelenskyy, accused the company of accepting “blood money.” Read more>>