Sanctions Weekly Update – Ukraine/Russia Conflict – May 15, 2023

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

Week of May 15, 2023

I. US SANCTIONS

• Russian National Charged and Sanctioned for Ransomware Attacks on U.S. Critical Infrastructure: On May 16, Russian national Mikhail Matveev was charged with participating in conspiracies to deploy various ransomware variants since at least 2020, known as LockBit, Babuk, and Hive, attacking U.S. law enforcement and other government agencies, hospitals, and schools. The total ransom demands allegedly made by these ransomware campaigns amount to as much as $400 million. The Treasury Department’s Office of Foreign Assets Control (OFAC) also sanctioned Matveev for the said ransomware attacks, and the Department of State announced an award of up to $10 million for information that leads to his arrest and/or conviction. Read more>>, Read more>> and Read more>>
• U.S. and EU to Enhance Coordination of Sanctions Policies: On May 16, the Treasury Department announced that between April 26-28, the Office of Foreign Assets Control (OFAC), the European External Action Service (EEAS), and the European Commission Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) had held a multi-day meeting to exchange best practices and strengthen working relations. During the meeting, the teams identified ways to align the implementation of sanctions, promote compliance, strengthen enforcement, and address shared foreign policy challenges. They also explored methods to ensure that sanctions do not prevent humanitarian trade and assistance from reaching those in need, and that persons in sanctioned jurisdictions preserve their internet freedom. Read more>> and Read more>>
• Justice Department and BIS Take First Series of Enforcement Actions as Part of New Disruptive Technology Strike Force: On May 16, the Department of Justice announced criminal charges in five cases and four arrests from five different U.S. Attorney offices in connection with the recently launched multi-agency Disruptive Technology Strike Force, which is co-led by the Departments of Justice and Commerce to counter efforts by hostile nation-states to illicitly acquire sensitive U.S. technology to advance their authoritarian regimes and facilitate human rights abuses. Among the unsealed cases, two involve the disruption of alleged procurement networks created to help the Russian military and intelligence services illegally obtain sensitive technology, with one resulting in a Temporary Denial Order (TDO) being issued by the Department of Commerce’s Bureau of Industry and Security (BIS) to suspend export privileges of Florida company MIC P&I, LLC, Russian airline Smartavia, freight forwarder Intermodal Maldives, and Russian nationals Oleg Patsulya and Vasilii Besedin, for illegally transshipping civilian aircraft parts to Russia. Read more>> and Read more>>
• State Department Condemns the Arrest of Robert Shonov: On May 16, Russian state media Tass reported that Robert Shonov, a Russian national and former employee of the now-closed U.S. consulate in Vladivostok, was detained on the suspicion of “cooperation on a confidential basis with a foreign state, international or foreign organization.” The State Department strongly condemned the arrest, stating that the allegations were “wholly without merit” and that Shonov was employed, in strict compliance with Russian laws and regulations, by a company contracted to provide services to the U.S. Embassy in Moscow, after the Russian government terminated all local staff working in U.S. diplomatic outposts in April 2021. Read more>> and Read more>>
• Foreign Affairs Committee Passes Resolution Supporting Special Tribunal for Russia: On May 16, the House Foreign Affairs Committee approved H. Res. 81, Calling on the President to support the creation of a Special Tribunal for the Punishment of the Crime of Aggression against Ukraine. Read more>>
• USAID and Mars, Incorporated to Donate $4 Million for Urgent Healthcare Needs in Ukraine: On May 17, the U.S. Agency for International Development (USAID) and Mars, Incorporated (Mars) announced that Mars will donate $4 million to support the USAID’s mission to ease the enormous strains on Ukraine’s health system caused by Russia’s war. The donation provided by Mars to USAID will help to, among other things, expand access to basic healthcare services including mental health and rehabilitation for war victims, support Ukrainians who have been displaced by war violence or affected by Kremlin’s targeting on critical infrastructure, and meet health needs of discharged veterans and other war victims who suffer from physical injuries and/or mental trauma. Read more>>
• Secretary Blinken Calls Ukrainian Foreign Minister Kuleba: On May 12, State Secretary Antony Blinken spoke with Ukrainian Foreign Minister Dmytro Kuleba. The two leaders discussed ongoing preparations for Ukraine’s counteroffensive, including how contributions from international partners can support its success. Read more>>
• Secretary Yellen Meets with Financial Leaders on Sanctions Coordination and Support to Ukraine: On May 12-13, Treasury Secretary Janet Yellen met with financial leaders from Germany, the UK, and Japan in separate meetings. Among other things, the discussions between the leaders revolved around the coordination of efforts in implementing sanctions on Russia and on countering sanctions evasion, as well as the support to Ukraine’s economy. Further, Secretary Yellen also highlighted the G7’s “steadfast unity” in responding to Russia’s aggression against Ukraine. Read more>>, Read more>> and Read more>>

II. EU SANCTIONS

• Row over Russian Energy Sanctions Gatecrashes EU-India Summit: Talks at an EU-India summit on Tuesday were meant to be about tech and trade. But the first high-level meeting of its kind ended up being overshadowed by an apparent loophole in Western sanctions against Russia that allows countries like India to buy up cheap oil, refine it, and then ship it back to Europe for a hefty profit. Read more>>
• EU Balks at Adding Russian Gas Pipeline Ban to Sanctions Package: The EU is unlikely to amend its 11th Russia sanctions package to permanently shut natural gas pipelines the Kremlin turned off following its invasion of Ukraine, even though it's up for discussion at the upcoming G7 summit. Read more>>
• Estonian PM Pleads with Companies to Resist ‘Ghost Trade’ with Russia: The Estonian prime minister said she had to “plead” with local companies to find a “moral compass” and decline deals that may result in Moscow accessing sanctioned goods. Read more>>
• EU Commission Issues Parliamentary Reply on Russian Frozen Assets and Short-Stay Visas: According to the Commission, up to 16 March 2023, the total reported amount of frozen assets in the EU was EUR 20.95 billion. It is not yet known how much of these immobilized assets are held in the EU. Statistics on short-stay visas issued by Member States are published on an annual basis. Statistics on short-stay visas issued by Member States in 2022 are under preparation and will be published on the Commission website. Read more>>
• EU Commission Provides Parliamentary Reply on the Corridor for Transport of Ukrainian Cereals: The EU Commission confirmed that sanitary and phyto-sanitary requirements for imports to and transits through the EU of agricultural products from Ukraine have not changed. While EU rules in place do not provide for certification or systematic official controls for grain imported and transited from Ukraine, Member States can take samples for verifying compliance with EU requirements both on imports and on the national market. Those controls must be risk-based, proportionate and non-discriminatory. Read more>>
• RT France Challenges Sanctions before EU Courts: RT France lodged an action for annulment of Council Decision (CFSP) 2023/191 of 27 January 2023 concerning restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine. Read more>>
• Commission Approves Amendment to a Greek Scheme, Including EUR 600 Million Budget Increase, to Support Non-Household Electricity Consumers in the Context of Russia's War against Ukraine: The European Commission has approved amendments to a Greek scheme, including a budget increase of EUR 600 million, to support non-household electricity consumers in the context of Russia's war against Ukraine. Read more>>
• Commission Approves EUR 122.6 Million Polish Scheme to Support Agricultural Producers in the Context of Russia's War against Ukraine: The European Commission has approved an approximately EUR 122.6 million (PLN 561.6 million) Polish scheme to support the primary agricultural production sector 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 31 million Greek Scheme to Support Agricultural Producers in the Context of Russia's War against Ukraine: The European Commission has approved an approximately EUR 31 million Greek scheme to support 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>>
• Hungary to Block Sanctions against Russia Unless Kyiv Removes OTP Bank from List of ‘International War Sponsors: Hungarian Foreign Minister Peter Szijjarto said that his country won’t support the 11th sanctions package against Russia and the 500 million euro military support tranche for Ukraine unless Kyiv removes the Hungarian bank from the blacklist. On May 4, Ukraine’s National Corruption Prevention Agency designated Hungary’s OTP Bank an “international sponsor of war” due to the bank’s decision to continue operating in Russia and adherence to a credit law directly referring to the proxy regimes in Russian-occupied Donetsk and Luhansk oblasts. Read more>>
• Estonian Parliament Calls for 'Concrete Steps' on Ukraine's NATO Accession at Vilnius Summit: The Estonian parliament adopted a statement in support of Ukraine's NATO accession on May 17. The statement urges NATO allies to invite Ukraine to join the alliance and formulate "concrete and unequivocal steps" needed to speed up the accession process at the July NATO summit. Read more>>

III. UK SANCTIONS

• OFSI Publishes Travel Guidance: On May 16, 2023, OFSI published new financial sanctions guidance for entities and individuals who are subject to UK financial sanction restrictions and are applying for a licence to release frozen funds for the purpose of travel and associated expenses. Amongst other things the guidance states that: (i) applicants should apply to OFSI no less than four weeks in advance of making any travel arrangements; (ii) applicants should explain why travel was necessary (i.e. why alternative options, e.g. video conferencing, were impractical); (iii) support staff (e.g. paralegals, trainees, and secretaries) should only travel where this is evidentially necessary; and (iv) standard/economy class should be used on rail and for flights less than 6 hours and low-cost 3* hotels should be used. Generally, OFSI have noted that they require a significant level of evidence to satisfy the “reasonableness threshold” for licences. Read more>>
• Naumenko Claims Damages in UK For Detention of Superyacht: On May 16, 2023, it was reported that the UK Government detained superyacht Phi in March 2022 on the grounds that it was owned, controlled or operated by a person “connected with Russia”, Sergei Naumenko. Mr. Naumenko and the corporate owners of the yacht brought proceedings under s.38(2) of SAMLA against the Secretary of State for Transport, to overturn the decision to detain the yacht and are seeking damages under the Human Rights Act and in the tort of conversion. In the High Court, Mr Justice Chamberlain gave judgment at a direction hearing on May 10, 2023. He held that the court could in principle award damages for the tort of conversion, as well as under the Human Rights Act. The substantive hearing will take place this July. Read more>>
• Financial Sanctions Update: Syria, Russia & Global Anti-Corruption: On May 16, 2023, the Foreign, Commonwealth and Development Office updated the UK Sanctions List. Under the Russia financial sanctions regime, the list was updated to amend the statement of reasons for the designation of individual Roman Nikolaevich Lepa. Under the Global Anti-Corruption regime, the list was updated to correct the name of individual Zvonko Veselinovic. Read more>> and Read more>>
• UK, Netherlands Agree on to Help Ukraine Procure F-16 Jets: U.K. Prime Minister Rishi Sunak and his Dutch counterpart Mark Rutte have agreed to build an “international coalition” to help procure F-16 fighter jets for Ukraine, the British government has announced. The statement published by the U.K. government on May 16 says that Sunak reiterated his belief that "Ukraine’s rightful place is in NATO" and the leaders agreed on the importance of allies providing long-term security assistance to Ukraine to guarantee they can deter against future attacks. Read more>>

IV. RUSSIA/UKRAINE SANCTIONS

• Russia's VTB Leads Moscow's Efforts to Strengthen Banking Presence in Iran: On May 17, 2023, it was reported that Russia's second-largest bank VTB has opened a representative office in Iran. State-owned VTB suffered a $7.7-billion loss in 2022. The lender is one of many key Russian banks now blocked from the SWIFT international financial messaging service. The two countries have already connected their interbank communication and transfer systems, and Tehran has for months been planning to accept Russia's Mir payment cards, Moscow's alternative to Visa and Mastercard. Read more>>
• Russia Says Economy Contracts 1.9% in First Quarter: On May 17, 2023, statistics agency Rosstat reported that Russia's gross domestic product shrank by 1.9% in the first quarter of 2023. The economy was weighed down by another wave of sanctions imposed over its offensive in Ukraine, including a ban by the European Union on Russian petroleum products, on top of a price cap agreed with the G7 and Australia. Read more>>
• Russia Agrees to 2-Month Ukraine Grain Deal Extension: On May 17, 2023, Turkish President Recep Tayyip Erdogan announced that Russia has agreed to extend the Ukraine Black Sea grain deal for another two months. Russia's Foreign Ministry confirmed the grain deal's extension, adding that "disparities" in the agreement "should be corrected as quickly as possible." Moscow has regularly voiced discontent with the deal, arguing for the removal of Western sanctions that make it difficult for Russia to export its grain and fertilizers to the world. Read more>>
• Ukraine Expanded Its Sanctions Lists: On 12 May 2023, Ukraine added 502 individuals and 860 legal entities to the sanctions list. The amendments were implemented by five Orders of the President of Ukraine, four of them entered into force on 16 May, one is pending publication. Read more>>
• Russia Admits ‘Problems’ as Energy Revenues Fall: On May 17, 2023, it was reported that Russia has admitted “problems” with oil and gas revenues that have fallen to their lowest levels in years, underscoring the impact of western restrictions on Moscow’s primary engine for funding its war in Ukraine. Finance minister Anton Siluanov acknowledged issues during a public video conference with President Vladimir Putin, blaming “all these discounts” in explaining why energy revenues fell by more than 50 per cent in the first quarter 2023. Read more>>
• Russia Seeks to Close Loopholes Letting Foreigners Divest Debt Holdings: On May 16, 2023, it was reported that Russia's central bank is planning to close loopholes allowing foreign investors from countries that have imposed sanctions against Moscow to divest Russian asset holdings. Moscow has imposed restrictions on foreigners' holdings in response to sweeping Western sanctions, leaving many non-resident investors unable to sell or receive interest payments on certain assets. Central Bank Deputy Chairman Philip Gabunia told a financial forum that the bank considered it wrong to allow non-residents to reduce their Russian asset holdings while local investors have funds frozen abroad. Read more>>
• Russian Central Bank: Some Shares Bought from Exiting Firms Should Be Put to Market: On May 16, 2023, it was reported that Russian Central Bank Governor Elvira Nabiullina has said that new owners of assets purchased from companies leaving the country should float a portion of the acquired shares on the stock exchange. First Deputy Governor Vladimir Chistyukhin is reported to have confirmed that the central bank's plan would not affect previously concluded deals and that the central bank wanted around 10%-20% of stakes to be offered to investors on the market. Read more>>
• Russia Approves Sale of Volkswagen Assets for About $140 m: On May 16, 2023, Interfax news agency reported that the Russian government has approved a deal for Volkswagen to sell its Russian assets to autodealer group Avilon for up to 125 million euros ($137.6 million). It was unclear if the deal would include a buyback clause. Volkswagen opened the Kaluga factory, which has a capacity of 225,000 vehicles a year, in 2007. The plant has been furloughed since March 2022, when sanctions imposed by Western countries over the conflict in Ukraine led supply chains to break down. Read more>>
• Kazakhstan, Russia Map Out Gas Pipeline to China: On May 16, 2023, it was reported that Kazakhstan's energy minister, Almassadam Satkaliyev confirmed that Kazakhstan and Russia have established the route for a future gas pipeline to support shipments between the two countries and to China. The pipeline would help Russia boost sales of its energy and commodities in Asia while also ensuring that Kazakhstan secures supplies for its central, northern and eastern regions. Read more>>
• Russia's Defence Spending Jumped 282% Y/Y To $26b in Jan-Feb 2023: On May 15, 2023, it was reported that Russia spent 2 trillion roubles ($26 billion) on defence in January and February 2023 alone, a 282% jump on the same period in 2022, data on the budget portal showed, illustrating the spiralling costs for Moscow of its conflict in Ukraine. In the first two months of 2022, 525.4 billion roubles of budgetary funds were spent on "national defence". Read more>>
• Russian Gas Exports to Europe Declines By 11% in May 1-15, 2023: On May 15, 2023, it was reported that data on the Federal Treasury’s online budget portal shows Russian pipeline gas exports have declined by 11.4% in the first half of May 2023 from April's average level. Average gas supplies to Europe by Kremlin-controlled energy giant Gazprom decreased so far in May 2023 to 67 million cubic metres per day from 75.6 million cubic metres per day in April 2023. Read more>>
• Russian Oil Exports Hit Post-Invasion High: On May 15, 2023, the International Energy Agency reported that Russia exported more oil in April 2023 that in any month since its full-scale invasion of Ukraine in 2022, with almost 80% of crude shipment flowing to China and India. Russian oil exports edged up another 50,000 barrels a day in April 2023 to a post invasion high of 8.3mm b/d, far exceeding the 7.7mn b/d and 7.5mn that was averaged in 2022 and 2021, respectively. Read more>>
• Russian PM to Attend Business Forum in China as Bilateral Trade Rises: On May 15, 2023, it was reported that Russia’s Prime Minister Mikhail Mishustin is to head a high-profile delegation to a business forum in China next week as Moscow’s economic dependency on Beijing grows. Russia’s bilateral trade with China hit $190bn in 2022, a new record, and grew 39% year on year to $54bn in the first quarter of 2023. Read more>>
• Ukraine’s Supreme Court Chairman Detained for Accepting $3 Million Bribe: Ukraine’s Supreme Court Chairman Vsevolod Kniaziev was detained after being caught receiving a bribe of about $3 million. The National Anti-Corruption Bureau (NABU) and the Specialized Anti-Corruption Prosecutor's Office (SAPO) confirmed they had exposed a "large-scale corruption scheme in the Supreme Court". The Supreme Court considered the case on Zhevago's ownership of 40.19% of Poltava Mining and Processing Plant, part of the Ferrexpo group, ruling to allow Zhevago to keep the shares. Read more>>
• Putin Simplifies Citizenship Process for Foreigners Fighting for Russia in Ukraine: Russian President Vladimir Putin signed a decree simplifying the citizenship process on May 15 for foreigners and stateless people fighting in the Russian military against Ukraine on a one-year Russian military service contract, according to the Russian government website. Their spouses, children, and parents will also be eligible, according to the decree. Read more>>
• The Russian Ministry of Economy Proposes Change to Share Sale Rules in LLCs: The Ministry of Economic Development has proposed a plan to cancel the pre-emptive right to acquire a share by a participant in an LLC when it is sold by other owners. The quick sale of part of the assets is especially relevant for businessmen who have fallen under sanctions, and compliance with the requirements for preemptive right may prevent the deal. Read more>>

V. OTHER NOTABLE DEVELOPMENTS

• G7 to Target Russian Energy and Trade in New Sanctions Steps: On May 14, Reuters reported that leaders of G7 nations are planning to tighten sanctions on Russia at their summit in Japan this week, with steps aimed at energy and exports aiding Moscow’s war effort. The new measures to be announced during the meetings will also include the targeting of sanctions evasion involving third countries, according to officials with direct knowledge of the discussions. The precise language of the G7 leaders’ joint declarations is still being negotiated and adjusted, and will be released during the summit on May 19-21, 2023. Read more>>
• G7 and EU to Ban Restart of Russian Gas Pipelines: On May 14, the Financial Times reported that the G7 and EU will ban Russian gas imports on routes where Moscow has cut supplies, according to officials involved in the negotiations, marking the first time pipeline gas trade has ever been targeted by western powers to curb Russia’s ability to fund its Ukraine invasion. The decision, which is to be finalized by G7 leaders at the Hiroshima summit this week, will prevent the resumption of Russian pipeline gas exports on routes to countries such as Poland and Germany, where supplies were cut off by Moscow last year, triggering a continent-wide energy crisis. Read more>>
• U.S. Unlikely to Sanction South Africa in Russia Weapons Dispute, Says South African Finance Minister: On May 14, South African Finance Minister Enoch Godongwana said that South Africa has resolved the dispute with the U.S. over allegations of Pretoria supplying weapons to Russia and thus is unlikely to face U.S. repercussions, according to an interview with Bloomberg News. The comment followed an accusation by U.S. Ambassador to South Africa Reuben Brigety that a Russian ship had picked up weapons in South Africa in December, in which he later “admitted that he crossed the line and apologized unreservedly” after a meeting with South African Foreign Minister Naledi Pandor last Friday, according to a South African government statement. Read more>> and Read more>>
• South African Army General Meets Russian Counterpart in Moscow Amid Accusation of Military Support: On May 15, The Washington Post reported that South African army chief Lt. Gen. Lawrence Mbatha met with Russian ground forces commander Gen. Oleg Salyukov in Moscow, days after the U.S. accused South Africa of supplying weapons to Russia. In a statement published by the Russian Defense Ministry, the two leaders “discussed issues of military cooperation and the implementation of projects geared to enhance the combat readiness of the two countries’ armies.” The South African army said the trip was planned well in advance of the accusations made last Friday. Read more>>
• Australia Urged by Ukrainian Ambassador to Join G7 Sanctions against Russia: On May 16, it was reported that Ukraine’s ambassador to Australia urged the country to join any G7 sanctions on Russia, as the group’s leaders are about to take further steps to choke energy and exports funding Moscow’s war effort and target third countries enabling sanctions evasion in their summit in Japan this week. Australia’s Department of Foreign Affairs and Trade reiterated that more than 1000 targeted financial actions and a comprehensive suite of import and export bans to Russia was in place, and Australia’s two-way trade with Russia has already “declined to negligible levels.” Read more>>
• Canadian Senators Urge Ottawa to Improve Transparency and Assessment on Sanctions Regime: On May 16, it was reported that Canada’s Senate foreign-affairs committee is urging Ottawa to clarify the reasons it issues sanctions and improve the ways it assesses whether financial embargoes and travel bans are actually working. In a newly published report, senators commented that Canada, compared to its allies, provides less guidance on how companies are supposed to follow the sanctions rules, with experts also opining that the extent of sanctions enforcement in Canada is not clear enough. Read more>>
• Swiss Parliamentary Panel Seeks Easing of Export Controls on Weaponry: On May 11, a parliamentary committee in Switzerland recommended easing export controls for Swiss-made war materiel to help prop up the domestic defense industry, as the West urges the country to step up its efforts in supporting Ukraine, according to reports. The passing of two relevant motions in the upper house of parliament was largely a procedural step, but nevertheless highlighted the economic and political pressure currently faced by Swiss government officials and lawmakers to reconsider the country’s longstanding principle of neutrality. Read more>>
• Sanctioned Dual-Use Goods Flow into Russia through Ex-Soviet Nations: On May 17, The Wall Street Journal reported that a group of former Soviet republics, including Armenia, Georgia, Kyrgyzstan, Uzbekistan and Kazakhstan, has emerged as a major transshipment hub since last year for U.S. and European computer chips, lasers and other products with both civilian and military uses headed for Russia, according to Western officials and available data. Read more>>
• Ukraine, China Meeting Shows No Sign of Breakthrough to End Russian Invasion: On May 17, it was reported that the meeting between Ukrainian Foreign Minister Dmytro Kuleba and Chinese Special Representative for Eurasian Affairs Li Hui did not show signs of breakthrough for Beijing’s attempt to end the Ukraine war through diplomatic means. Specifically, Kuleba reiterated that Ukraine would not “accept any proposals that would involve the loss of its territories or the freezing of the conflict.” While Chinese President Xi Jinping had reassured Ukrainian President Zelenskyy that China was not providing arms to Russia, the country’s position taken in terms of the war has so far been seen as largely in line with the Russian narratives. Read more>>