Sanctions Weekly Update – Ukraine/Russia Conflict – May 8, 2023

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

Week of May 8, 2023

I. US SANCTIONS

• Justice Department Investigating Binance for Sanctions Violations: On May 5, Bloomberg reported that the Justice Department is investigating whether Binance Holdings Ltd., the world’s largest cryptocurrency exchange, was used illegally by Russians to circumvent U.S. sanctions, according to people familiar with the matter. Sources say that the Justice Department’s national security division is leading the probe, which is moving on a parallel track with an existing inquiry by the criminal division. Read more>>
• U.S. Attorney General Authorizes Transfer of Assets Seized from Russian Oligarch to Ukraine: On May 10, U.S. Attorney General Merrick Garland authorized the first ever transfer of assets seized from sanctioned Russian oligarch to Ukraine for war reconstruction purposes, according to reports. The said Russian oligarch Konstantin Malofeyev was indicted by the U.S. last year for breaching sanctions imposed on him in relation to Moscow’s 2014 annexation of Crimea, and millions of dollars had been seized from a U.S. bank account “traceable to [his] sanctions violations.” The funds were transferred to the State Department for use “in Ukraine to remediate the harms of Russia’s unjust war.” Read more>>
• OFAC Issues New Russia-Related General License: On May 5, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued Russia-related General License (GL) 8G, "Authorizing Transactions Related to Energy". This new GL replaces and supersedes Russia-related GL 8F in its entirety, and authorizes energy-related transactions with certain Russian entities until November 1, 2023. Read more>>
• Defense Department Announces Additional Security Assistance for Ukraine: On May 9, the Department of Defense announced a new security assistance package for Ukraine to bolster its air defenses and sustain its artillery ammunition needs. The package, provided under the Ukraine Security Assistance Initiative (USAI) and totals up to $1.2 billion, includes additional air defense systems and munitions; equipment to integrate Western air defense launchers, missiles, and radars with Ukraine’s air defense systems; ammunition for counter-Unmanned Aerial Systems; 155mm artillery rounds; commercial satellite imagery services; and support for training, maintenance, and sustainment activities. Read more>>
• Secretary Yellen Highlights Importance of Sanctions Coordination Ahead of G7 Meeting: On May 11, Secretary of the Treasury Janet Yellen addressed the importance of coordinating sanctions against Russia for its war in Ukraine, in a press conference held in Niigata, Japan, ahead of the G7 finance meetings. In her remarks, she said, among other things, that she looks forward “to coordinating with other G7 members to support Ukraine and degrade Russia’s ability to wage war,” and reiterated that present initiatives such as IMF’s financing program to Ukraine, the price cap policy on Russian oil, and the U.S.’s new strategy to crack down on sanctions evasion had so far been effective. Read more>> and Read more>>
• U.S. Envoy Accuses South Africa of Shipping Arms to Russia: On May 11, reports emerged that the U.S. ambassador to South Africa Reuben Brigety had accused South Africa of supplying arms to Russia in a covert naval operation. In comments reported by South Africa’s News24, the ambassador said the U.S. was confident that weapons and ammunition were loaded on to a sanctioned Russian vessel that docked near Cape Town last December, as it made its way back to Russia. Both the U.S. embassy as well as South Africa’s foreign ministry and President office did not immediately respond to the accusation. Read more>> and Read more>>
• U.S. Holds ‘Candid’ Talks with China, Expresses Concerns Chinese Alignment with Russia: On May 11, it is reported that U.S. and Chinese officials met this week in Vienna to discuss a range of issues, including Russia’s war in Ukraine. According to a senior Biden administration official who spoke anonymously, Biden’s national security advisor Jake Sullivan and China’s top diplomat Wang Yi had a “candid, substantive and constructive” conversation, with Sullivan reiterating “deep U.S. concerns about China’s alignment with Russia and the possibility that the world’s second-largest economy may attempt to help Moscow blunt sanctions.” Read more>>

II. EU SANCTIONS

• Commission Updates Guidance on Asset Freeze: The Commission has updated its Frequently Asked Questions on sanctions against Russia and Belarus related to the Asset freeze and related to the prohibition on the provision of funds or economic resources. Read more>>
• EU Commissioner Answers Question on Exports of Medical Products: EU Commissioner McGuinness has answered to an MEP written question related to the Sanctions against Russia linking Nord Stream 2 and exports of medical products. The export of medical products and devices is not subject to export prohibitions under EU sanctions. However, certain spare parts or components used in medical devices may fall under export prohibitions if those spare parts/components could have a dual use or contribute to the enhancement of Russian industrial capacities. Read more>> and Read more>>
• Brussels Plans Sanctions on Chinese Companies Aiding Russia’s War Machine: Brussels has proposed sanctions on Chinese companies for supporting Russia’s war machine for the first time since the war in Ukraine began, a development that is likely to increase tensions with Beijing. Read more>>
• EU Goods Worth at Least USD 1 Billion Vanish in Russia ‘Ghost Trade’: More than USD 1bn of EU exports targeted by sanctions have disappeared in transit to Russia’s economic partners, a flow of “ghost trade” that western officials believe has helped sustain Vladimir Putin’s wartime economy. Read more>>
• EU Targets Central Asia in Drive to Stop Sanctioned Goods Reaching Russia: Several EU countries fear Brussels risk opening a Pandora’s box with a new measure that could eventually be used against China and Turkey. Read more>>
• China’s Qin Warns EU Not to Sanction Its Companies over Trade with Russia: Chinese Foreign Minister Qin Gang cautioned his German counterpart Annalena Baerbock on Tuesday that Beijing would react strongly if the EU were to sanction Chinese companies over their potential role in assisting Russia's war in Ukraine. Read more>>
• Germany Warns EU on Hitting China with Russia Sanctions: Germany led calls urging caution against targeting China under new European Union sanctions over Russia's invasion of Ukraine during a first discussion among the bloc's 27 countries on proposed new restrictions, five diplomatic sources said. Read more>>
• EU Urges Georgia to Align with Sanctions on Russia Amid Air Travel Ban Lift: At a press briefing held on May 11, Peter Stano, EU Lead Spokesperson for Foreign Affairs and Security Policy discussed the lifting of the air travel ban between Russia and Georgia and urged Georgie to align with sanctions on Russia. Read more>>
• Growing Reports that Gazprom is Financing Private Militias Fighting in Ukraine: Russian gas exporter Gazprom is set to escape this week's EU 11th sanctions package, despite increasing proof it is financing mercenaries fighting in Ukraine. Read more>>
• MEPs Consent to Renew Trade Support Measures for Ukraine: Parliament gave its green light to suspending EU import duties on Ukrainian exports of agricultural products for another year to support the country’s economy. Read more>>
• Commission Approves EUR 2.6 Billion Swedish Scheme to Support Companies in the Context of Russia's War against Ukraine: The European Commission has approved a EUR 2.6 billion (SEK 29 billion) Swedish scheme to support companies active in southern Sweden 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 435.4 Million Polish Scheme to Support the Wheat Production Sector in the Context of Russia's War against Ukraine: The European Commission has approved an approximately EUR 435.4 million (PLN 2 billion) Polish scheme to support the wheat 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 137 Million Portuguese Scheme to Support Agricultural Producers in the Context of Russia's War against Ukraine: The European Commission has approved an approximately EUR million Portuguese scheme to support primary 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>>
• French Parliament Approves Motion to List Wagner Group as a Terrorist Organization: France's National Assembly has approved a motion urging the French government and the EU to officially designate Russia's Wagner mercenary group as a terrorist organization. The Wagner mercenary group is currently involved in Russia's offensive operations in the east of Ukraine, fighting alongside the Russian regular army. Wagner mercenaries have been accused of human rights abuses in Ukraine, Syria, Libya, the Central African Republic, Sudan, and Mozambique, including torture and extrajudicial killings. Read more>>
• EU Calls on Georgia to Comply with Sanctions against Russian Aviation Industry: European Commission spokesman Peter Stano stated "[t]he European Union calls on Georgia, which aspires to become a candidate for joining the Union, to follow the current European sanctions, as other EU partners do”. He also emphasized the need to carefully monitor any attempts to circumvent sanctions, especially in the aviation sector. The call came across the decision of the Georgian authorities to allow direct flights of Russian airlines that have not been sanctioned. Read more>>
• European Parliament Supports Extension of Duty-Free Trade with Ukraine for Another Year: The European Parliament has voted to extend duty-free trade with Ukraine for another year in order to support the Ukrainian economy in wartime conditions. In May 2022, the Council of the EU decided to cancel all tariffs and quotas on exports from Ukraine for a year as a support measure in connection with the full-scale invasion of Russia. Since February of this year, the EU has launched the procedure for extending duty-free trade with Ukraine for another year. Read more>>
• Austria Sees No Threat to Raiffeisen Due to Russian Business: Russian business does not pose a direct threat to Raiffeisen Bank International (RBI), said Helmut Ettl, executive director of the Austrian Financial Markets Authority (FMA). “[E]ven with the development of the worst-case scenario, it can be unequivocally said that the RBI may face a painful process, but in any case it will survive it,” said Mr. Ettl. Read more>>

III. UK SANCTIONS

• English High Court Rejects Defence of Reasonable Belief That Russia Sanctions Applied: On May 5, 2023, the Commercial Court handed down a judgement in Celestial Aviation Services Ltd v UniCredit Bank, rejecting a defence under s.44 SAMLA 2018, which provides that people and entities are not liable for civil proceedings, for which they would otherwise be liable, if they held a reasonable belief that they were acting in compliance with sanctions regulations. In a March 2023 judgement, the Commercial Court held that Russia sanctions regulations did not suspend UniCredit’s obligation to pay Celestial under letters of credit opened in relation to the lease of aircraft to Russian companies. The Court has now held that UniCredit was not entitled to the s.44 defence for this non-payment. Whilst the judge held that UniCredit did believe that they were acting pursuant to the Russia regulations by not making payments due to Celestial, he held that this belief was not reasonable. Read more>>
• Russian Tycoon Suing UK Government for Return of £38m Superyacht: On May 11, 2023, it was reported that Sergei Georgievich Naumenko, a property developer who is not on the UK’s Russia sanctions list, has filed a claim in the English High Court against the Department for Transport (DfT) demanding it free his 58.5-metre (192ft) long superyacht Phi and pay damages. The yacht was seized in March 2022 in Canary Wharf, where it has remained ever since. Read more>>
• UK Fintech Borrowed from Firm Backed by Tycoon with 'Concerning Ties' to Russia: On May 11, 2023, it was reported that Dzing Finance, the fintech managed by Mikhail Nadel, borrowed €5.3 million ($5.8 million) in 2021 from an entity backed by the family of Oleg Boyko to finance its growth. Oleg Boyko was sanctioned by Canada and Australia in 2022 citing his alleged links to the Kremlin. The loan deal arose after the US Senate Intelligence Committee said Boyko had “concerning ties” to the Russian state and criminality. The deal between the two businessmen highlights the kind of challenges emerging in the UK’s electronic-money and payments institutions that move more than £1 billion ($1.3 billion) a day. Read more>>

IV. RUSSIA/UKRAINE SANCTIONS

• Russian Oil Ban Costs Polish Oil Company Pkn Orlen Millions A Day: On May 7, 2023, it was reported that the ban on Russian crude oil is costing Poland’s state-controlled oil company millions of dollars a day as it struggles to find alternative supplies for its Czech refinery. Chief executive of PKN Orlen, Daniel Obajtek, described losing Russian oil as a forfeit of about $27m a day because of the price difference of about $30 per barrel between the cheaper Russian oil and alternative supplies. Read more>>
• Russia’s Energy Sector Hit as Kremlin Forced to Increase Tax: On May 8, 2023, it was reported that the G7-led price cap on Russian oil exports has forced the Kremlin to raise the tax burden on producers, dealing a fresh blow to an energy sector already struggling with western sanctions, according to officials from the western coalition. An analysis of the tax change by a member of the G7-led coalition was said to have found that the move was likely to backfire by sacrificing the industry’s ability to invest for the long term in order to plug a gap in government finances. Read more>>
• Russia’s Budget Deficit Surpasses 2023 Target in January-April: On May 11, 2023, it was reported that Russia’s budget deficit has surpassed the government’s entire 2023 target in the first four months of the year as wartime spending and falling energy revenues continued to cut into the state budget. The federal budget deficit rose to 3.42 trillion rubles ($45 billion) in January-April 2023, according to figures published by the Finance Ministry. Revenues fell 22% to 7.8 trillion rubles, while spending rose 26% to 11.2 trillion rubles compared to the same time last year. Russia had forecast its budget deficit to reach 2.9 trillion rubles ($43 billion) in 2023, with at least one-third of state spending was expected to go to defense and security. Read more>>
• The Cabinet of Ministers of Ukraine Closes Loophole for Russian Fuel to Enter the Country: Ukraine has banned the import of fuel of unknown origin, so that Russian fuel does not enter the Ukrainian market in circumvention of sanctions. The ban will apply to crude oil and oil products, petroleum gases and other hydrocarbons, alternative motor fuel, biodiesel and its mixtures. Despite the sanctions, fuel of Russian origin entered EU countries, Turkey and other countries, from where it went to the Ukrainian market. Read more>>
• Russian Imports of Chinese Products Up 67% in 2023: On May 9, 2023, it was reported by China’s General Administration of Customs that Russia-China trade in January-April 2023 has showed significant growth. During the first four months of the year, China exported goods to Russia worth US$33.686 billion, an increase of 67.2% on the same period in 2022; deliveries from Russia to China increased by 24.8% to US$39.462 billion. In April 2023 trade between the two countries amounted to US$19.228 billion: Russia supplied goods worth US$9.606 billion to China; China supplied goods worth US$9.621 billion to Russia. Read more>>
• Russia's Oil Exports Climb to Fresh Highs Despite Threats to Slash Production: On May 10, 2023, it was reported that Russia's crude shipments continued to climb despite Moscow's threat of production cuts in February 2023. According to Bloomberg, seaborne flows reached 3.55 million barrels a day, the highest mark since early 2022. Nearly all of Russia's crude exports were reportedly sent to China and India in April 2023, and volumes to Asia also moved to a new high. Read more>>
• Russia Lifts Visa Regime, Flight Ban with Georgia: President Vladimir Putin has lifted a flight ban and visa regime with Georgia, against which Russia fought a brief war in 2008, the Kremlin said on Wednesday. According to the decree, Putin has introduced a 90-day visa-free regime for Georgian citizens from May 15. Another decree resumed air travel between Russia and Georgia. In response to anti-Moscow rallies in Georgia, Russia had in 2019 banned air travel with Georgia. The President of Georgia called Moscow's decision a provocation and noted that the resumption of flights is unacceptable. Read more>>
• Russia, Uzbekistan Trade Set to Grow at 20% in 2023: On May 11, 2023, it was reported by Russian Deputy Prime Minister Denis Manturov that trade turnover between Russia and Uzbekistan may reach US$12 billion in 2023 compared to around US$10 billion in 2022. Manturov is reported to have said that “we are already seeing incremental growth. I believe we will approach US$12 billion unless some cataclysmic events occur”. Read more>>
• Russia Seeks Relief on Fertilizer Exports in Black Sea Grain Negotiations: On May 11, 2023, it was reported that during talks in Turkey, Russia is demanding that the West removes obstacles to its grain and fertilizers. The talks are to extend a deal that allows the safe Black Sea exports of agricultural products from three Ukrainian ports. Moscow's demands for extending it include the reconnection of the Russian Agricultural Bank (Rosselkhozbank) to the SWIFT global payment system, and the unblocking of Russian food and fertilizer exporters' overseas assets. Read more>>
• Global Investment Giant BlackRock Will Help the Development Fund of Ukraine: President Volodymyr Zelenskyy held a meeting with the management of the world's largest asset management company BlackRock, where they discussed the details of the creation of an investment fund for the recovery of Ukraine's economy with the involvement of public and private capital. Zelenskyy commented that for the transparency and success of the project implementation, Ukraine involves the global leaders in finance and consulting: BlackRock, JP Morgan, McKinsey, etc. Read more>>
• Russia Denounces Treaty on Conventional Armed Forces in Europe: President Vladimir Putin denounced the Treaty on Conventional Armed Forces in Europe (CFE); Russia has suspended participation in the treaty since 2007. The document was based on a system of quantitative restrictions on five categories of conventional weapons: armored combat vehicles, artillery, combat aircraft and combat helicopters. Read more>>

V. OTHER NOTABLE DEVELOPMENTS

• Criminal Proceedings Opened for Attempted Sanctions Violations, SECO Says: On May 8, it was reported that Switzerland’s State Secretariat for Economic Affairs (SECO) has investigated 130 alleged attempts to circumvention sanctions against Russia, and 29 cases have resulted in administrative criminal proceedings. In an interview published by the German-language newspaper SonntagsZeitung, the director of SECO stated that half of these procedures carried out so far are enforceable, though 36 cases have not led to any proceedings being opened. The remaining cases are still being examined. Read more>>
• Japan Called Out by Canada over Imports of Russian Seafood and Energy: On May 10, reports emerged that Canada has recently expressed its disappointment over the amount of seafood Japan imported from Russia last year, despite a series of sanctions imposed by the West on Russian exports. Data from Japan’s Finance Ministry showed that the country imported a record 155.2-billion-yen worth of marine products from Russia in 2022, and would continue to rely on Moscow for its seafood supply, refusing to impose sanctions on said category due to potential catastrophic effects on domestic businesses. Read more>>
• Oilfield Firm SLB Makes Changes to Russian Business for Sanctions Compliance: On May 10, Reuters reported that Schlumberger (SLB), the world’s largest oil services and equipment provider, has made operational and structural changes to keep its Russian business in compliance with Western sanctions on oil equipment and technology transfers. According to sources, the company will tighten equipment transfers, bar Russian employees from accessing certain software and messaging systems, and wall off the unit from other operations. Read more>>
• Switzerland Reports Holding $8.3 Billion in Russian Central Bank Reserves: On May 10, the Swiss government announced, in accordance with new reporting obligations introduced in the latest EU sanctions package, that the total amount of reserves and assets of the Russian Central Bank held in Switzerland is approximately CHF 7.4 billion (about USD 8.3 billion). This sum represents all of the bank’s assets that have been immobilized since March 25, 2022, where all transactions related to the bank were prohibited. Further discussions as to whether these assets should be invested and the proceeds used for the reconstruction of Ukraine are ongoing. Read more>>
• India's Imports of Russian Oil Jumped Tenfold in 2022: On May 11, 2023, it was reported by Indian state-controlled lender Bank of Baroda that India's imports of Russian oil rose tenfold in 2022. Russia has been selling energy at a discount to countries like China and India and figures show Asia's third largest economy saved around $5bn (£4bn) as it ramped up crude purchases from Moscow. India has defended its oil purchases, saying that as a country reliant on energy imports and with millions living in poverty, it was not in a position to pay higher prices. Read more>>