Sanctions Weekly Update – Ukraine/Russia Conflict – July 10, 2023

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

Week of July 10, 2023

I. US SANCTIONS

• Treasury Department Sanctions Serbian Official Facilitating Malign Russian Activities in Serbia: On July 11, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned an individual in Serbia, Aleksandar Vulin, pursuant to Executive Order (E.O.) 14033.  Among other things, Vulin has been implicated in transnational organized crime, illegal narcotics operations, and misuse of public office, including using his public positions to support Russia, facilitating Russia’s malign activities that degrade the security and stability of the Western Balkans and providing Russia a platform to further its influence in the region.  Read more>> and Read more>>
• Biden Administration Announces Additional Security Assistance for Ukraine: On July 7, the Biden Administration announced that it is authorizing its 42nd drawdown of US arms and equipment for Ukraine, valued at a total of $800 million. This assistance package includes dual-purpose improved conventional munitions (DPICMs), a highly effective and reliable artillery capability that the US has not previously provided to Ukraine, as well as additional air defense munitions, armored vehicles, anti-armor weapons, and other equipment.  Read more>> and Read more>>
• President Biden’s Meeting with President Zelenskyy of Ukraine: On July 12, President Biden met with President Volodymyr Zelenskyy of Ukraine in Vilnius, Lithuania. The leaders welcomed the launch of the Declaration of Support for Ukraine by G7 Leaders and President Zelenskyy, and discussed U.S. readiness to begin negotiations with Ukraine on bilateral security commitments to ensure a sustainable force capable of defending Ukraine now and in the future. President Biden also emphasized US support for Ukraine as it pursues integration into the Euro-Atlantic community.  Read more>> 
• Secretary of State Blinken Speaks With Ukrainian Foreign Minister: On July 9, Secretary of State Antony J. Blinken spoke with Ukrainian Foreign Minister Dmytro Kuleba via phone. The two discussed progress in Ukraine’s counteroffensive as well as preparations ahead of this week’s NATO Summit in Vilnius, Lithuania. Secretary Blinken reiterated steadfast US support and continued security assistance as Ukraine continues to defend itself against Russia’s aggression.  Read more>> 
• Secretary of Defense Austin Speaks With Ukrainian Minister of Defense: On July 6, Secretary of Defense Lloyd J. Austin III spoke with Ukrainian Minister of Defense Oleksii Reznikov. The leaders discussed developments on the battlefield in Ukraine, and Secretary Austin provided an update on US security assistance support. They pledged to remain in close contact.  Read more>> 
• Biden Administration Says It Did Not Support Unofficial Talks With Russia: On July 6, the Biden Administration said it did not sanction or support secret meetings that former top US national security officials held with Russian Foreign Minister Sergei Lavrov and other Russians on potential talks to end the Ukraine war, according to reports. This followed a previous NBC News report indicating that a group of former White House and Pentagon officials met Lavrov in New York in April, adding that it was not clear how frequently the group held discussions with other Russians close to the Kremlin. White House national security spokesperson John Kirby said the White House was aware of the unofficial discussions, but was not “encourag[ing] or engender[ing],” nor “supporting them in any active way,” reiterating that the administration’s policy has always been to not discuss possible war-ending negotiations without involving Ukrainian officials.  Read more>> 
• Concerns Arise Over US Decision to Supply Cluster Munitions to Ukraine: On July 8, reports emerged that rights groups and the United Nations (UN) Secretary-General questioned Washington’s decision on supplying Ukraine with widely banned cluster munitions for its counteroffensive against occupying Russian forces, in part of a most recent security assistance package totaling at $800 million. Despite already prohibited by more than 100 countries, Russia, Ukraine and the US have not signed on to the Convention on Cluster Munitions, which bans production, stockpiling, use and transfer of the weapons. White House national security adviser Jake Sullivan said Ukraine “has provided written assurances that it is going to use these in a very careful way,” with President Biden describing the decision on cluster bombs as “difficult,” but stressing that Ukraine needed them. Read more>> 
• US Treasury is Monitoring Russian Neighbors on Sanctions Compliance, Reports Reveal: On July 11, bne IntelliNews revealed that representatives from the US Treasury Department have been assigned to roles in Kazakhstan, Uzbekistan, Armenia, and Tajikistan to monitor each country’s compliance with sanctions against Russia. Specifically, Treasury officials operating out of US Embassies in these countries have been tasked with monitoring transactions made by Russian entities with local lenders that seek to circumvent sanctions, according to sources.  Read more>> 

II. EU SANCTIONS

• EU gains new sanctions weapon but will probably be too nice to use it: EU ambassadors this week agreed to a new mechanism to create risk of EU punishment for third countries that fail to comply with Western sanctions or are unable to explain a sudden rise in trade in banned goods toward Russia. Previously, several countries, including Germany, had fretted that such a mechanism would hurt diplomatic relations, and even drive countries into the arms of Russia and China. Read more>>
• Russian Billionaire Roman Abramovich Challenges EU Sanctions Designation: The billionaire’s lawyers will argue that the EU sanctions are baseless and were imposed purely because he is a famous Russian businessman. "He was not sanctioned because of evidence relating to the criteria: he was sanctioned simply because politically, the most famous Russian businessman had to be even if this is a manifest error," the source said. Read more>>
• EU Says Cost of Sanctions Will Hit Russia Harder Over Time: The European Union’s sanctions against Russia will build over time and will have a growing long-term impact on Moscow’s economy, according to the EU Commission’s report. The report says that the sanctions have “significantly degraded Russia’s industrial and technological capacity” and these effects will further intensify over time. Read more>>
• Austria’s OMV To Continue to Import Russian Gas: Austrian energy group OMV will continue to buy most of its gas from Russia this winter, even though the company has secured back-up contracts to fully cover its import needs from other sources, according to its CEO. At points last winter, the company was paying more than €1bn a month to the Kremlin for Russian gas. Read more>>
• South Korean Motor Lubricant Exports To Russia Surge After Oil Majors Retreat: South Korean exports to Russia of motor lubricants that can be used in tanks, armoured cars and other military vehicles more than doubled last year, as Korean companies took advantage of their western competitors’ retreat from the market. Read more>> 
• Commission Approves €10 million Estonian Scheme to Support Agricultural and Food Producers: Commission approves €10 million Estonian scheme to support agricultural and food producers in the context of Russia's war against Ukraine. Under the scheme the aid will take form of direct grants in order to support producers of agricultural and food products that are currently facing liquidity shortages due to the cost increase of fuel, electricity and fertilisers. Read more>> 
• EU and Ukraine Extend ‘Roaming' for Ukraine Scheme: The European Commission announced a yearlong extension of an agreement between 22 European and seven Ukrainian operators, which was first signed in April 2022, to mutually lower the rates they must sustain to connect calls across borders. Read more>> 
• EU Develops Strategy for Integration of Ukrainian and Moldovan rail systems: The European Commission, together with the European Investment Bank, developed a strategy for the integration of the railway systems of Ukraine and Moldova into the European one, in particular, the transition to the European track with a width of 1435 mm. It is emphasized that the railway sector is an important chain of logistics, and therefore a prerequisite for future investments in Ukraine and Moldova. Read more>> 
• Poland May Confiscate 20% of Polish Fertilizer Manufacturer Owned By Russian company Akron: Russian fertilizer producer Akron may lose 20% in the Polish fertilizer producer Azoty. This share was frozen by the Polish authorities a year ago, and now it has been subject to compulsory external management with the prospect of subsequent sale or confiscation. The deal is unlikely to be a market deal. Read more>> 

III. UK SANCTIONS

• Bar Standards Board Review of Sanctions Compliance at the Bar: On June 28, 2023, the England and Wales Bar Standards Board (BSB) published a report, the Thematic Review of Financial Sanctions Compliance at the Bar, which focused on 31 chambers that are members of the Commercial Bar Association, the review found that:
  • there was a good level of awareness of the risks and caution of unwittingly engaging with a designated person without a licence;
  • documenting and implementing appropriate controls within chambers were the area where most improvement was needed;
  • there was tension in delineating responsibility between chambers and barristers, finding that chambers’ management committees should have mechanisms and guidance in place; and
  • the Bar Council has set up a working group to develop its own guidance to help ensure consistency across the profession.
    The BSB will review the government’s assessment of sanctions evasion and public engagements over the next year to see whether further compliance testing is a priority for the Bar. Read more>> and Read more>>
• UK Finance Requests Answers to Question on New UK Restrictions on Legal Advisory Services: On July 6, 2023, UK Finance published a collated list of questions from its members, associate members and non-members about the new restrictions on Legal Advisory Services in Regulation 54D of the Russia (Sanctions) (EU Exit) (Amendment) (No. 3) Regulations 2023. Provided below is a non-exhaustive example of the list of questions submitted to the relevant government departments for a response:
  • Can clarity be provided on whether firms with branches in the EU or elsewhere can provide advice to their overseas counterparts regarding domestic/EU sanctions laws
  • What if legal advice is sought by a combination of UK and non-UK persons? Is that permitted, or can only the UK persons be provided with advice?
  • Are the restrictions intended to restrict advice, even if the advice does not actually facilitate the underlying transaction, e.g. advice on legal permissibility (other than under the UK Russia sanctions)?
  • Has HMG considered whether this measure makes English law a more or a less attractive choice of law for international trade contracts between non-UK parties in the future?  Read more>>
• OFSI Licensing Application Process Update: On July 12, 2023, OFSI announced that they will no longer engage with applicants who have submitted “incomplete applications” until such a time as sufficient details and evidence have been received. Pursuant to the updated General Guidance OFSI will return incomplete applications without discussion. Applicants are permitted to re-apply, however this will be treated as a new application and will not be prioritised purely because it has been resubmitted. The guidance provides that to ensure that an application is regarded as complete, applicants should:
  • fully complete an application form;
  • read OFSI’s Introduction to Licensing Blog and Reasonableness in Licensing Blog;
  • check if there are any applicable General Licences;
  • consult the relevant regime specific guidance and the prohibitions and licensing purposes of the Regulations; and
  • seek independent legal advice.
    OFSI also outlined some of the key pieces of information that applications need to provide:
  • the relevant regulations (what sanctions regime applies);
  • the UK nexus (what is the UK link in the applicant’s case); and
  • the licensing purpose (an application with an “inadequate explanation” as to why the licensing purpose applies will be treated as an incomplete application). Read more>> and Read more>> and Read more>> and Read more>>
• OFSI’s 1st Responses to Questions Following Legal Sector Engagement Forum: On July 10, 2023, OFSI published a statement addressing responses to three questions raised at the OFSI Legal Sector Engagement Forum held on July 4, 2023. The statement explains:
  • OFSI’s use of the ‘dictionary definition’ of “domicile” for the meaning of “a person connected with Russia”, which is used in various sections of the Russia (Sanctions) (EU Exit) Regulations 2019
  • OFSI’s position on the requirement for firms to carry out due diligence on counterparties; and
  • OFSI’s appetite for issuing penalties for a breach of the sanctions regime, where a counterparty was not identified as a designated person due to a failure to carry out due diligence. Read more>>

IV. RUSSIA/UKRAINE SANCTIONS

• Ukrainian Parliament Adopts State Register of Sanctions: On 13 July, Ukrainian Parliament adopted the law on the creation of a state register of sanctions. The register will be kept in Ukrainian and in English and will contain information about the sanctioned entities. Read more>> 
• Ukraine Warns Key Russian Gas Supply To Europe Will Be Cut: Kyiv is unlikely to renew a gas transit deal that allows Russia's Gazprom to export natural gas to the EU using pipelines running across Ukraine. The 2019 transit deals runs until the end of 2024 and allows Gazprom to export more than 40 million cubic meters of gas a year via Ukraine. The land route across Ukraine is one of only two pipeline links between Russia and the West. Read more>>
• Putin Announces Conditions to Extend Grain Agreement with Ukraine: Russia announced that it may suspend its participation in the grain deal with Ukraine and rejoin only after the promises made to it are fulfilled, said Russian President Vladimir Putin. According to Putin’s statement, not a single item in the framework of the "grain deal" related to Russian interests has been fulfilled. Read more>> 
• UN Asks Putin to extend Black Sea grain deal in return for SWIFT access: The United Nations has proposed to Russian President Vladimir Putin that he extend a deal allowing the safe Black Sea export of grain from Ukraine in return for connecting a subsidiary of Russia's agricultural bank to the SWIFT international payment system. Russia has threatened to ditch the grain deal with Ukraine, which expires on 17 July, because several demands to dispatch its own grain and fertilizer abroad have not been met. Read more>> 
• Research Suggests Drop in Fossil Fuel Exports From Russia Since Sanctions: According to the research published by CREA, the export was falling both in terms of quantity and value, and in June 2023 the Russian Federation's income from this type of economic activity reached its lowest monthly value. Russia's revenues from fossil fuel exports have been declining for the third month in a row and reached EUR 591 million per day in June 2023. Read more>> 
• Russia’s Flagship Crude Oil Surpasses G-7 Price Cap for First Time: Urals crude topped $60 a barrel on Wednesday, climbing above the cap that G7 set last year. Rising Urals prices are becoming a problem for some buyers, such as India. Indian banks have been extra cautious in the past few months for fear of sanctions. This could also have a negative effect on Moscow, as it may have to offer higher discounts. Read more>> 
• Russians Withdrew Over $1 Billion From Banks During Wagner Revolt: On July 12, 2023, Russia’s Central Bank reported that Russians withdrew 100 billion rubles ($1.1 billion) from banks during the panic that ensued as Wagner mercenaries marched on Moscow in June 2023.  According to the bank’s monthly monetary policy report the need for cash increased in June and led to a 500-billion-ruble liquidity outflow. One-fifth of the amount was taken out on June 23-25, when Wagner leader Yevgeny Prigozhin launched and promptly negotiated an end to his short-lived mutiny. Read more>> 
• May 2023 Money Transfers from Russia Fall in Wartime First: On July 13, 2023, it was reported that money transfers from Russia skyrocketed in 2022 after hundreds of thousands of Russians fled to neighbouring countries in protest against the war and to evade military conscription. In May, remittances from Russia to Kazakhstan, Georgia, Armenia and Kyrgyzstan totalled $625.9 million, marking a 33% drop compared to May 2022. Read more>> 
• Price of Russian Urals Oil Has Exceeded the Ceiling Set by The G7: On July 13, 2023, it was reported that the price of Russian Urals oil exceeded the limit of $60 per barrel set by the G7 countries, the EU and Australia as part of sanctions in response to the military operation in Ukraine and amounted to $60.78 per barrel in the port of Novorossiysk. Read more>> 
• "Rostec" Holding Company Introduces Ban on The Use of iPhones: On July 13, 2023, it was reported that employees of Shvabe, the holding company of Rostec, responsible for the development and production of optoelectronic systems, were banned from using Apple smartphones for official purposes. According to the Russia intelligence service FSB, several thousand iPhones were infected with malicious software, including devices of diplomatic missions in Russia. Read more>>

V. OTHER NOTABLE DEVELOPMENTS

• G7 Announces Long-Term Security Pledge for Ukraine on NATO Summit: On July 12, the G7 countries unveiled an international framework for the long-term security of Ukraine at the NATO summit held in Vilnius, Lithuania, according to reports. Despite not yet having a timeline for Ukraine’s NATO membership, the bloc has nonetheless agreed, in a published joint statement, to launch negotiations with the country on formalizing long-term support “through bilateral security commitments and arrangements.”  Read more>> and Read more>>
• Study Finds Countries Repatriating Gold in Wake of Russia Sanctions: On July 10, a published Invesco survey of central bank and sovereign wealth funds revealed that more countries are repatriating gold reserves as protection against related sanctions imposed by the West on Russia, according to reports. A “substantial share” of central banks that took part in the annual Invesco Global Sovereign Assets Management Study were concerned by the precedent of Russian gold and forex reserves being frozen by the West as sanctions over its invasion of Ukraine, with almost 60% of respondents saying it had made gold more attractive, and 68% saying they were keeping reserves at home, as compared to 50% in 2020, as a result.  Read more>> 
• Canada Announces Additional Measures to Support Ukraine on NATO Summit: On July 12, apart from the commitment made through G7’s security pledge to Ukraine, Canadian Prime Minister Justin Trudeau also announced another $541 million in new funding and projects to support Ukraine and strengthen transatlantic security on the NATO summit in Vilnius, Lithuania, according to reports. These measures include the continuous provision of military equipment and training to Ukraine, support of NATO’s provision of non-lethal practical assistance to Ukraine through donations of material including fuel, bridging equipment, rations, and first aid, as well as cyber security assistance.  Read more>> 
• New Zealand Provides Targeted Support for Ukraine’s Recovery, Reveals Plans to Sanction More Russians: On July 13, reports emerged that New Zealand is providing further targeted support for Ukraine’s recovery and resilience, as announced by Prime Minister Chris Hipkins. The assistance includes $3 million to recovery and rebuilding assistance, as well as just over $1 million to the UN’s Mine Action Programme. The New Zealand government is also planning to introduce more sanctions against Russian individuals and entities next week, according to the Prime Minister. Read more>> and Read more>>
• Aviation Lessors Fight to Stop Insurance Dispute Hearings in Russia: On July 7, Reuters reported that more than 40 aviation leasing firms, locked in a battle with insurers over who should bear up to $10 billion in costs for 400 jets stuck in Russia, are urging the UK High Court to allow a reinsurance dispute to be heard in London instead of Moscow. In said reinsurance cases, Russian airlines leased the planes through international lessors and insured them through Russian insurers, which were then reinsured through global firms such as AIG and Lloyd’s of London. Lessors argue that the jurisdiction clauses in the reinsurance policies naming Russian courts for disputes should not be applied, as it is not only “completely unworkable given the grave situation,” but it is also impossible to get “substantial justice” in Russia. Read more>> 
• Saudi Arabia Imports Record Russian Fuel Oil in June: On July 13, Reuters reported that Saudi Arabia imported record volumes of discounted Russian fuel oil in June, a near 10-fold annual increase to meet summer power generation demand and maintain crude exports despite OPEC+ production cuts, according to traders and available data. This growing oil trade with the world’s biggest exporter is allowing Russia to keep output flowing to global buyers despite Western sanctions.  Read more>> 
• Multinational Companies Accused of Breaking Promises to Leave Russia: According to reports, more than 1,000 major companies had pledged to leave Russia after President Vladimir Putin invaded Ukraine, but researchers are accusing some well-known firms of violating their pledge and continuing to stay in business in Russia, including Heineken, Unilever, Philip Morris International and Oreo maker Mondelez. Read more>> and Read more>>
• Danone Will Rename Activia Brand in Russia: Danone localizes the international brand Activia under the new name AktiBio in Russia. The changes will affect only the brand name and packaging design. The press service also explained that the localization of the brand will allow renewed investment in the development and support of this dairy category. Read more>> 
• Mars Has Changed the Head of Its Business in Russia: On July 13, 2023, it was reported that Mikhail Bazanov became the president of the Russian division of the American company Mars which owns the brands Bounty, Milky Way, Snickers, Twix, Pedigree and Whiskas. In Russia, Mars has factories in five regions and one research centre for the study of pet nutrition and the company employs about 6,000 employees. In 2022 Mars decided to suspend the import and export of its products to and from Russia, as well as new investments. At the same time, the company clarified that production will be reduced, but the production of certain products, including for pets, will continue. Read more>>