The Week in Review delivers the impact and analysis for the public, private, and non-profit sectors from our daily reporting of the evolving global sanctions campaign against Russia.

This week, we reviewed the recent developments since our last update on 1 April as the United States (U.S.), the European Union (EU), and the United Kingdom (UK) continue to lead a global coalition in this sanctions campaign, which has been unprecedented in its complexity, impact, and speed in responding to Russia's ongoing war against Ukraine.

Recent Developments Related to Sanctions Against Russia

Since the last update, numerous authorities have undertaken sanctions-related actions against Russia.

U.S. actions include:

    On 7 April, the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC") imposed blocking sanctions on Alrosa, Russia's largest diamond mining company. The U.S. Department of State also redesignated Russia's United Ship Building Corporation, Russian manufacturer of warships, already subject to OFAC's blocking sanctions since July 2014.1
  • On 6 April, the White House issued a new Executive Order prohibiting:
    1. All new investment in Russia;
    2. Exportation of any category of services to any person located in the Russian Federation as determined by the Secretaries of the Treasury and State; and
    3. U.S. person facilitation of any such investment or services by a foreign person.2
  • On 6 April, the U.S. Department of the Treasury's OFAC imposed blocking sanctions on two major Russian banks, Sberbank and Alfa-Bank, their numerous subsidiaries in Russia and abroad, family members of Russian President Vladimir Putin and Foreign Minister Sergey Lavrov, and a number of Russian Security Council Members and Putin facilitators.3
  • On 5 April, the U.S. Department of the Treasury's OFAC imposed blocking sanctions on Garantex, an Estonia-based virtual exchange with significant operations in Russia, and Russia-based Hyrdra Market, the world's largest and most prominent darknet market, to include identifying over 100 virtual currency addresses associated with the entity's operations.4
  • On 4 April, the U.S. Department of the Treasury's OFAC stopped the Russian government from paying holders of its sovereign debt of more than $600 million from reserves held at U.S. banks that have been de facto frozen since late February.5
  • On 1 April, the U.S. Department of Commerce, Bureau of Industry and Security ("BIS"), issued a final rule adding 120 entities to the Entity List. Ninety-five entities are being added as military end-users under the destinations of Belarus and Russia and 25 entities are being added under the destination of Russia. BIS has designated these entities due to their efforts to acquire items subject to the Export Administration Regulations (EAR) in support of Russia's and Belarus's militaries.6
  • On 1 April, the U.S. Department of the Treasury's OFAC announced a $78,750 settlement with S&P Global, Inc. ("S&P Global") for potential violations of Russia-related Executive Order 13662 of 20 March 2014.7 The conduct at issue involved an $82,500 invoice due from Rosneft, a Russian company subject to the U.S. sectoral sanctions since 2014, in October 2015. Rosneft failed to make the payment on time, and S&P Global and a research firm it acquired subsequently on multiple occasions redacted, split, and reissued the invoice because the payments have been continuously rejected by their banks.

    • EU actions include:

      On 6 April, the EU proposed a fifth package of sanctions on Russia to include:
      1. Import ban on coal;
      2. Asset freezing sanctions on four major Russian banks;
      3. Ban on Russian vessels accessing EU ports with certain exemptions;
      4. Further targeted export bans targeting Russia's technological and industry sector;
      5. Import bans on a range of products to include wood, cement, and liquor; and
      6. General ban on participation of Russian companies in public procurement in EU states.8
    • On 5 April, concurrently with the U.S. designation, the German Federal Criminal Police, the Bundeskriminalamt, in coordination with U.S. law enforcement seized servers of the Hydra Market and its cryptocurrency wallets containing $25 million worth of Bitcoin.9 According to the Department of Justice ("DOJ"), "Hydra was an online criminal marketplace that enabled users in mainly Russian-speaking countries to buy and sell illicit goods and services, including illegal drugs, stolen financial information, fraudulent identification documents, and money laundering and mixing services, anonymously and outside the reach of law enforcement."10

      • UK actions include:

        On 6 April, the UK amended restrictive measures to asset freezing on certain entities, and imposed sanctions on eight individuals and two entities. This action included amending restrictions on Sberbank to include asset freezing.11

        Key Implications (Public, Private, and Non-Profit Sectors)

          The U.S. government has made public statements12 on the imposition of secondary sanctions, targeting foreign persons who continue to significantly and knowingly support President Putin and the Russian Federation. This creates a tough choice for companies to either continue doing business with a sanctioned Russian party or with the U.S., but not both. Given the rapid expansion of sanctions designation criteria, many activities associated with the Russian Federation may trigger U.S. secondary sanctions.
        • In response to Russia's continued aggression against Ukraine, governments have amended restrictions to impose harsher restrictions on previously targeted entities. Sberbank, which was previously subject to prohibitions against processing transactions as well as new debt and equity, is now subject to blocking sanctions both in the U.S. and UK. The same is true for Alrosa, which was subject to U.S. new debt and equity restrictions, but is now also subject to blocking sanctions in the U.S. and UK. If your company continues to engage in business with sanctioned Russian entities, where these sanctions are more limited than blocking/asset freeze, this creates the risk of subsequent blocking designation and your inability to regain funds or assets they hold.
        • If Russia fails to make payments on its upcoming bonds, it will constitute its first international market default in more than a century. Such a default would allow foreign bondholders and creditors to bring claims to Russian government property held abroad, as well as severely restrict any future Russian efforts to raise funds abroad, even assuming the sanctions are lifted.
        • Companies should review their entire supply chains, to include ultimate beneficial users, for ties to Russia in response to the EU's new export bans related to Russia's technological sector.
        • K2 Integrity anticipates that the U.S. will name additional sectors of the Russian economy for targeting if Russia's provocations in Ukraine increases. This further increases the risks of conducting any activity in or with Russia.
        • This week's first ever enforcement action targeting Russia-related debt restrictions required by sectoral sanctions underscores the strong political will to target sanctions evasion tactics and the U.S.' commitment to enforce all Russia sanctions regulations. Reportedly, Russian sectoral sanctions targets often appeal to their counterparts to issue blank or future-dated invoices in clear violation of sanctions. Anyone engaging in such activity risks not only a potential OFAC enforcement action, but also a referral to DOJ in case of evidence of criminal intent.

          • Footnotes

          1. The United States Sanctions Major Russian State-Owned Enterprises, 7 April 2022, https://home.treasury.gov/news/press-releases/jy0707

          2. Prohibiting New Investment in and Certain Services to the Russian Federation in Response to Continued Russian Federation Aggression, 6 April 2022, https://www.whitehouse.gov/briefing-room/presidential-actions/2022/04/06/prohibiting-new-investment-in-and-certain-services-to-the-russian-federation-in-response-to-continued-russian-federation-aggression/

          3. U.S. Treasury Escalates Sanctions on Russia for its Atrocities in Ukraine, 6 April 2022, https://home.treasury.gov/news/press-releases/jy0705

          4. Treasury Sanctions Russia-Based Hyrdra, World's largest Darknet Market, and Ransomware- Enabling Virtual Exchange Garantex, 5, April 2022, https://home.treasury.gov/news/press-releases/jy0701

          5. U.S. stops Russian bond payments, raising risk of default, 5 April 2022, https://www.reuters.com/business/us-cracks-down-russian-debt-payments-latest-sovereign-payments-halted-2022-04-05/

          6. Commerce Adds 120 Entities in Russia and Belarus to the Entity List, Further Limiting the Russian and Belarusian Militaries' Access to Items That Support Aggression Against Ukraine, 1 April 2022, https://www.bis.doc.gov/index.php/documents/about-bis/newsroom/press-releases/2946-2022-04-01-bis-press-release-120-russia-belarus-entity-list-additions/file

          7. Settlement Agreement between the U.S. Department of the Treasury's Office of Foreign Assets Control and S&P Global, Inc. related to transactions in 2016 and 2017, 1 April 2022, https://home.treasury.gov/policy-issues/financial-sanctions/recent-actions/20220401_33

          8. Press statement by President von der Leyen on the fifth round of sanctions against Russia, 6 April 2022, https://ec.europa.eu/commission/presscorner/detail/en/statement_22_2281

          9. Justice Department Investigation Leads to Shutdown of Largest Online Darknet Marketplace, 5 April 2022, https://www.justice.gov/opa/pr/justice-department-investigation-leads-shutdown-largest-online-darknet-marketplace

          10. Ibid

          11. Office of Financial Sanctions Implementation HM Treasury, 6 April 2022, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1066934/Notice_Russia_060422.pdf

          12. Background Press Call by Senior Administration Officials on New Economic Costs on Russia, 6 April 2022, https://www.whitehouse.gov/briefing-room/press-briefings/2022/04/06/background-press-call-by-senior-administration-officials-on-new-economic-costs-on-russia/

          The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Ms Michele L. Malvesti
K2 Integrity
845 Third Avenue
Washington
NY 10022
UNITED STATES
Tel: 212694 7000
E-mail: abernardis@k2intelligence.com
URL: www.k2integrity.com

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