New US sanctions target Russian evasions on a global scale – focus on Russia technology, energy, and shipping
In a joint action by the US Department of Treasury’s Office of Foreign Assets Control (OFAC) and the US Department of State’s Office of Sanctions Policy Implementation (SPI), the US government has again expanded economic sanctions restrictions against Russia, this time targeting parties globally that have been found to support the Russian military. On November 2, 2023, OFAC designated as sanctioned parties dozens of entities and individuals in China, Turkey, the United Arab Emirates (UAE), as well as several Irish, Swiss, and Latvian parties, that support Russia’s military industrial complex, including through exports of dual-use items, money laundering, and managing illicit Russian assets. The designations are made under Executive Order 14024.
OFAC also designated dozens of Russian entities for operating in its manufacturing and electronic sectors as sanctioned parties. Notably, Sistema Public Joint Stock Financial Corporation, one of Russia’s largest publicly traded diversified holding companies, and its Luxembourg, Singapore and Russian-based subsidiaries were designated for operating or having operated in the financial services and technology sectors in Russia. Several Russian banks and a brokerage were also designated under Executive Order 14024, notably including:
- Public Joint Stock Company Saint Petersburg Exchange
- Commercial Bank Absolut Bank PAO
- Blanc Bank Limited Liability Company
- Home Credit & Finance Bank Limited Liability Company
- Joint Stock Company Post Bank
- Publichnoe Aktsionernoe Obshchestvo Kommercheski Bank Russki Regionalny Bank
- Joint Stock Company Russian Regional Development Bank
- Joint Stock Company Russian Standard Bank
This latest round of sanctions designations portends more evasion-based designations of parties outside of Russia. Companies shipping dual-use items, including seemingly innocuous components and products, should carefully vet counterparties prior to export, regardless of the destination, to ensure there is no indicated risk of diversion. Exporters may be held liable under US law for export control and sanctions violations if their products are diverted illegally, even if the exporter had no knowledge of the diversion.
Expanded energy sector and shipping sanctions
The State Department imposed further sanctions against ARCTIC LNG 2, the operator of the Arctic LNG 2 Project, a flagship liquified natural gas (LNG) project of Novatek. The State Department also designated as sanctioned parties several entities and individuals in the metals, mining, electronics, technology, and defense sectors, including family members of the principals of designated entities.
This latest round of actions follows on the heels of the October 12, 2023 Coalition Advisory for the Maritime Oil Industry and Related Sectors (the Coalition Advisory) for complying with the G7 Price Cap Policy. With the Coalition Advisory, the United States, in conjunction with its G7 partners, have agreed to restrict a broad range of services related to the maritime transport of crude oil and petroleum products of Russian origin—unless that oil is bought and sold at or below the specific price caps established by the Coalition or is authorized by a license. This action against the Russian energy sector is in response to a significant increase in shadow vessels that are exporting Russian energy products above the price cap.
Notably for the private sector, the Coalition Advisory calls out “unproven Protection and Indemnity (P&I) insurance providers that operate in jurisdictions with opaque or limited regulation” that provide insurance to the Russian shadow fleet. Accordingly, maritime actors should proceed with caution in obtaining P&I coverage from those not part of the International Group of P&I Clubs (the IG). The IG is an unincorporated association of the 13 principal underwriting P&I Associations (Clubs) that among them provide P&I insurance for the vast majority of the world’s ocean-going tonnage. The Coalition Advisory recommends requiring “appropriately capitalized P&I insurance . . . by legitimate insurance providers.”
The Coalition Advisory also recommends:
- Receiving classification from an International Association of Classification Societies member society, monitoring Automatic Identification Systems (AIS) to ensure ships do not go “dark” for illegitimate reasons and AIS is used consistent with the International Convention for the Safety of Life at Sea
- Complementing AIS tracking with Long-Range Identification and Tacking (LRIT)
- Monitoring high-risk ship-to-ship transfers, especially in areas of high-risk activity
- Conducting appropriate due diligence on unreasonable associated shipping and ancillary costs that may be used to conceal a trade above the price cap. According to the Coalition Advisory “[s]hipping, freight, customs, and insurance costs are not included in the price caps and must be invoiced separately and at commercially reasonable rates. Industry stakeholders involved in the Russian oil trade that use “Cost, Insurance, Freight” contracts or whose counterparts use such agreements should require an itemized breakdown of all costs to determine the price paid for oil or petroleum products. This may require that industry stakeholders update contractual terms and conditions with sellers or counterparts or adjust invoicing models to show the price of the oil until the port of loading and the price for transportation and other services separately.”
- Due diligence to include beneficial owners of counterparties in certain transactions, including where a vessel has undergone numerous flag changes.
Finally, the Coalition Advisory encourages industry participants to report potentially illicit or unsafe maritime oil trade, including suspected breaches of the oil price cap. “By reporting these concerning behaviors, industry stakeholders can collectively help protect the trade from malign activity, while promoting safety and integrity across the market.”
Concurrently with issuing the Coalition Advisory, OFAC designated a UAE-owned vessel and a Turkish-owned vessel for violating the price cap. Importantly, OFAC also issued General License 73, which allows US and EU service providers, including flag registries, to continue to service these vessels until January 8, 2024.
The US and its G7 coalition partners have repeatedly emphasized the importance of US and other G7-based maritime service providers continuing to service the export of Russian energy, consistent with the price cap policy and related guidance. OFAC’s December 2, 2022 Fact Sheet stated, “The price cap’s operation depends on a vital element of the global oil trade: the maritime services industry, which includes insurance, trade finance, and other key services that support the complex transport of oil around the globe . . . Companies based in the G7 control around 90 percent of the market for relevant maritime insurance products and reinsurance. The price cap works by allowing access to these critical services from Coalition-country providers for Russian oil only if that oil is purchased at or below the cap.”
Find out more about the implications of these latest sanctions on your business by contacting either of the authors or your usual DLA Piper attorney.
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