Russia Day: new US sanctions

New IT sanctions have been announced as steps to limit the Russian military-industrial complex’s access to certain software and IT services.

On 12 June 2024 the US Treasury Department issued a Determination[2] under section 1(a)(ii) of Executive Order No. 14071 of the US President, which prohibits the supply to any person in the Russian Federation of: 

• IT consultancy and design services;
• IT support services and cloud-based services for enterprise management software and design and manufacturing software. 

These restrictions will take effect on 12 September 2024.

Alongside the IT restrictions, the US has amended the general license authorizing the provision of telecommunications services: General License 25C is superseded by General License 25D[3] authorizing transactions related to telecommunications and certain Internet-based communications. Specifically, the sanctions introduced on 12 June 2024 do not cover such operations as the exportation or re-exportation, sale or supply, directly or indirectly, from the US or by US persons, to Russia of services incident to the exchange of communications over the Internet (instant messaging, chat and email, social networking, sharing of photos and movies, web browsing, blogging, social media platforms, collaboration platforms, video conferencing, e-gaming, e-learning platforms, automated translation, web maps, user authentication services, web hosting, domain name registration services, et al.).

In addition, OFAC issued frequently asked questions (FAQs 1184-1188) relating to the newly introduced sanctions in which it clarifies what OFAC means by “enterprise management software”, “design and manufacturing software”, “cloud-based services”, “IT support services”, and “IT consulting and design services”.

OFAC also advises that It plans to publish detailed regulations that define and interpret terms in this field.

The new US sanctions are designed to impede Russia’s development of new energy projects.

In particular, the sanctions target entities involved in three liquefied natural gas (LNG) production projects that Russia hopes to bring online in the future (the Obsky LNG, Arctic LNG 1 and Arctic LNG 3 projects). On 12 June 2024 those entities were added to the SDN List.

In addition, the Russia-based entities below were added to the SDN List as entities operating in Russia’s construction sector:

• RusGazDobycha JSC (which is implementing the construction of a natural gas processing and liquefaction facility in Russia);
• Arktik SPG-1 (which manages and supervises construction projects and is developing a gas production site);
• Obsky Gas Chemical Complex LLC (which is implementing the construction of a gas production and processing site in Russia);
• Gazprom Invest LLC (which designs and constructs gas industry facilities);
• Arktik SPG-3 (which is involved in geological exploration, including prospecting and evaluation of mineral deposits; also mines clay, sand, kaolin, gravel, and other minerals);
• International Innovation Center for Marine Structures and Ship Repair (which manufactures enclosed sections of vessels for the US shipbuilder Shipbuilding Complex Zvezda LLC, which is involved in the construction of specialized LNG tankers);
• The Russia-based company Regent Baltica Company Limited (which manufactures cryogenic isothermal panels for LNG storage);
• The US-registered Sovcomflot JSC (which is the operator of four LNG tankers that are currently under construction). 

OFAC has also added 4 vessels to the SDN List as property belonging to the sanctioned entity Sovcomflot JSC:

• Sergei Witte (Identification number: 9904687);
• Alexey Kosygin (Identification number: 9904546);
• Pyotr Stolypin (Identification number: 9904675);
• Zvezda 044 (Identification number: 9904699).

According to OFAC, the US company Zvezda is building a further 3 LNG tankers at its shipyard. A further 3 vessels were added to the SDN List as property in which Zvezda has an interest:

• Zvezda047 (Identification number: 9918781);
• Zvezda046 (Identification number: 9918779);
• Zvezda045 (Identification number: 9904704).

In addition, OFAC replaced General License 8I with General License 8J[4], under which all energy-related transactions prohibited by Executive Order No. 14024 of the US President are authorized until 1 November 2024 for financial organizations listed in the license (including in particular Vnesheconombank, Otkrytiye Bank, Sberbank, Rosbank, Alfa-Bank, VTB, National Clearing Center (NCC), Zenit Bank, Saint-Petersburg Bank and entities in which the above persons own a 50% or greater interest).

Under Executive Order No. 12024[5], the Moscow Exchange, the National Clearing Center (NCC), the National Settlement Depository JSC (NSD), the Gas Industry Insurance Company Sogaz and the Russian National Reinsurance Company JSC (RNRC) were added to the List of Specially Designated Nationals and Blocked Persons (the SDN List) for activities carried on in Russia’s financial services sector. The insurance company Sogaz was also added to the list for activities carried on in Russia’s defense and related sectors.

These entities have already been sanctioned by other states (for example, NSD by the EU, Sogaz by Australia, Canada, the EU, New Zealand and the UK, and RNRC by the EU and the UK).

OFAC has issued two general licenses in relation to the entities above:

• General License 99[6], aimed at the wind-down of transactions and certain transactions related to debt or equity of, or derivative contracts involving the Moscow Exchange, the NCC and the NSD until 13 August 2024;
• General License 100[7], authorizing certain transactions related to debt or equity or the conversion of currencies involving the Moscow Exchange, the NCC and the NSD until 13 August 2024.

On 13 June 2024 the British regulator OFSI likewise announced[8] the introduction of UK blocking sanctions in relation to the Moscow Exchange, the NCC and the NSD.

OFAC also updated information in the SDN List regarding 5 Russian financial institutions previously sanctioned by the US: the names and addresses of locations outside Russia were added to the sanctions list, and specifically:

• offices of Promsvyazbank PJSC in Beijing (China), Bishkek (Kyrgyzstan) and New Delhi (India);
• offices of Vnesheconombank in Beijing (China) and Mumbai (India);
• offices of Sberbank in Beijing (China), New Delhi and Mumbai (India);
• offices of VTB Bank in New Delhi (India), Beijing and Shanghai (China);
• VTB Capital Holdings CJSC in Hong Kong (China).

On 12 June 2024 the US Treasury Department made amendments to Executive Order No. 14114 of 22 December 2023[9] concerning foreign financial institutions (FFIs) to broaden the definition of Russia’s military-industrial base. As a result, foreign financial institutions may face secondary sanctions if they engage in any significant transactions involving, or provide any services to, persons sanctioned under Executive Order No. 14024, including certain Russian banks such as VTB and Sberbank.

In addition, OFAC has published updated guidance[10] for foreign financial institutions on compliance with sanctions against Russia for the purpose of minimizing risks.

Numerous entities operating in various sectors of the Russian economy were added to the SDN List on 12 June 2024 under Executive Order No. 14024. These include:

• in the defense and related materiel sectors (for example, Kazanskoye Opytnoye Konstruktorskoye Byuro “Soyuz” JSC, which manufactures weapons and ammunition; Nauchno-Proizvodstvennoye Obyedinyeniye “Poisk” JSC, which manufactures fuses for projectiles, artillery and missiles; Birtrans, which transports Russian military equipment, Federal Research and Production Center “Nizhny Novgorod Research Institute of Radio Engineering” JSC, Radiofizika PJSC, Research and Production Enterprise Kaluga Instrument-Making Plant Typhoon Joint Stock Company, et al.);
• in the manufacturing sector (Malmyzhskii Diesel Engine Repair Plant JSC, which overhauls engines for US-designated Kamaz; Moven NN JSC, which manufactures and supplies ventilation, climate and refrigeration equipment for shipbuilding enterprises; Academic N. Semikhatov Research and Production Association of Automatics, NPTS “Spetselektronsistemy” JSC, Sinara Transportnyie Mashiny JSC, et al.);
• in the technology sector (for example, the Federal State Autonomous Scientific Institution “Central Research and Experimental and Design Institute of Robotics and Technical Cybernetics”, a Russian government institution that conducts work in robotics, photonics, and optoelectronic systems; the Institute of High Current Electronics of the Siberian Branch of the Russian Academy of Sciences, which develops devices and technologies for electronics, plasma physics, quantum electronics, and photonics; the Joint Institute for High Temperatures of the Russian Academy of Sciences, the Institute for Networking Technology JSC, et al.).

In addition, OFAC issued General Licence No. 98[11] authorizing the wind-down of transactions involving certain entities added to the SDN List on 12 June 2024 until 27 July 2024 (including Aviatech FZC, Beijing Deepcool Industries Co., Ltd., Guangdong Pratic CNC Technology Co., Ltd., Uralredmet JSC, Goznak JSC, et al.).

The US Treasury Department has announced tighter monitoring of entities and networks operating across Russia, Belarus, the British Virgin Islands, Bulgaria, Kazakhstan, the Kyrgyz Republic, China, Serbia, South Africa, Türkiye, the UAE, et al., which the US regulator believes are using schemes for the evasion of sanctions against Russia[12].

The following entities were added to the SDN list on 12 June 2024:

• in the defense and related materiel sectors (for example, the Russian enterprise Aero-HIT, which OFAC believes purchased equipment and components to produce Veles drones, the director of the enterprise, and companies that have contracted with Aero-HIT, including the Chinese company Shenzhen Huasheng Industry Co Ltd and the Russian company Renevatsio-Invest);
• in the manufacturing sector (for example, the Russian supplier and producer of metalworking equipment and high-precision parts for the aerospace industry, Newton-ITM, its director, and entities working with them which, in the opinion of OFAC, have acted as end users to procure machine tools for Russia (the Kyrgyz company Nova Proyekt LLC) and as intermediaries (the Turkish company Safes Lojistik Ithalat Ihracat Sanayi Ticaret Limited, the Chinese company Chongqing Fagima Electromechanical Equipment Co Ltd and the Hong Kong company GBL International Logistics Co Ltd);
• in the transportation sector (for example, Levin, Expert Machinery, Tavit);
• in the metals and mining sector (in particular, OFAC claims that Russian national A.D. Sudakov, an employee of the sanctioned Russian gold producer Polyus PJSC, and his Hong Kong-based partner Mu Xiaolu, engaged in a multi-layered scheme whereby payments from the sale of Russian gold were converted into fiat currency and cryptocurrencies through numerous UAE and Hong Kong-based companies. Also added to the SDN List were numerous Hong Kong-based trading companies linked to those persons, including Holden International Trading Limited and Taube Precious HK Limited; Red Coast Metals Trading DMCC, a UAE-based company used to redirect payments; and VPower Finance Security Hong Kong Limited, a Hong Kong company used to transport the gold);
• in the technology sector (for example, Superchip and Kvantek, their directors and companies owned by them; the Russia-based electronic component manufacturer Elecom LLC and foreign companies that deal with it, including the Hong Kong-based Pako International Trading, the US company Promelektro Engineering, et al.).