On September 14, 2023, the U.S. Department of the Treasury's Office of Foreign Assets Control ("OFAC"), the Department of State, and the Department of Commerce's Bureau of Industry and Security ("BIS") announced new sanctions designations and export control guidance related to Russia. These developments are the latest updates in the U.S. government's ever-evolving response to Russia's war in Ukraine through economic sanctions and export controls.
OFAC announced the imposition of sanctions on nearly 100 individuals and entities that purportedly benefit from, support, or sustain Russia's war effort. The designated individuals and entities operate in numerous sectors determined by OFAC to be engaging in foreign harmful activities regarding the war in Ukraine, including the technology, electronics, aerospace, manufacturing, construction, engineering, transportation, metals and mining, financial services, and accounting sectors of the Russian economy. In parallel, the U.S. Department of State designated more than 70 persons operating in certain areas of Russia's economy, including defense and related material, energy (based on operations in the architecture and marine sectors), metals and mining, transportation, financial services, and management consulting. All of the designations were made pursuant to Executive Order ("E.O.") 14024, which authorizes the imposition of sanctions in response to various types of Russian activities.
In addition to their volume and breadth, there are several other notable aspects of these designations that relate to the risks for third-country companies doing business in Russia:
- OFAC designated the Turkish entity Margiana Insaat Dis Ticaret Limited Sirketi ("Margiana") pursuant to E.O. 14024 for having materially supported two Russia-based entities, SMT-iLogic and Saturn EK, which were previously designated under E.O. 14024. Margiana purportedly made hundreds of shipments, including shipments of "High Priority Items" (discussed in more detail below) that are "the kind recovered in multiple Russian weapons systems used against Ukraine[.]"
- Similarly, the State Department designated two Turkish entities, Denkar Ship Construction Inc. Co. ("Denkar") and ID Ship Agency Trade Ltd. Co. ("ID Shipping"), for their material support of two entities previously designated pursuant to E.O. 14024. Denkar purportedly provided ship repair services to three blocked vessels and ID Shipping arranged repair services for a blocked vessel. ID Shipping's owner, a Turkish national, was also designated.
- The State Department also designated a Turkish entity, CTL Dis Tiscaret Ltd. Sirketi ("CTL"), for providing material support to a Russian entity (designated concurrently with CTL) in the procurement of "high priority electronic components" of U.S.- and European-origin for end-users based in Russia. CTL allegedly operated as an intermediary that shipped the components to Russian entities in circumvention of U.S. and EU export controls.
- OFAC designated two Finland-based entities, Siberica Oy ("Siberica") and Luminor Oy ("Luminor") for exporting a variety of high-tech and dual use goods to Russia, including Unmanned Aerial Vehicle cameras, high-performance optical filters, and lithium batteries. According to OFAC, several Russia-based entities imported directly from Luminor, including entities that supply or produce products for Russia's transportation, mining, technology, and defense sectors. Additionally, the Turkish entity Demirci Bilisim Ticaret Sanayi Ltd. Sirketi ("Demirci") was designated for exporting sensors and measuring tools to Russia. Notably, OFAC did not allege that the items were of U.S. or EU origin—in other words, there was no allegation that the designations of Siberica, Luminor, or Demirci were based on evasion of U.S. or EU export restrictions. Nor were these Finnish and Turkish entities designated for providing material support to designated Russian companies. Instead, the U.S. imposed sanctions on these third-country entities for operating in the electronics sector or technology sector of Russia's economy.
- Several of the entities designated by the State Department are involved in Russia's energy sector. One such entity is the United Arab Emirates-based Green Energy Solutions Project Management Services Sole Proprietorship LLC, which the State Department describes as a "newly established engineering company" that provides engineering services and technology on energy projects which were previously provided by European service companies.
These designations illustrate the wide range of risks for third-country companies operating in Russia. Refraining from business with Russian entities previously designated by OFAC is not sufficient to avoid a U.S. sanctions designation; OFAC and the State Department have authority to designate companies simply for operating in certain sectors of the Russian economy, and also have authority to designate additional Russian companies and their third-country business partners concurrently. The activities that appear to pose the highest risk of a U.S. sanctions designation include supplying or diverting U.S. export-controlled items to Russia (i.e., sanctions evasion); supporting Russia's procurement of high-technology or dual-use items (regardless of the items' origin); and any other activity that could support Russia's military or the war effort in Ukraine, including expanding revenue of key industrial sectors to fund harmful foreign activities.
BIS Guidance on High-Priority Items
In addition to the new sanctions designations, BIS issued new guidance on September 14 related to the numerous export control restrictions it has applied on Russia's access to technology and other defense-related materials. BIS made updates to its list of dozens of "common high priority items" that Russia seeks to procure for its weapons programs in order to "highlight for industry that these items pose a heightened risk of being diverted illegally to Russia because of their importance to Russia's war efforts." BIS divided the items into tiers and provided their respective six-digit Harmonized System ("HS") Codes. The tiers are identified below along with an example item for each tier.
- Tier 1: Items of the highest concern due to
their critical role in the production of advanced Russian
precision-guided weapons systems, Russia's lack of domestic
production, and limited global manufacturers.
- Example: HS Code 8542.31 – Electronic integrated circuits: Processors and controllers, whether or not combined with memories, convertors, logic circuits, amplifiers, clock and timing circuits, or other circuits.
- Tier 2: Additional electronics items for which
Russia may have some domestic production capability but a
preference to source from the United States and its partners and
- Example: HS Code 8517.62 – Machines for the reception, conversion and transmission or regeneration of voice, images, or other data, including switching and routing apparatus.
- Tier 3: A broader range of electronic items,
as well as navigation and camera components, that Russia has
sourced from foreign companies.
- Example: HS Code 8525.89 – Television cameras, digital cameras and video camera recorders.
- Tier 3.A: Further electronic components used
in Russian weapons systems, with a broader range of suppliers.
- Example: HS Code 8504.40 – Electrical transformers, static convertors (for example, rectifiers) and inductors; part thereof: Static convertors.
- Tier 3.B: Mechanical and other components
utilized in Russian weapons systems.
- Example: HS Code 8482.10 – Ball bearings.
- Tier 4: Manufacturing, production and quality
testing equipment for electric components, circuit boards and
- Example: HS Code 8471.80 – Units for automatic data-processing machines excluding processing units, input or output units and storage units.
BIS has prioritized the nine HS codes in Tiers 1 and 2, which cover items such as integrated circuits and radio frequency transceiver modules, because these items have been found in Russian missiles and drones on the battlefield in Ukraine. Tiers 1 and 2 are subject to the most comprehensive controls under the Export Administration Regulations. BIS warns exporters and reexporters that Russia "routinely relies on evasive or deceptive tactics, such as the use of third-party intermediaries or transshipment points" to circumvent restrictions. We expect that BIS will continue to update this list over time as more items with significant circumvention risk are identified.
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