Sanctions Update: May 4, 2026

The Sanctions Update, compiled by attorneys from Steptoe’s award-winning International Regulatory Compliance team and the Stepwise: Risk Outlook editorial team, publishes every Monday. Guided by the knowledge of Steptoe’s industry-leading International Trade and Regulatory Compliance team, the Sanctions Update compiles and contextualizes weekly developments in international regulatory enforcement and compliance, as well as offers insights on geopolitical context, business impacts, and forthcoming risks.

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The Lede

Friction in the Brussels-Beijing Trade Relationship Follows 20th Sanctions Package

The EU-China dynamic is increasingly being shaped by a cycle of reciprocal economic restrictions, in which sanctions, export controls, and investment restrictions are playing a more central role in the bilateral relationship. On April 23, the EU adopted its 20th sanctions package against Russia, extending measures beyond Russia to third-country entities, including firms based in China and Hong Kong. Within days, China responded by placing several European defense companies on its export control list and warned of further countermeasures. Such exchanges underscore how deep EU-China economic interdependence—now increasingly viewed in Brussels as a source of strategic vulnerability amid rising geopolitical friction—is driving a tougher EU trade posture toward China. As the EU continues efforts to pressure Russia while advancing policies to strengthen supply chains and limit strategic dependencies, more aggressive EU trade policies toward China will likely prompt further countermeasures and an increasingly strained economic and diplomatic relationship.

The EU’s latest sanctions package targets several third-country entities and individuals that enable Russia’s military procurement and sanctions evasion, a number of which are linked to China. Notably, 28 entities based in China and Hong Kong were included for their alleged direct or indirect support to Russia’s military—particularly through the supply of high-tech dual-use goods—and for facilitating sanctions circumvention. Of these, seven Chinese entities were subjected to full EU asset freezes, including a state-owned enterprise (and its Belarus-based joint venture with Minsk Wheel Tractor Plant) designated under the Belarus sanctions regime. In addition, 21 of the 28 third-country entities subject to tighter EU export restrictions on dual-use goods are located in China or Hong Kong. The package reflects the EU’s broader effort to extend pressure beyond Russia by targeting third-country actors—an approach that increasingly implicates Chinese entities, even as more forceful tools, such as anti-circumvention measures, are only applied elsewhere.

China’s response was swift. Within 24 hours, Beijing placed seven European entities on its export control list, restricting their access to China-origin dual-use items. These firms operate in the defense sector and are based in Belgium, Germany, and the Czech Republic. Beijing framed the move as targeting a “small number” of companies allegedly involved in arms sales to Taiwan or colluding with Taiwan, rather than as a direct response to EU sanctions. On April 25, China’s Ministry of Commerce explicitly condemned the EU package, expressing strong opposition to what it described as the EU’s use of “long-arm jurisdiction” to target Chinese entities abroad and accusing the EU of acting “brazenly.” The statement called for the immediate removal of affected firms and warned that the EU would “bear the consequences” of its decision.

China’s reaction to the EU’s inclusion of Chinese entities and individuals in its latest sanctions package underscores Beijing’s broader shift toward a more proactive and institutionalized approach to countersanctions and secondary sanctions enforcement. On April 13, China’s State Council released new regulations aimed at countering what it considers unlawful extraterritorial jurisdiction, expanding Beijing’s toolkit to respond to foreign sanctions. This regulation creates a formal mechanism to identify and respond to foreign legal pressures, and introduces a “Malicious Entity List,” a new designation tool that targets those who “promote or participate” in implementing a “foreign state’s unlawful extraterritorial jurisdiction measures.” Just five days earlier, China also introduced its first supply chain security dedicated regulations to respond to foreign measures deemed discriminatory or harmful to Chinese supply chains. China’s investment in countersanctions and secondary sanctions measures leaves many EU companies with links to China’s market in a more difficult compliance space.

Looking ahead, the European Commission’s proposed Industrial Accelerator Act (IAA) reflects a deepening of the EU’s economic security approach, reinforcing efforts to safeguard its industries and supply chains. Unveiled in March 2026, the IAA introduces measures including “Made in EU” procurement preferences and new foreign direct investment conditions on non-partner countries that hold over 40% of global manufacturing capacity in strategic sectors, including batteries, electric vehicles, photovoltaics, and critical raw materials—widely understood to apply primarily to China given its dominant position in these supply chains. While not formally a sanctions instrument, the policy would have significant implications for Chinese firms. On Tuesday, the Chinese Minister for Trade and Economy at the Chinese Mission to the EU expressed “serious concern” over the “substantial harm” the policy would have on bilateral economic ties and warned that China would “have no choice but to take countermeasures.” As China signals a growing willingness to deploy countermeasures in response to perceived external economic pressure, initiatives such as the IAA risk reinforcing a cycle of economic friction and retaliation that could increasingly define EU-China relations.

US Developments

Trump Expands Scope of Cuba Sanctions with New EO

On May 1, 2026, President Trump signed a new Executive Order (EO) expanding the scope of existing Cuba-related sanctions, building on his earlier EO 14380 from January 29, 2026, which declared a national emergency with respect to Cuba and authorized the imposition of tariffs on foreign countries that directly or indirectly sell or provide oil to Cuba.

Among other things, the new EO expands the scope of blocking designation criteria for foreign persons to include:

1. Operating or having operated in the energy, defense, and related materiel, metals and mining, financial services, or security sector of the Cuban economy, or any other sector of the Cuban economy, as may be determined by the Secretary of the Treasury, in consultation with the Secretary of State;
2. Being owned, controlled, or directed by, or to have acted or purported to act for or on behalf of, directly or indirectly, the Government of Cuba or any person whose property or interests in property are blocked pursuant to the EO;
3. Owning or controlling, directly or indirectly, any person whose property or interests in property are blocked pursuant to the EO;
4. Materially assisting, sponsoring, or providing financial, material, or technological support for, or goods or services to or in support of, the Government of Cuba or any person whose property or interests in property are blocked pursuant to the EO;
5. Being or having been a leader, official, senior executive officer, or member of the board of directors of the Government of Cuba or an entity whose property or interests in property are blocked pursuant to the EO;
6. Being a political subdivision, agency, or instrumentality of the Government of Cuba;
7. Being responsible for or complicit in, or to have directly or indirectly engaged in or attempted to engage in, serious human rights abuse in Cuba; or
8. Being responsible for or complicit in, or to have directly or indirectly engaged or attempted to engage in, corruption related to Cuba, including corruption by, on behalf of, or otherwise related to the Government of Cuba, or a current or former official at any level of the Government of Cuba, such as the misappropriation of public assets, expropriation of private assets for personal gain or political purposes, or bribery.

Sanctions may also extend to adult family members of persons designated pursuant to this EO. Sanctions can include asset or property blocking as well as visa restrictions. It appears that the sanctioned persons need not be located in Cuba or be affiliates of Cuban companies to be designated. Rather, it appears that companies in third countries, such as Mexico, Colombia, Brazil, and even Spain, could be subject to sanctions for operating in certain sectors of the Cuban economy.

The new sanctions framework imposed under the Cuba EO resembles the sanctions adopted against Russia through EO 14024. Like EO 14024, the new Cuba EO authorizes blocking sanctions based on sectoral involvement or status, such as an official of the Cuban government, rather than specific sanctionable conduct. Sanctions designations under sectoral and status-based authorities are typically much easier for OFAC to establish than designations that are conduct-based and historically allow OFAC greater flexibility and speed in making its designations.

Notably, Section 4 of the EO authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to impose prohibitions on opening or maintaining correspondent accounts or payable-through accounts in the United States and/or blocking sanctions on foreign financial institutions (FFIs) upon determining that the FFI has conducted or facilitated any significant transaction or transactions for or on behalf of any person designated pursuant to this EO. These provisions are closely analogous in structure and effect to the FFI secondary-sanctions authorized under EO 14114 as part of the Russian Harmful Foreign Activities Sanctions.

OFAC Publishes Alert on Sanctions Risks Associated with Chinese “Teapot” Refineries

On April 28, 2026, OFAC issued an Alert on the sanctions risks of dealing with “teapot” refineries. The Alert states that entities, particularly financial institutions (FIs), engaging in transactions with teapot refineries expose themselves to increased sanctions risks, and encourages them to take steps to ensure they are not facilitating what may be violative behavior.

According to OFAC, teapot refineries are independent oil refineries in China, particularly in Shandong Province, that consistently import and refine Iranian crude oil in violation of US sanctions. The US has designated teapot refineries on multiple occasions in the past year, including on March 20, April 16, May 8, and October 9, 2025, and recently on April 24, 2026.

Among the actions OFAC recommended FIs take to reduce their risk are:

1. Carefully reviewing any transactions involving China-based teapot refineries;
2. Communicating expectations to correspondent banks in China about sanctions risks; and
3. Gathering additional information on relevant customers and transactions, including related contracts and other information.

OFAC also provided the industry with insight into sanctions evasion tactics they may encounter with respect to Iranian oil shipments and teapot refineries.

These include:

• Iran’s use of front companies in Asia and the United Arab Emirates (UAE) to broker shipments of, and facilitate payments related to, Iranian-origin oil ultimately destined for teapot refineries;
• Iran’s use of front companies to work with complicit local agencies on vessel berthing and discharge operations, as well as transportation and storage services;
• Iran’s use of “middlemen” – typically Asia-based companies with generic or non-descript stated business purposes – to act as brokers between Iranian sellers and teapot refineries; and
• Iran’s use of “shadow fleet” tankers that engage in deceptive shipping practices, such as ship-to-ship (STS) transfers, vessel location data manipulation, oil blending or forging documents to hide origin, and reporting identifying information of “zombie vessels.”

The Alert came on the same day as OFAC announced sanctions against 35 individuals and entities alleged to oversee Iran’s “shadow banking architecture” as part of its “Economic Fury” campaign against Iran.

It also came days before OFAC, on May 1, 2026, designated Iranian foreign currency exchange houses and their associated “front companies” for allegedly facilitating transactions in various currencies for multiple different Iranian banking and petroleum export customers or sanctioned Iranian persons, such as the Central Bank of Iran. The Department of State also announced sanctions on May 1 targeting several entities, including a China-based petroleum terminal operation, alleged to be involved in the trade of Iranian petroleum, petroleum products, and petrochemical products.

OFAC Sanctions Former DRC President

On April 30, 2026, OFAC announced sanctions against the former President of the Democratic Republic of the Congo (DRC), Joseph Kabange Kabila (“Kabila”), for his alleged role in supporting the March 23 Movement (M23) and the Congo River Alliance (AFC), which are Specially Designated Nationals (SDNs) alleged by OFAC to have fueled political instability and violence within the DRC.

Specifically, OFAC alleged that Kabila has provided financial support to the AFC in order to influence the political situation in eastern DRC, and has encouraged Armed Forces of the DRC (FARDC) troops to defect and join AFC forces. OFAC also alleged that Kabila unsuccessfully sought to initiate attacks from outside DRC on FARDC in eastern DRC, and has worked to put in place a candidate opposed to the current DRC regime in order to regain influence over the DRC’s government.

In a statement accompanying the designation, Secretary of the Treasury Scott Bessent said that Treasury will “continue to use its full range of tools to support the integrity of the Washington Accords,” a US-brokered agreement signed by the DRC and Rwanda on December 4, 2025, intended to facilitate peace following the escalation of violence in eastern DRC in January 2025, which resulted in M23 capturing Goma, the capital of North Kivu province.

The sanctions on Kabila follow OFAC’s designation of the Rwanda Defence Force (RDF) and four of its senior officials on March 2, 2026, for allegedly supporting M23 and deploying in eastern DRC, in violation of the Washington Accords.

OFAC Amends Lukoil-related GL

On April 29, 2026, OFAC issued an amended Russia-related general license (GL) 131E, “Authorizing Certain Transactions for the Negotiation of and Entry Into Contingent Contracts for the Sale of Lukoil International GmbH and Related Maintenance Activities.” We covered GL 131 in previous updates on November 17 and December 8, 2025.

GL 131E extends the term of the GL by 30 days, from May 1, 2026, to May 30, 2026.

Alongside GL 131E, OFAC issued two amended Russia-related FAQs, which reflect the change in terms of the license: FAQ 1224 and FAQ 1225.

UK Developments

UK to Introduce Legislation Enabling IRGC Proscription

The UK Government has confirmed plans to introduce new legislation that would enable the proscription of the Islamic Revolutionary Guard Corps (IRGC) as a terrorist organisation. Current legislation under the Terrorism Act 2000 does not permit the proscription of state-backed entities, prompting proposals for a new “proscription-style” framework following a 2025 review by the Independent Reviewer of Terrorism Legislation. The proposed model would create criminal offences relating to supporting or promoting designated foreign state-linked organisations, broadly aligning with existing terrorism proscription powers.

The IRGC is already subject to extensive UK sanctions under the Iranian regime, including asset freezes and travel bans, but proscription would go further by criminalising membership and support and expanding enforcement powers. The move would bring the UK closer to international partners, with the EU having listed the IRGC as a terrorist entity in 2026 and the US having designated it as a Foreign Terrorist Organization since 2019, highlighting a continued convergence between sanctions and counter-terrorism measures.

UK House of Commons Library Publishes Briefings on US–Iran Conflict and Sanctions Outlook

The UK House of Commons Library has published three briefings on the US-Iran conflict. The briefings cover: (i) US-Iran conflict background and UK response, (ii) Reopening the Strait of Hormuz, and (iii) US-Iran ceasefire and nuclear talks. Together, the briefings highlight the central role of sanctions in ongoing diplomatic efforts. Following US strikes on Iran’s nuclear and missile infrastructure in February 2026, indirect talks mediated by Oman and Pakistan have focused in part on the conditions for sanctions relief. The US has linked any easing of sanctions to Iran ending uranium enrichment and curbing its missile programme and regional activities, while Iran has resisted these demands.

The briefings note that sanctions remain a key point of contention, with proposals including limits on enrichment, international monitoring, and the potential transfer of enriched uranium abroad, although no agreement has been reached. While a conditional ceasefire is in place, future sanctions relief appears dependent on a broader political settlement. The papers also highlight ongoing international divisions, with European states supporting sanctions linked to negotiations, while others oppose further measures, underscoring the continued use of sanctions as a central geopolitical tool.

UK Government Designates RSF Director Under Sudan Sanctions Regime

The UK Government has sanctioned one individual under the Sudan Sanctions Regime. The individual, Al-Goney Hamdan Dagalo, is the procurement director of the Rapid Support Forces (RSF) and a brother of Mohammed Hamdan “Hemedti” Dagalo, the leader of the RSF. Al-Goney Hamdan Dagalo has been sanctioned for engaging in actions or policies that threaten the peace, security, or stability of Darfur, including leading RSF efforts to procure weapons and military materiel. This designation reflects Al-Goney Hamdan Dagalo’s addition to the UN Sanctions List on April 28, 2026, pursuant to UN Security Council Resolution 1591 (2005) Sanctions Committee.

EU Developments

EU Council Renews Myanmar Sanctions Framework

The EU Council has recently renewed the restrictive measures targeting Myanmar under Decision 2013/184/CFSP for another year, until April 30, 2027. The decision follows the annual review of the restrictive measures and reflects the continuing grave situation in Myanmar, including actions undermining democracy and serious human rights violations. As part of the review, the EU Council updated the listings for 33 individuals and nine entities and removed the entry of one deceased person.

The sanctions framework against Myanmar/Burma targets individuals and entities linked to the military regime, known as the Tatmadaw, as well as those responsible for serious human rights violations or actions undermining democracy and the rule of law. In addition, Council Regulation (EU) 401/2013 establishes an arms embargo banning the export of weapons, ammunition, and equipment that could be used for internal repression, and prohibits the export of dual-use goods and technology intended for military use or military end users, including the Border Guard Police.

Following the update, the sanctions framework now lists 105 individuals and 22 entities, subject to asset freezes and a ban on making funds or economic resources available. All listed individuals are also subject to an EU travel ban.

Asia-Pacific Developments

Taiwan Downplays Impact of Chinese Sanctions on European Defence Firms

In late April 2026, Taiwan stated that recent Chinese sanctions targeting European arms manufacturers involved in weapons sales to the island would not affect its defence procurement. Beijing placed seven European defence companies on its export control list, imposing restrictions on exports of Chinese-origin dual‑use items in response to their Taiwan‑related activities. Taiwan’s Defence Minister Wellington Koo described the move as consistent with past Chinese actions and said it did not alter Taiwan’s acquisition planning. He emphasized that Taiwan maintains diversified sourcing channels and relies primarily on the United States for major arms supplies.

Sanctions Compliance Lapses Lead to Monetary Penalties by Bank Negara Malaysia

On April 29, 2026, Bank Negara Malaysia announced the imposition of administrative monetary penalties totaling RM1.56 million (approximately 4 million USD) on Zurich General Insurance Malaysia Berhad and Zurich General Takaful Malaysia Berhad for breaches of targeted financial sanctions requirements. The penalties followed findings that the insurers failed to promptly update their sanctions databases in line with Malaysia’s Domestic List and applicable United Nations Security Council Resolutions List, resulting in customer screening being conducted against outdated information. Bank Negara also identified failures to adequately assess potential sanctions matches, and in one case, failures to freeze funds and immediately report a confirmed match to the authorities. The regulator attributed the breaches to deficiencies in sanctions screening systems, internal procedures, and staff oversight, and noted that remedial measures have since been implemented.

Pyongyang Rejects Cybercrime Allegations Amid Continued US Sanctions

In early May 2026, North Korea rejected US accusations that it engages in state‑sponsored cybercrime to generate illicit revenue in circumvention of international sanctions, characterizing the allegations as fabricated and politically motivated. In statements carried by state media, Pyongyang’s foreign ministry dismissed claims of a North Korean cyber threat as “absurd slander” and warned that it would take necessary countermeasures to defend state interests in cyberspace. The response followed repeated assertions by US authorities that North Korea conducts hacking operations, cryptocurrency theft, and overseas IT worker schemes to fund its missile and nuclear programs, including recent enforcement actions by the US Departments of the Treasury and Justice targeting individuals and entities linked to such activities.

China Issues First Prohibition Order Under Blocking Rules in Response to US Sanctions

On May 2, 2026, China’s Ministry of Commerce (MOFCOM) issued its first prohibition order under the Rules on Counteracting Unjustified Extraterritorial Application of Foreign Legislation and Other Measures (the Blocking Rules). The order concerns US sanctions imposed on five Chinese petrochemical companies, i.e., inclusion on the Specially Designated Nationals List, asset freezes, and transaction bans, for their alleged participation in Iranian oil transactions. MOFCOM determined that the relevant US measures constituted an unjustified extraterritorial application of foreign law and, accordingly, prohibited any organization or individual from recognizing, enforcing, or complying with the sanctions on these five companies, with effect from the date of promulgation. A MOFCOM spokesperson stated the same day that the issuance of the prohibition order represents the implementation of the Blocking Rules and does not affect China’s performance of its international obligations.

Japan Turns to Sakhalin‑2 Crude Under US Sanctions Waiver Framework

On May 2, 2026, Japanese authorities reportedly announced plans for a new shipment of Russian crude oil, marking the country’s first purchase amid ongoing disruptions linked to the Strait of Hormuz closure. The cargo is expected to be delivered through the Sakhalin‑2 project in Russia’s Far East and received by Japanese refiner Taiyo Oil at a terminal in Ehime Prefecture. The Sakhalin‑2 project is majority owned by Gazprom, with Japanese trading houses Mitsui and Mitsubishi retaining minority stakes. The shipment follows the issuance of a US sanctions waiver permitting oil sales from Sakhalin‑2, which is set to expire in June 2026, and comes as Japan seeks alternative supply sources amid ongoing constraints on Middle Eastern exports, from which it sourced the majority of its crude oil imports in 2025.

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