On Friday, May 19, 2023, the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) announced the addition of more than 300 Russian Federation individuals and companies as well as other individuals and companies alleged to be aiding Russia’s war efforts to the Specially Designated Nationals and Blocked Persons (“SDN”) List. Simultaneously, the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”) announced new export control measures targeting Russia and those assisting Russia, all of which are discussed here.
The U.S. Department of State also announced sanctions on Friday as well. The State Department’s sanctions targeted those individuals and entities complicit in “sanctions evasion and circumvention; maintaining Russia’s capacity to wage its war of aggression; and supporting Russia’s future energy revenue sources. Along with these actions, the Department is also designating several individuals and entities to further promote accountability of those supporting Russia’s war, including Russia-installed puppet occupation authorities, those involved in theft of Ukrainian grain, and in the systematic and unlawful transfer and/or deportation of Ukraine’s children.” A full list of those individuals and entities designated by the State Department can be found here.
The State Department also blocked 37 aircrafts tied to the Federal State Governmental Institution 223rd Flight Unit State Airlines of the Ministry of Defense of the Russian Federation and 41 aircrafts tied to the Joint Stock Company of the 224th Flight Unit State Airlines.
The sanctions come on the heels of President Biden’s G7 visit in Japan during which the United States and other G7 countries made collective commitments to hold Russia accountable for its ongoing invasion of Ukraine. The new sanctions include: (1) broadening of authority to designate those operating in different areas of the Russian economy; (2) prohibitions on the types of services that may be offered to entities and individuals in Russia; (3) the implementation of new reporting requirements under Directive 4 related to Transactions Involving the Central Bank, National Wealth Fund and Ministry of Finance of the Russian Federation; (4) designations related to Russia’s efforts to circumvent and evade sanctions to gain access to critical materials and technology; and (5) numerous designations in a variety of areas including, those operating in Russia’s energy and financial industries. These new sanctions are discussed in more detail below, and a full list of newly designated individuals and entities can be found here.
Designation of Additional Sectors in Russian economy
The new sanctions expand authorities to allow for future sanctions in different areas in the Russian economy. OFAC designated the architectural, engineering, construction, manufacturing, and transportation sectors of the Russian Federation economy pursuant to Section 1(a)(i) of Executive Order 14024. This designation will allow for sanctions to be imposed on individuals and entities determined to operate or have operated in those sectors.
The designation of these new sectors is similar to OFAC’s previous designations of the metals and mining, quantum computing, accounting, trust and corporate formation, management consulting, aerospace, marine, electronics, financial services, technology, and defense and related materials sectors. For a more detailed discussion of OFAC’s previous designations, see Husch Blackwell’s posts here, here, and here.
Prohibition on Provision of Architectural and Engineering Services
OFAC issued new prohibitions on the provision of architectural and engineering services to individuals in the Russian Federation. Specifically, US persons are now prohibited from: exporting, reexporting, selling or supplying, from the US or by US persons, directly or indirectly, architectural services or engineering services to any person located in the Russian Federation on or after June 18, 2023. US persons are also prohibited from approving, financing, guaranteeing or otherwise facilitating any foreign person’s performance of the aforementioned activities. In conjunction with this prohibition, OFAC issued additional guidance on what constitutes “architectural” and “engineering” services. According to that guidance, the services are defined as follows:
- Architectural services: include advisory services; pre-design services; design services, including schematic design, design development, and final design; contract administration services; combined architectural design and contract administration services; including post construction services; and all other services requiring the expertise of architects. The prohibition applies to such services as they relate to residential, institutional, leisure, commercial, and industrial buildings and structures; recreational areas; transportation infrastructure; land subdivisions; and not necessarily related to a new construction project. The term also includes urban planning services (i.e., land use, site selection, and servicing of land for systemic, coordinated urban development) and landscape architectural services. OFAC intends to interpret this term consistent with UN Central Product Classification (CPC) Codes 86711-86704, 86719, and 86741-86742.
- Engineering services: engineering services include assistance, advisory, consultative, design, and recommendation services concerning engineering matters or during any phase of an engineering project. Engineering design services may be for: the construction of foundations and building structures (i.e., structural engineering); mechanical and electrical installations for buildings; the construction of civil engineering works; industrial processes and production; or other engineering designs, such as those for acoustics, vibration, traffic control systems, or prototype development for new products. The term additionally includes geotechnical, groundwater, and corrosion engineering services; integrated engineering services, such as those for transportation infrastructure or other projects; engineering-related scientific and technical consulting services, including geological, geophysical, geochemical, surface or subsurface surveying, and map making services; testing and analysis services of chemical, biological, and physical properties of materials or of integrated mechanical and electrical systems; and technical inspection services. OFAC intends to interpret this term consistent with UN CPC Codes 86721-86727, 86729, 86731-86733, 86739, 86751-86754, 86761-86764, and 86769.
Directive 4 Reporting Requirements
In an effort to lend more transparency to assets blocked pursuant to Directive 4 to Executive Order 14024, OFAC amended Directive 4 to include a reporting requirement. Now, US persons are required to report to OFAC any property in their possession or control in which the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or Ministry of Finance of the Russian Federation has an interest. Reports must be submitted to OFACreport@treasury.gov on or before June 18, 2023 and annually thereafter.
Global Evasion and Circumvention Sanctions
In an effort to further undermine Russia’s efforts to circumvent sanctions to gain access to critical materials and technology, OFAC designated the following:
- 5 additional members of Walter Moretti’s (designated in February 24, 2023) network that procures sensitive technologies and equipment for Russia’s intelligence services and military
- Individuals and entities involved in the Liechtenstein-based Russian Intelligence Services Procurement Network
- Individuals and entities involved in Netherlands-based Russian Intelligence Services Procurement Network
- Individuals and entities involved in Radioavtomatika (designated March 3, 2022) procurement network
- Russia-based defense technology suppliers connected to the Oset Group, including European-based Ostec Group facilitators
- Finnish and Estonian based technology transfer companies
- More than thirty companies that import, ship, or manufacturer electronics components, semiconductors, and microelectronics to or in Russia
JSC Polimetal AO and PJSC Polyus Designations
Friday’s tranche of sanctions included designations of JSC Polimetal Ao, a top 10 global gold producer and top 5 silver producer, and PJSC Polyus, the largest gold producer in Russia and a top ten 10 gold miner. Included in the designations were the following companies and individuals:
- Joint Stock Company Polyus Krasnoyarsk is the parent company of most of Polyus’s assets, including all its mines.
- Joint Stock Company Polyus Aldan is a company that mines gold and gold ores from various deposits.
- Pavel Sergeyevich Grachev is the former General Director of Polyus
- Limited Liability Company Polyus Service is a business and management consulting firm that advises the other entities in Polyus’s corporate structure.
- Limited Liability Company Polyus Management Company is a key holding company within the corporate structure of Polyus.
- Aleksei Aleksandrovich Vostokov is the General Director of Polyus.
- Vladimir Anatolevich Polin is the Senior Vice President of Operations of Polyus.
OFAC also issued General License 66 and General License 67. GL 66 authorizing those transactions, “ordinarily incident and necessary” to wind down operations or interests in Polyus or any entity in which Polyus owns 50% or more, until August 17, 2023. GL 67 permits transactions “ordinarily incident and necessary” to the “divestment or transfer, or the facilitation of the divestment or transfer, of debt or equity” of Polyus or an entity in which Polyus owns 50% or more, until August 17, 2023.
OFAC did not issue similar general licenses for Polimetal; however, OFAC did issue FAQ 1129 clarifying that it was not designating Polimetal’s Jersey-based parent company, Polimetal International PLC. Because of this, OFAC clarified that U.S. persons are permitted to transact with Polimetal International PLC and its non-blocked subsidiaries without violating U.S. sanctions.
Energy and Financial Services Designations
OFAC also targeted Russia’s energy sector by designating entities in Russia’s energy educational institutions, energy-related research institutions, drilling and mining companies, and those entities providing new investment into Russia’s energy sector. These sanctions are meant to further undercut potential revenue Russia may be able to receive through its energy sector.
The sanctions also included additional measures to disrupt Russia’s financial services sector including designations of entities in Dubai, Ireland, Cyprus, Switzerland and individuals acting in Russia.
Research Institutions and University Designations
OFAC designated research institutions and universities specifically connected to the Russian Federation’s energy sector. Those designations include:
- Russia-based Federal State Budget Educational Institution of Higher Education Saint-Petersburg Mining University (SPMI) researches the extraction and processing of raw materials.
- Russia-based Federal State Budgetary Educational Institution of Higher Education Sergo Ordzhonikidze Russian State University for Geological Prospecting (MGRI) works on geological exploration technology, with a focus on preparing specialists for the oil and gas industry.
- Russia-based State Budgetary Educational Institution of Higher Education Almetyevsk State Oil Institute (ASOI) helps companies in the Russian oil and gas industry with technology development.
- Federal State Budgetary Educational Institution of Higher Education Grozny State Oil Technical University Named After Academician M.D. Millionshchikov (GSOTU) is the oldest specialized oil university in Russia. GSOTU conducts technical training and studies involving oil and gas production.
- Russia-based Federal State Budgetary Educational Institution Of Higher Vocational Education Gubkin Russian State University Of Oil And Gas (Gubkin) develops technologies to improve the efficiency of Russia’s oil and gas industries and reduce their dependence on imported supplies.
- Russia-based research institute Gazprom VNIIGAZ, OOO (VNIIGAZ) is the main research center for Public Joint Stock Company Gazprom, which is subject to prohibitions pursuant to Directive 4 of Executive Order 13662 and Directive 3 of Executive Order 14024. VNIIGAZ develops new technologies for Russia’s oil and gas industry.
- Russia-based research institute The Federal State Unitary Enterprise V.A. Kargin Scientific-Research Institute of Chemistry and Technology of Polymers With a Pilot Production Plant (NII Polymerov) develops polymers for Russia’s oil and gas industry as well as for Russia’s military-industrial complex.
- Russia-based Institute of Petroleum Chemistry Siberian Branch of The Russian Academy of Sciences (IPC SB RAS) researches and develops advanced technologies for enhanced oil recovery, preparation, transportation, and refining.
- Russia-based Siberian Scientific Research Institute of Geology Geophysics and Mineral Raw Material Joint Stock Company (SNIIGGIMS JSC) is a large state-owned research institute in Siberia focused on finding oil and gas deposits. SNIGGIMS JSC performs exploration activities, processes seismic data, and provides scientific support to well drilling.
- Russia-based, state-owned All Russia Petroleum Research Exploration Institute Joint Stock Company (VNIGRI JSC) has contributed to Russia’s national economy through the discovery of oil and gas deposits.
- Russia-based, state-owned All Russian Scientific Research Institute of Geophysical Prospecting Joint Stock Company (VNIIGEOFIZIKA JSC) is involved in prospecting and exploring for oil and gas fields.
- Russia-based, state-owned Energy Research Institute of The Russian Academy of Sciences (INEI RAN) provides scientific analysis in order to forecast and develop Russia’s national energy policy and markets.
In addition to the above designations, OFAC also issued General License 68, which permits wind down transactions with certain universities until July 18, 2023. Those universities covered by GL 68, include:
- Federal State Budgetary Educational Institution of Higher Education Grozny State Oil Technical University Named After Academician M.D. Millionshchikov
- Federal State Budget Educational Institution of Higher Education Saint Petersburg Mining University
- Federal State Budgetary Educational Institution of Higher Education Sergo Ordzhonikidze Russian State University for Geological Prospecting
- Federal State Budgetary Educational Institution of Higher Vocational Education Gubkin Russian State University of Oil and Gas
- State Budgetary Educational Institution of Higher Education Almetyevsk State Oil Institute
GL 68 also extends to any entity in which one or more of the above has either, directly or indirectly, individually or in the aggregate, more than a 50% interest. GL 68 does not authorize transactions prohibited by Directive 2 or transactions prohibited by Directive 4.
Husch Blackwell’s Export Controls and Economic Sanctions Team continues to closely monitor all export controls and enforcement related developments and will provide further updates as circumstances warrant. Should you have any questions or concerns, please contact Cortney Morgan, Grant Leach, Emily Mikes or Eric Dama of our Export Controls and Economic Sanctions Group.