On Friday, December 22, 2023, the US authorized the imposition of new sanctions on foreign financial institutions (“FFIs”) facilitating significant transactions relating to Russia’s military-industrial base. In addition, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) issued related determinations and published a compliance advisory for FFIs, with practical guidance on how to identify sanctions risks and implement corresponding controls. The US also expanded prohibitions of import of certain seafood of Russian origin. Furthermore, OFAC issued new and amended several prior Russia-related Frequently Asked Questions (“FAQs”), clarifying these recent measures.

The new rules emphasize the United States’ focus on sanctions evasion and send a clear message to FFIs that facilitation of significant transactions related to Russia’s military-industrial base carries sanction exposure risk under US authorities. The recent action is consistent with the US foreign policy objective to deprive Russia of the means to procure critical items and revenue for its military-industrial base.

FFI sanctions and related guidance

The US Government can now sanction FFIs upon determining that they:

• Have conducted or facilitated significant transactions with persons designated for operating or having operated in the Russian technology, defense and related materiel, construction, aerospace, or manufacturing sectors (as well as any additional sectors that the US may determine); or
• Have conducted or facilitated significant transactions, or provided services involving Russia’s military-industrial base, including transactions in certain enumerated “critical items.”

OFAC identified such critical items to include certain machine tools and manufacturing equipment, materials for semiconductors and related electronics, electronic test equipment, propellants, chemical precursors for propellants and explosives, lubricants and lubricant additives, bearings, advanced optical systems, and navigation instruments. 

OFAC’s new advisory to FFIs outlines examples of activities that could expose FFIs to sanctions risk, such as maintaining accounts, transferring funds, or providing other financial services for any persons, either in Russia or outside Russia, that support Russia’s military-industrial base. The advisory outlines best practices to reduce exposure to potential risks. The suggested recommendations include:  reviewing customer base; communicating compliance expectations to customers; mitigation measures for any customers or counterparties engaged in high-risk activity (such as restricting accounts), among other risk-based practices.   

In its new and amended FAQs, OFAC clarified, among other matters, that:

• The new sanctions apply with respect to any currency (including transactions denominated in non-US currency).
• The sanctions that OFAC may impose on FFIs may be blocking sanctions or severe restrictions on maintaining correspondent or payable-through accounts in the United States.
• OFAC soon intends to update the List of Specially Designated Nationals and Blocked Persons to reflect the sector in which a person was designated for operating.

Russian seafood determination

Since March 2022, the US has prohibited the importation into the United States of fish, seafood, and preparations thereof of Russian origin. Now, OFAC expanded the importation prohibitions to include salmon, cod, pollock, or crab of Russian origin, even if incorporated or substantially transformed into another product in a third country. Limited wind-down authorizations apply.

Russian gold determination

Since June 2022, the importation into the United States of gold of Russian origin has been prohibited. Now, OFAC clarified that such importation of gold of Russian origin that was located outside of Russia prior to June 28, 2022, is not prohibited.

Russian diamonds

In its new and amended FAQs, OFAC indicated that it intends to issue a determination related to the importation of certain Russian diamonds processed in third countries and associated guidance in the near term.

Dentons will continue to monitor these developments and provide updates.