2024 has already been a busy year for sanctions on Russia, with the implementation of new sanctions and intensifying enforcement of existing sanctions authorities, with no signs of slowing down.
Background
Foreign Financial Institutions Subjected to New Secondary Sanctions Risks
Foreign financial institutions, in particular, should ensure that they are diligently screening new and current customers or clients as they risk being subject to secondary sanctions for conducting or facilitating significant transactions or providing services involving Russia’s military-industrial base, pursuant to Executive Order 14114, issued on December 22, 2023, which amended Executive Order 14024.
Wave of Sanctions Imposed in February 2024
On February 23, 2024, following the second anniversary of Russia’s invasion of Ukraine and in the wake of the death of Aleksey Navalny, a prominent Russian opposition figure, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“OFAC”) together with the U.S. Department of State imposed sanctions on over 500 targets—the largest wave of sanctions imposed since Russia’s invasion of Ukraine in February 2022.
These new sanctions targeted individuals and entities operating in Russia’s aerospace, engineering, financial services, manufacturing, metals and mining, military-industrial base, technology, and transportation sectors.
The new sanctions also targeted over two dozen third-country sanctions evaders, including individuals and entities located in Europe, East Asia, Central Asia, and the Middle East.
That same day, OFAC also designated Joint Stock Company Sovcomflot (“Sovcomflot”), Russia’s largest state-owned shipping company and fleet operator, and fourteen of its crude oil tankers in an effort to reduce Russia’s shadow operations and its revenue from oil sales.
Price Cap Analysis Demonstrates Impact on Russian Oil Revenue and Emphasizes Ongoing Enforcement
In the transportation industry, the U.S. Department of Treasury released a price-cap analysis showing that Russian oil prices experienced a marked decline following the implementation of the second phase of the Russian Oil Price Cap in October 2023. In this release OFAC again communicated the explicit goals of the price cap policy and reiterating some of their prior guidance – stating:
“The price cap has two goals: to reduce Russia’s ability to finance its war and to maintain energy market supply. The price cap’s ideal outcome is a market in which Russia supplies as much energy as possible to emerging market consumers and businesses who need it most, but at the most heavily discounted price, to limit Putin’s profits: maintaining the volume of energy supplied, while minimizing the profit earned from it.”
As part of these goals, OFAC has communicated that, since October 2023, the U.S. has rolled out successive rounds of price cap enforcement actions, designating vessel owners, shipping companies, and an oil trader that used prohibited services to trade above the cap, as well as identifying vessels as blocked property of these companies. These actions also included designating supply chain intermediaries, such as oil traders, from various third-party countries including Hong Kong and the United Arab Emirates.
We will continue to closely monitor developments in this space.
If you have any questions regarding the matters covered in this, please contact Bruce Paulsen (212) 574-1533, Brian Maloney (212) 574-1448, Noah Czarny (212) 574-1642, Carmella O’Hanlon (212) 574-1351, or your primary Seward & Kissel attorney.