On October 14, 2022, the US Department of the Treasury’s Office of Foreign Assets Control (“OFAC”), the Department of Commerce’s Bureau of Industry and Security (“BIS”), and the Department of State, issued the Russia-related Alert: Impact of Sanctions and Export Controls on Russia’s Military-Industrial Complex (“the Alert”). OFAC also published one new Russia-related frequently asked question (“FAQ”).
The Alert outlines impacts of the coordinated sanctions and export controls that have led to shortages of supplies for Russian forces and a sharp decline in semiconductors necessary for military use being imported into Russia. The Alert credits sanctions and export controls for the closures of plants manufacturing defense items, forcing the Russian military to use Soviet-era defense stocks. The Alert also says sanctions have prompted global banks and companies to curtail or suspended operations in Russia.
The Alert highlights how existing sanctions authorities have allowed OFAC and the Department of State to impose sanctions on deceptive, structured transactions or dealings to circumvent US sanctions. Evasions of these sanctions and export controls imposed by BIS have included a range of techniques, including front companies and fraudulent end-user licenses. The Alert references BIS’ June 2022 joint alert with the Financial Crimes Enforcement Network (“FinCEN”) as a resource for US Persons to identify such evasion. We blogged about the BIS-FinCEN joint alert here.
New FAQ 1092 confirms that non-US companies risk exposure to sanctions for providing military goods to Russia or for supporting Russia’s military-industrial complex. OFAC may block (i.e., designate as a Specially Designated National (“SDN”)) any person determined to operate or have operated in the defense and related materiel sector of the Russian economy pursuant to Executive Order 14024 (“EO 14024”), “Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation.” OFAC may also block persons determined to have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of certain sanctionable activities enumerated in EO 14024 or SDNs blocked pursuant to EO 14024.
The authors acknowledge the assistance of Ryan Orange with the preparation of this blog post.