US Treasury, Commerce Department Sanction Hundreds Of Individuals And Entities In Reaction To Navalny Death, Russian Invasion Of Ukraine - Export Controls & Trade & Investment Sanctions

On February 23, 2024, the US Treasury's Office of Foreign Assets Control (“OFAC”) and the Commerce Department's Bureau of Industry and Security (“BIS”) sanctioned nearly 300 individuals and entities in relation to their operations associated with Russia's invasion of Ukraine. Together with actions from the US Department of State, this marks the largest number of US sanctions designations since the beginning of Russia's invasion of Ukraine. The action comes two years after Russia's invasion of Ukraine, and days after the recent death of Russian opposition leader Aleksey Navalny. The new sanctions, and in particular designations of certain Russian banks and Russia's internal payment systems, will further impede business engagement with Russia by US persons or where a transaction has a nexus to the US.

OFAC Designations Targeting Russia's Financial Infrastructure

OFAC made several designations targeting Russia's core financial infrastructure, including the operator of the Mir National Payment System along with a number of Russian banks, investment firms, and financial technology companies. The stated objective of these designations is to curtail Russia's use of the international financial system to further its invasion of Ukraine.

National Payment Card System Joint Stock Company (“NSPK”) a state-owned operator of Russia's Mir National Payment System was designated. NSPK is owned by the Central Bank of Russia and plays a key role in facilitating financial transactions both internal to Russia and internationally. The organization has enabled Russia to build domestic financial infrastructure not directly subject to US sanctions restrictions. Additionally, OFAC designated nine other regional financial institutions, including several headquartered in Russian military-industrial base hubs; five investment and venture capital funds that seek to underwrite Russia's development of advanced and next-generation technology and inject domestic and foreign investment into Russian companies; and six financial technology (“fintech”) companies that provide IT and software support services for various Russian financial institutions.

OFAC also designated several Russia-based banks, investment firms, venture capital funds and fintech companies including the following:

Avangard Joint Stock Bank, a bank headquartered in Moscow, Russia.
Bank RostFinance, a bank headquartered in Rostov-on-Don, Russia.
Joint Stock Commercial Bank Chelindbank, a bank headquartered in Chelyabinsk, Russia.
Maritime Joint Stock Bank Joint Stock Company, a bank headquartered in Moscow, Russia.
Public Joint Stock Company Bystrobank, a bank headquartered in Izhevsk, Russia.
Non-profit Organization Investment and Venture Fund of the Republic of Tatarstan, which provides loans and grants and finances technological and industrial projects for Russia.
Obshchestvo S Ogranichennoi Otvetstvennostyu Guard Kapital, which invests in Russian information technology companies.
Obshchestvo S Ogranichennoi Otvetstvennostyu Sistemy Prakticheskoi Bezopasnosti, which develops software for secure systems in Russia.
Obshchestvo S Ogranichennoi Otvetstvennostyu Validata, which designs and produces secure corporation information systems for financial institutions in Russia.
Finansovye Informatsionnye Sistemy, which develops information systems for the financial sector.

For a full list of designations under this category please refer to Annex 4 in the following announcement.

OFAC Designations Against Third-Country Facilitators of Russia's Military-Industrial Base

In conjunction with efforts by partners across the globe, OFAC continues to target persons outside of Russia who facilitate, orchestrate, engage in, and otherwise support the transfer of critical technology and equipment to Russia's military-industrial base. OFAC also continues to impose sanctions on persons, wherever located, that allow Russia to reconnect to global financial markets using illicit channels to evade sanctions restrictions. In this action, OFAC targeted 26 third-country entities and individuals in 11 countries, including the People's Republic of China, Serbia, the United Arab Emirates, and Liechtenstein. These targets include third-country exporters and transhippers of technology, equipment, and parts to Russia, a transnational money laundering network facilitating the illicit movement of Russian-origin precious metals, and a freight forwarder involved in weapons shipments to Russia.

OFAC designated several entities in the People's Republic of China (“PRC”) including the following:

PRC-based company Jiangxi Liansheng Technology Co., Ltd which shipped microelectronics and other technological equipment to Russia.
PRC-based company Guangzhou Ausay Technology Co., Limited which has made hundreds of shipments of foreign origin-microelectronics to U.S.-designated Limited Liability Company SMT-iLogic (“SMT-iLogic”), a Russia-based technology company.
PRC-based company Guangzhou Hesen Import and Export Co., Lt d which has made dozens of shipments of foreign-origin microelectronics to a Russian technology company designated today, Uniservice.

Additionally, OFAC targeted several members of an alleged illicit finance network including the following entities:

Rheingold Edelmetall AG is a Liechtenstein-based precious metals investment firm owned and directed by German nationals Axel Paul Diegelmann (“Axel”) and Fritz Diegelmann (“Fritz”). The firm and these individuals have allegedly collaborated with Russia-based metals companies to disguise the origin of Russian precious metals, assisted Russian clients to launder funds by buying and selling precious metals for cash, and illicitly circumvented international sanctions by obfuscating the ownership of Russian clients in transactions. Rheingold Edelmetall AG, Axel, and Fritz were designated pursuant to E.O. 14024 for operating or having operated in the metals and mining sector of the Russian Federation economy. Axel and Fritz were also designated pursuant to E.O. 14024 for being or having been leaders, officials, senior executive officers, or members of the board of directors of the now designated firm.

Further, OFAC sanctioned a Russian based freight forwarder involved in weapons shipments that offers military transportation services to the Russian armed forces and has played a role in the illicit transhipment of North Korean weapons in Ukraine. The freight forwarder was designated pursuant to E.O. 14024 for operating or having operated in the defense and related materiel sector of the Russian Federation economy.

Finally, OFAC sanctioned a number of individuals and entities involved in the Serbia-based technology exportation sector along with other third-country manufacturing suppliers, third-country technology equipment producers and third-country trucks and aircraft parts suppliers.

For a full list of all designations please refer to Annex 3 in the following link.

OFAC Designations Targeting UAV Procurement Network

In this action, OFAC, in conjunction with the US Department of State, also targeted the Alabuga UAV procurement network through which Russia has acquired and produced deadly unmanned aerial vehicles (“UAVs”). Russia and Iran's Ministry of Defense and Armed Forces Logistics have previously cooperated to finance and produce Iranian-designed kamikaze drones at a newly established facility located in Russia.

We have pulled several designated entities and individuals for your reference below. For an exhaustive list of all entities and individuals designated please refer to Annex 1.

Russia-based Joint Stock Company Special Economic Zone of Industrial Production Alabuga (“SEZ Alabuga”), which is owned and controlled by the Government of the Republic of Tatarstan and has contracts with the Russian military to assemble Geran-2 UAVs that were shipped from Iran. The entity is also ramping up domestic Russian production capabilities to produce many of the components for the Iranian-designed UAVs in Russia. SEZ Alabuga has exploited minors from an affiliated polytechnic university as laborers to assemble these attack UAVs in deplorable conditions.
Russia national Timur Nailevich Shagivaleev (“Shagivaleev”) the General Director and member of the Board of Directors for SEZ Alabuga who is involved in the efforts by SEZ Alabuga to increase the manufacturing of UAVs, including efforts to conduct reverse engineering and import substitution to localize production. Shagivaleev has been named in connection with the exploitation of underage students to assemble these UAVs.
Albatros OOO (“Albatros”) is a Russia-based UAV manufacturer involved in the production of the “Albatross M5” UAV that has been operated by the Russian military in Ukraine.
Russia national Aleksei Vadimovich Florov (“Florov”) is the General Director of Albatros who is involved with both Albatros' production expansion to SEZ Alabuga, as well as the effort to localize the production of the Iranian-designed Geran-2 drone.
Russia-based Limited Liability Company Alabuga Machinery (“Alabuga Machinery”) is a subsidiary of SEZ Alabuga, via its controlling shareholders Alabuga Development and Russia-based GEA OOO, which is itself a subsidiary of Alabuga Development and SEZ Alabuga. The subsidiary has been used to facilitate financial transactions and trade on behalf of its ultimate beneficial owner SEZ Alabuga to the Iranian government for UAV parts, components, and raw materials. Alabuga Machinery was also designated pursuant to E.O. 14024 for being owned or controlled by, or for having acted or purported to act for or on behalf of, directly or indirectly, SEZ Alabuga.
Alabuga Development OOO (“Alabuga Development”) is a subsidiary of SEZ Alabuga. Alabuga Development is also involved in a scheme with SEZ Alabuga and Drake to procure commercial UAVs that would be weaponized for use by the Russian military. Alabuga Development was also designated pursuant to E.O. 14024 for the same reason as Alabuga Machinery.
OFAC also targeted five other entities located at SEZ Alabuga, all of which were designated pursuant to E.O. 14024 for operating or having operated in the manufacturing sector of the Russian Federation economy. The entities included a metal structure producer, concrete construction company, and a freight transportation entity.

OFAC Designations Targeting Russia's Military-Industrial Base and Wartime Economy

In this action OFAC also made several additional designations targeting foreign financial institutions that facilitate or conduct significant transactions, or provide any related services, involving Russia's military-industrial base. This includes any person designated pursuant to E.O. 14024 for operating or having operated in the technology, defense and related materiel, construction, aerospace, and manufacturing sectors of the Russian Federation economy.

This action builds upon a number of previous designations in this space, and Russia's military-industrial base has included a number of other individuals and entities that support the sale, supply, or transfer of certain classes of items listed in the following determination. For more information regarding designations in this space please refer to the following OFAC guidance.

OFAC designated entities and individuals in a number of sectors involved in the Russian military-industrial base and wartime economy. These designations included a number of individuals and entities in the following industries: weapons production, additive manufacturing, machine tools manufacturing, metalworking equipment, industrial chemical production, semiconductor production, industrial automation, optics, navigational instruments, military-industrial base information technology services, military-industrial base equipment storage and power supply, military-industrial base software technology services, entities involved in Russia's aerospace sector, and other military-industrial base related entities and entities in the diamond trade.

Of the entities above, OFAC designated the MKC Group a Russia-based Limited Liability Company, an engineering enterprise focused on the turnkey construction of power objects. MKC Group and its CEO, Maksim Aleksandrovich Zagornov, were designated pursuant to E.O. 14024 for operating or having operated in the engineering sector of the Russian Federation economy.

Additionally, among the number of third-country aircraft and truck parts suppliers sanctioned, OFAC designated Kyrgyz Republic-based Obshchestvo S Ogranichennoy Otvetstvennostyu Ukon (“Ukon”) for sending aircraft components and US origin aircraft parts to Russia-based end users in violation of US export control regulations. The CEO of Ukon, Azerbaijan national Mehti Gafar Zada (“Zada”) was also designated as a result of these violations. This action stems from a collaboration with ongoing efforts by the Bureau of Industry and Security (“BIS”). In March of 2023, the US Department of Justice, OFAC and BIS issued a joint compliance note concerning the use of third-party intermediaries or transhipment points to evade Russian and Belarussian-related sanctions and export controls emphasizing joint efforts between the organizations to target this conduct. Since February 2022, BIS has implemented a number of stringent export controls, through various list additions, on entities such as Ukon, to restrict and target Russia's defense, aerospace, maritime sectors, oil refining, industrial, and commercial sectors.

For a full list of all designations in this area please refer to Annex 2 in the following link.

OFAC Designation Implications

As a result of OFAC's designations, all property and interests in property of the persons above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.

New BIS Sanctions

On the same day, February 23, 2024, BIS imposed numerous export restrictions by adding an additional 93 entities, under 95 entries, to the Entity List, for a variety of reasons related to their activities in support of Russia's defense-industrial sector and war effort. Sixty-three of the entities added are based in Russia, eight in the PRC, sixteen in Turkiye, four in the United Arab Emirates, two in the Kyrgyz Republic, and one each in South Korea and India. More than 50 of the entities added to the list today will also receive a heightened “footnote 3” designation for having Russian-Belarusian military end users. A footnote 3 designation subjects these entities to some of the most severe restrictions under the BIS Export Administration Regulations. The entities are subject to a license requirement for all items included in the export regulations and a license review policy of denial, apart from food and medicine related products, which will be reviewed on a case-by-case basis. These list additions were made to further BIS efforts to cut off the Russian defense industrial base and military from even the low-technology consumer level goods it seeks to sustain its invasion of Ukraine. For additional information concerning this action please refer to the following press release.

As a result of these BIS additions to the Entity List, parties engaging with entities on any of these lists will be subject to additional obligations concerning products, technology, software, materials, or equipment governed by the BIS Export Administration Regulations. The Entity List identifies specific license requirements for designated individuals and entities, and often prohibits all exports of items subject to the EAR absent specific BIS authorization and approval.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.