G-7 Summit Kicks Off With New Russian Sanctions

As the 49th Group of Seven (G7) Summit gets underway in Japan, the United States, in coordination with several other G7 members, marked the occasion to announce sweeping new sanctions and export controls aimed at “further degrad[ing] the Russian Federation’s capacity to wage war against Ukraine.”

As described below, the measures include:

• An expansion of sanctions authority to include individuals and entities that operate or have operated in Russia’s architecture, engineering, construction, manufacturing, and transportation sectors.
• A prohibition on the export of architecture services or engineering services to any person located in Russia.
• New blocking sanctions, as announced by the Office of Foreign Asset Control’s (OFAC), against 22 individuals and 104 entities, with touchpoints in more than 20 countries or jurisdictions.
• The addition of 71 entities to the Bureau of Industry and Security’s (BIS) Entity List.
• New export controls aimed at inputs for Russia’s industrial and commercial, chemical and biological, and other sectors that “can support Russia’s defense industrial base and/or be diverted to such uses through Belarus.”

Expanded Sanctions Authority and Export Prohibition (Architecture and Engineering Services)

One of the highlights of the announcement is OFAC’s determination that it will expand its sanctions authority under Executive Order 14024 (April 15, 2021) to include individuals and entities that operate or have operated in Russia’s architecture, engineering, construction, manufacturing, and transportation sectors. As noted by OFAC, this new authority will complement existing authority to target individuals and entities that operate or have operated in metals and mining, quantum computing, accounting, trust and corporate formation, management consulting, aerospace, marine, electronics, financial services, technology, defense and related materiel sectors of the Russian economy.

Relatedly, OFAC also announced that beginning on June 18, 2023, the exportation, reexportation, sale or supply (directly or indirectly) from the United States, or by a United States person, wherever located, of architecture services or engineering services to any person located in Russia, is prohibited. Finally, OFAC amended Directive 4 to require reporting by U.S. persons of property they are holding in which Directive 4 entities have an interest.

OFAC issued FAQs in conjunction with these determinations.

New Blocking Sanctions

With an aim toward targeting those “attempting to circumvent or evade sanctions and other economic measures against [1] Russia, [2] the channels Russia uses to acquire critical technology, [3] its future energy extraction capabilities, and [4] Russia’s financial services sector”, OFAC also designated 22 individuals and 104 entities to its Specially Designated Nationals and Blocked Persons (SDN) List. These individuals and entities include:  

• Covert Procurement Networks and Agents, including specified individuals and entities located in Czechia, Germany, India, Liechtenstein, the Netherlands and Russia.
• Defense Technology Suppliers, including, but not limited to, 12 entities that comprise the Ostec Group, described as a Russia-based company that “imports and distributes quantum and semiconductor technologies to Russian defense entities,” as well as European-based “Ostec Group Facilitators.”
• Technology and Electronic Importers, including, but not limited to, 30 companies that “import, ship, or manufacture electronics components, semiconductors, and microelectronics to or in Russia.”
• Energy-Related Educational and Research Institutions that are, according to OFAC, the “training grounds for Russia’s future energy specialists” and “where new extraction technologies are developed.”
• Drilling and Mining Equipment Companies, which includes seven companies based in Russia.
• Russian Financial Sector, including UAE-headquartered Huriya Private FZE LLE and six individuals and entities tied to the company; and Switzerland-headquartered DuLac Capital Ltd. and more than a dozen entities and individuals tied to the company.
• Russia’s Foreign Intelligence Service, officially known as the Foreign Intelligence Service of the Russian Federation (SVR)

It is critical to note that, even if not identified on the SDN List, the new blocking sanctions also apply to entities owned 50% or more, directly or indirectly, by one of the entities or individuals listed above. Identifying information on the listed individuals and entities can be found on OFAC's website.

Additional Sanctions

In conjunction with OFAC’s announcement, the U.S. Department of State announced new designations that cover nearly 200 individuals, entities, vessels and aircraft. Per the announcement, these new sanctions are aimed at “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.”

New Export Controls

Complementing the new sanctions announced by OFAC and the State Department, BIS issued two new rules intended to expand export controls to additional items “in alignment with international partners and allies.”

Collectively, the rules — each of which go into effect on May 19, 2023 — include the following:

• New export controls on inputs for Russia’s industrial and commercial, chemical and biological, and other sectors that “can support Russia’s defense industrial base and/or be diverted to such uses through Belarus.” These inputs include electronics, instruments, advanced fibers for the reinforcement of composite materials (including carbon fibers), discrete chemicals, biologics, fentanyl and its precursors, and related equipment designated EAR 99.
• The addition of 69 Russian entities to the Entity List “for providing support to Russia’s military and defense sector; along with one Armenian entity and one Kyrgyz entity “for preventing the successful accomplishment of end-use checks and posing a risk of diversion of items subject to the EAR to Russia.”

The full text of the unpublished Rule 1 and Rule 2 can be found on the Federal Register website. 

Looking Ahead

In the coming days, we expect more guidance on the latest U.S. sanctions and export controls, as well as the announcement of additional trade measures against Russia from other G7 countries. Recent statements from the Biden administration and EU/G7 leadership suggest that a coordinated crackdown on actors involved in sanctions and export control evasion will continue to be a major focus in the days ahead.    

Please note that we’ll continue to closely monitor these developments. In the meantime, please do not hesitate to reach out to a member of the Faegre Drinker customs and international trade team if you have any questions.