US Expands Sanctions Authority to Target Russian Aerospace, Electronics and Marine Sectors
On March 31, 2022, the US Department of Treasury expanded its exercise of sanctions authority under Section 1(a)(i) of Executive Order (EO) 14024 to include Russia’s aerospace, electronics, and marine sectors. As a result, any person found to operate in such sectors of the Russian economy or involved with the designated entities and individuals may be subject to sanctions under US law. Additionally, several entities and individuals, including technology companies, were targeted in an effort to crack down on sanctions evasion networks.
New Sectors Subject to Possible Sanctions
Acting in concert with the Secretary of State, the Secretary of the Treasury determined sanctions may apply to Russia’s aerospace, marine, and electronics sectors. Prior to this action, the Russian sectors covered by EO 14024 were limited to financial services, technology, and defense and related materials. By expanding the sanctions authority to cover these new sectors, the US may impose sanctions on any individual or entity determined to operate or have operated in these sectors.
It is likely the Treasury Department’s Office of Foreign Assets Control (OFAC) will exercise this new authority to sanction additional entities/individuals in the future. Such a step would align with restrictions on exports of US-origin goods recently imposed by the Commerce Department, which are aimed at limiting Russia’s defense industrial base and technological development.
New Designations: Tech Companies and Sanctions Evasion Networks
In addition to exercising its authority to sanction new industries, the Treasury Department announced new designations to the OFAC’s Specially Designated Nationals (SDN) list. US persons, including US financial institutions, are prohibited generally from engaging in any transaction with SDNs and are required to block (i.e., freeze) any property or interests in property belonging to SDNs.
The latest additions include four technology companies, including Russia’s largest chipmaker, as well as entities and individuals the US has determined are actively evading previous sanctions.
Acting pursuant to EO 14034, OFAC added the following 21 entities and 10 individuals to the SDN list:
- Joint Stock Company Mikron, largest Russian manufacturer and exporter of microelectronics
- AO NII-Vektor, Russia-based software and communications technology company
- T-Platforms, Russia-based company operating in the computer hardware sector
- Molecular Electronics Research Institute, research institute manufacturing computers, search and navigation equipment
- OOO Serniya Engineering, procurement network engaged in proliferation activities on behalf of Russia’s intelligence services
- OOO Sertal, company procuring dual-use equipment and technology for Russian defense sector
- OOO Robin Treid, Russian front company used by Serniya to procure equipment for Russian government
- Majory LLP, United Kingdom (UK)-based front company used by Serniya to procure equipment for Russian government
- Photon Pro LLP, UK-based front company used by Serniya to procure equipment for Russian government
- Invention Bridge SL, Spain-based front company used by Serniya to procure equipment for Russian government
- Alexsong Pte Ltd, Singapore-based company facilitating prohibited transactions for the Serniya network
- Irina Viktorovna Nikolaeva, individual facilitating sanctions evasion on behalf of Serniya
- Yevgeniya Aleksandrovna Podgornova, individual facilitating sanctions evasion on behalf of Serniya and Sertal
- Sergey Aleksandrovich Yershov, individual facilitating sanctions evasion on behalf of Serniya and Sertal
- Anton Alekseevich Krugovov, individual facilitating sanctions evasion on behalf of Serniya and Sertal
- Andrey Georgiyevich Zakharov, individual facilitating sanctions evasion on behalf of Serniya and Sertal
- Yevgeniy Aleksandrovich Grinin, individual facilitating sanctions evasion on behalf of Serniya and Sertal
- Viacheslav Yuryevich Dubrovinskiy, official of Serniya
- Tamara Aleksandrovna Topchi, official of Invention Bridge SL
- OOO Nauchno-Tekhnicheskii Tsentr Metrotek, entity owned or controlled by Mr. Zakharov
- OOO Pamkin Khaus, entity owned or controlled by Mr. Zakharov
- OOO Foton Pro, entity owned or controlled by Mr. Grinin
- Malberg Ltd, Malta-based shell company acquiring dual-use equipment for Russian end-users
- Evgeniya Vladimirovna Bernova, associate of Serniya network, operating Malberg
- Nikita Aleksandrovich Sobolev, Malberg’s Director
- Djeco Group LP, UK-based company involved in Malberg’s network
- Djeco Group Holding Ltd, Malta-based company involved in Malberg’s network
- Maltarent Ltd, Malta-based company involved in Malberg’s network
- SCI Griber, France-based company involved in Malberg’s network
- Sernia-Film Co Ltd, Russian company facilitating Malberg’s export of equipment to Russian government end users
- Quantlog OY, Finnish front company aiding previously sanctioned individual, Nikita Gennadievitch Kovalevskij
Several of these latest additions are already subject to other sanction regimes, including those of the European Union, Japan, and the UK.
Three other individuals were also added to the SDN list based on their involvement with a cybersecurity attack on a Middle East petrochemical facility in August 2017.
New Aircraft Added to Export Violation List
The Commerce Department’s Bureau of Industry and Security (BIS) has also updated its list of aircraft flown to Russia in violation of US export controls. On March 18, 2022, BIS first identified 100 aircraft that had been flown to Russia without specific authorization. An additional 73 Boeing aircraft have now been identified and added to the list.
Meanwhile, seven of the original 100 aircraft have been removed from the list. Under the Export Administration Regulations (EAR), individuals are prohibited from not only exporting aircraft to Russia but also from taking any further action in regards to the identified aircraft. Therefore, several companies submitted voluntary disclosures concerning potential violations and requested permission to engage in otherwise prohibited activities to remove the aircraft from Russia.
The US continues to impose new restrictions in an effort to impact Russia’s economy and its ability to finance and facilitate its invasion into Ukraine. In particular, these measures and international initiatives designed in coordination with allies indicate the US is focused on the effectiveness of these restrictions. We will continue to monitor the sanctions and export control restrictions as they emerge.
© Arnold & Porter Kaye Scholer LLP 2022 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.