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October 19, 2022

US Government Warns Non-US Companies Face Sanctions Risk for Supporting Russian Military

Advisory

On October 14, 2022, the 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 a joint alert detailing the impact US sanctions and export control restrictions have had on Russia’s military capabilities. Notably, the alert warned that foreign countries, companies and individuals providing support to Russia’s military-industrial complex could face US sanctions penalties.

In furtherance of this assertion, OFAC published a new Frequently Asked Questions (FAQ), stating it is “prepared to use its broad targeting authorities against non-US persons that provide ammunition or other support to the Russian Federation’s military-industrial complex.” The FAQ specifically called out private military companies (PMCs) or paramilitary groups participating in or supporting Russia’s attack on Ukraine, but otherwise indicated it would “target Russia’s efforts to resupply its weapons and sustain its war of aggression against Ukraine, including any foreign persons who assist the Russian Federation in those efforts.”

The US has implemented multiple Russia-related sanctions authorities that permit sanctions to be imposed against non-US persons. For example, pursuant to Executive Order (EO) 14024, OFAC may block any person found to operate in, or have operated in, the defense and related material sector of the Russian economy, as well as any person 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 activity described in the EO or any person and interests blocked by the EO. In addition, the Ukraine-/Russia-Related Sanctions Regulations provide targeting authority for those persons deemed to be providing ammunition and other military goods to Russia.

The joint alert outlined the overall degrading impact the US’ and its allies’ measures have had on Russia’s military industrial base, including:

  • Blocking $300 billion worth of the Central Bank of the Russian Federation’s assets;
  • Sanctioning more than 1,500 entities involved in or otherwise supporting Russia’s military defense sector;
  • Denying exports, reexports and transfers of multilaterally controlled items, as well as a subset of less sensitive items, such as low-technology consumer goods;
  • Targeting Russia’s oil refining, chemical and biological weapons production and advanced manufacturing industries; and
  • Restricting the use of US tools, software and technology in producing foreign items that may be used to support Russia’s military capabilities.

According to the alert, these restrictions have impacted Russia’s ability to replace over 6,000 pieces of military equipment, including tanks, armored personnel carriers and infantry fighting vehicles, and severely restricted Russia’s access to semiconductor chips. In addition, the alert estimates Russia’s semiconductor imports have fallen by approximately 70 percent, halting production of airborne early warning and control aircraft, as well as surface-to-air missiles.

The alert further warned of Russia’s attempts to circumvent US and allies sanctions and export controls through front companies, fraudulent end-user licenses and its relationship with other countries, and underscored the US’ intention to impose sanctions on “deceptive or structured transactions or dealings to circumvent any . . . sanctions,” including on those who support sanctioned Russian entities and individuals. This, coupled with the Treasury Department’s recent announcement of OFAC’s increased partnership with the United Kingdom’s Office of Financial Sanctions Implementation (OFSI), illustrates a coordinated effort by the US and its allies to enforce sanctions moving forward. Given the US’ explicit warning, US and non-US entities should undertake the appropriate due diligence steps with respect to future transactions to ensure compliance.

© 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.