U.S. sanctions large global networks of Russia facilitators and evaders

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) today announced scores of designations onto its List of Specially Designated Nationals and Blocked Persons (the “SDN List”). The 25 individuals and 29 entities had a nexus to 20 jurisdictions. This move is in conjunction with the U.S. Department of State, which has sanctioned certain parties today, and the U.S. Department of Commerce’s Bureau of Industry & Security (BIS) which added 28 entities to its Entity List (more on that below). While such widescale designations in one instance are an increasingly common occurrence, wherein an agency such as OFAC or the BIS may target an entire group of related parties (companies and individuals), the types of entities targeted today are particularly noteworthy, as is the interagency effort the action represents.

OFAC Designations

For those not familiar with the SDN List, this list, which includes over 10,000 entries, is effectively a financial ban vis-a-vis the U.S. economy, prohibiting most dealings with between parties on the list and “U.S. persons” – generally defined as U.S. legal (e.g., companies and organizations) or natural persons (citizens and permanent residents, as well as non-citizens and non-permanent residents physically in the United States). Due in part to the prominence of this list and more importantly the U.S. economy, companies outside the United States, from banks to logistics providers, often abstain from dealing with such parties, even if they are not prohibited from doing so under their country’s own laws.

The majority of parties designated by OFAC today are connected with Alisher Burhanovich Usmanov, a major Russian-Uzbek businessman who OFAC sanctioned in March 2022. Usmanov has holdings around the globe and has also been sanctioned in numerous other jurisdictions as well, including Canada, Japan, and the United Kingdom (notably, today’s move was also coordinated with the United Kingdom – you can see the UK Office of Foreign Sanctions Implementation (OFSI) notice here). These sanctioned entities are spread out globally in jurisdictions such as Cyprus, Switzerland, the UAE, and Russia.

Separate from the Usmanov designations, OFAC also targeted Seqouia Treuhand Trust Reg, a Liechtenstein-based trust services company for assisting sanctioned Russian businessman Gennady Timchenko (owner of the Volga Group) and his family. It also sanctioned individuals connected with the trust, including a Liechtenstein and Swiss dual national who serves as managing director of the trust who allegedly personally managed some of the properties of Usmanov, as well as other European nationals.

Lastly, certain parties in Russia, China, Turkiye, and the UAE have been designated for assisting Russia procure technologies in areas such as semiconductors, defense, and robotics. Also sanctioned were the International Investment Bank (IIB), a Hungary-based investment bank and JSC IIB Capital of Russia, as well as three executives tied to the bank.

What is significant here is that the move underscores that OFAC is not just designating major, well-known entities and their board members, but even related entities and parties who are assisting these primary actors, such as board members of foreign, non-Russian trusts.

BIS Entity List

As mentioned above, the BIS also added 28 parties to the Entity List today, in 10 countries, effectively for ties to export diversion and procurement related to Russia. Unlike the SDN List, the Entity List is not an outright financial ban on a party, but depending on the nature of the designation, it can prohibit the flow of any items or technologies subject to the U.S. Export Administration Regulations (EAR), which can include non-U.S. items physically in the United States, or items made outside the United States with certain U.S. origin content. The parties named today are in Armenia, China, Malta, Russia, Singapore, Spain, Syria, Turkiye, UAE, and Uzbekistan. The licensing policy (the standard of review for license requests to export EAR-controlled items to the named parties) for these entities varies across the board, reflecting grades of severity. In other words, for some there is a “presumption of denial” and for others the standard is less strict, with carveouts for food and medicine, for example.

State Department

The U.S. Department of State has similarly sanctioned a host of entities, including some related to Rusatom, part of Rosatom, the Russian state atomic energy corporation.

What today’s actions means

Today’s coordinated inter-agency (and arguably multilateral) effort in the United States reflects a trend we will likely see more of – increased coordination across agencies as well as with allied countries in trying to stem Russia’s military, energy, and financial sectors and other key economic players from access to global markets and finance. There are perhaps two key takeaways here. First, by targeting one individual’s financial empire, there will likely be a domino effect where this particular group would effectively be paralyzed internationally (if it hasn’t been already). As we have seen today that even executives and directors of such companies, including European nationals, have been sanctioned. This may cause remaining service providers such as non-U.S. banks, trust companies, entity maintenance companies, etc. outside the United States to reconsider some of their activities, further impairing the ability of the upstream sanctioned entity to conduct business outside Russia. More broadly, it may prompt some non-sanctioned parties to want to explore the possibility of measures aimed at preventing a designation, as preventing such a scenario is arguably easier than trying to correct it.

Inevitably, many of the sanctioned entities will likely want to consider delisting. This is certainly not impossible, but is an uphill battle that has to be handled correctly. Although OFAC blocking does not constitute forfeiture, and while parties can seek (and secure) removal from U.S. sanctions lists, it is often a very uphill, lengthy battle. It is not without precedent, however. As such, even an eventual removal will still mean that a party may find its assets subject to a de facto seizure for years, without any type of judicial case. That said, while removals may seem extremely challenging, even like moonshots, every case is different, and OFAC has been unequivocal on the emphasis on mitigation, with the Department of the Treasury restating even in today’s press release that “[T]he ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior.” A well-defined approach may help prevent a listing or could cause a removal.