To counter Russia's ongoing aggression in Ukraine, on 12 June 2024, the U.S. announced additional sanctions and export controls intended to “continue to drive up costs for the Russian war machine”.1 Specifically, these measures:
- Put a more targeted strain on the Russian economy;
- Expand the scope of secondary sanctions;
- Apply an increased focus on prohibiting the exports of IT services, software, and advanced technology to Russia.
This article delves into the components of these measures, highlighting their implications, as well as the additional risks facing foreign financial institutions (FIs).
Increasing the Strain on the Russian Economy
The U.S. Department of the Treasury has imposed new sanctions on key entities within Russia's financial and military sectors. Noteworthy among these are sanctions on Russia's Moscow Exchange, National Clearing Center, and the National Settlement Depository. These institutions play pivotal roles in Russia's securities and financial markets, and their designation marks a significant step in isolating Russia from international financial mechanisms.
Furthermore, the U.S. has imposed sanctions on over 90 additional entities and individuals for their roles in circumventing sanctions and bolstering Russia's military operations by channelling essential goods, technology, and financial support. These sanctions target a diverse group spread across many countries, including Russia, Belarus, the British Virgin Islands (BVI), Bulgaria, Kazakhstan, Kyrgyzstan, China, Serbia, South Africa, Turkey and the United Arab Emirates (UAE). These measures are designed not only to weaken Russia's military but also to underscore the U.S.'s determined efforts to clamp down on sanctions evasion, showcasing a robust stance against those who aid and abet Russia's aggressive actions.
Expanding the Scope of Secondary Sanctions
In a significant expansion of its ‘secondary sanctions’ policy, the U.S. has broadened the definition of "Russia’s military-industrial base" to include any entity designated under Executive Order (E.O.) 14024. This policy enhancement follows President Biden's E.O. 14114, issued on 22 December 2023, which amends the earlier E.O. 14024.
The amendment authorizes the U.S. government to sanction foreign FIs that engage in significant transactions with parties identified under E.O. 14024 for supporting Russia's military-industrial base or those involved in supplying military-related items to Russia.
This move underscores the U.S.'s determination to cut off financial and material support for Russia's aggression, compelling foreign FIs worldwide to reassess their engagements and implement stringent controls to avoid sanctions risks.
Increasing the Focus on Prohibiting the Exports of Advanced Technology and IT Services & Software
The U.S. has intensified its efforts to limit Russia’s technological capabilities by imposing prohibitions on the provision of specific IT and software services from the U.S. to Russia. These restrictions, effective from 12 September 2024, aim to disrupt Russia's access to advanced technology and services crucial for its military and economic infrastructure.
In addition, the U.S. Bureau of Industry and Security has introduced stringent export controls targeting Russia and Belarus, imposing licensing requirements on a wide array of software and technology transfers. These controls are a strategic effort to limit Russia's capacity to procure materials and equipment vital for its military operations.
Conclusion
The measures announced on 12 June 2024 represent a formidable escalation in the efforts to counter Russia's war in Ukraine. By targeting critical financial infrastructures, imposing secondary sanctions risks on foreign FIs, and restricting access to vital technology and services, the U.S. is demonstrating its unwavering commitment to halting Russia's aggressive actions. These measures not only aim to weaken Russia's current war machinery but also to deter future aggression by significantly impairing its economic and military capabilities. The U.S. is not operating in isolation; the UK's Financial Conduct Authority is actively evaluating the sanctions compliance systems and controls of more than 90 companies across various industries.2
Looking ahead, it is imperative for FIs to diligently monitor and identify any intermediaries that might be facilitating the transfer of restricted items into Russia. This proactive approach is critical in mitigating the substantial risks associated with secondary sanctions and penalties.
1 On-the-Record Press Gaggle by White House National Security Communications Advisor John Kirby Previewing the G7 Summit, The White House, 11 June 2024
2 Sanctions systems and controls: firms’ response to increased sanctions due to Russia’s invasion of Ukraine, FCA, 20 March 202
