US Outlines Increased Sanctions on Foreign Parties Continuing To Transact With Russia Sanctions Targets | Perkins Coie

The US government issued guidance on October 14, 2022, stressing that the United States is “prepared to use its broad targeting authorities against non-US persons” who continue to trade with sanctions targets in Russia, especially with private sector companies that support the Russian military. . This guidance reinforced the government’s previous pronouncement, issued by the US Treasury Department’s Office of Foreign Assets Control (OFAC) on September 30, 2022, which stated in no uncertain terms that the United States plans to “use more aggressively their authorities under existing conditions.” US Sanctions Programs” to target foreign entities and individuals that provide assistance and support to Russian sanctions targets, as well as those that generally support Russia’s occupation of Ukraine. That statement was quickly followed by sanctions on Chinese and Armenian suppliers who allegedly provided goods and technology to a company linked to the Russian military.

As stated in OFAC’s guidance dated October 14, 2022 (the October 14 Guidance), these warnings and the recent sanctions should “serve as a warning that those who support sanctioned Russian individuals risk being sanctioned themselves.” Below is a brief summary of the circumstances under which sanctions may be imposed on non-U.S. companies that continue to trade with Russia and key findings from the guidance to mitigate the risks of becoming a potential target of sanctions.

Definition of “Secondary Sanctions”.

Broadly speaking, under primary sanctions, the US government restricts US persons and entities from dealing with foreign entities and individuals designated as prohibited parties under US sanctions laws and identified on the Nationals and Persons List specially designated blocks (SDN), as well as limit transactions. by non-US persons and entities involving SDN where the transaction involves a “US nexus”, eg, activity in the US or the US financial system or involving US persons or dollars. Once an entity or individual is placed on the SDN list, they are effectively prohibited from engaging in or participating in the US market, including transactions involving US banks directly or indirectly. Primary penalties operate as a strict liability regime, and therefore violations can result in civil monetary penalties and other consequences regardless of the intent of the violating party. In addition, where there is willful conduct, violations of the primary sanctions may be prosecuted criminally in the United States.

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As a result, when only non-US parties and conduct are involved in transactions or business that do not have a US nexus, the US has no direct basis to enforce US primary sanctions restrictions. However, in the interest of furthering US foreign policy and national security objectives, the United States has adopted additional specific sanctions authorities that, under certain circumstances, encourage foreign entities and individuals to voluntarily comply with sanctions and US export controls or otherwise risk being imposed. US sanctions lists, through the application of so-called “secondary sanctions”. Secondary sanctions may apply if foreign entities transact with or otherwise directly support US sanctioned parties. Beyond being blocked from accessing US markets as an SDN, secondary sanctions can take other forms, including exclusion from US correspondent banking relationships in the case of foreign financial institutions. Unlike primary sanctions regimes, which are automatically applied when violations occur, OFAC has discretion over the application of secondary sanctions to any particular foreign person or entity.

Secondary sanctions based on trade with Russia

The authority to impose secondary sanctions on non-US entities and persons that trade with sanctions targets exists under many US sanctions programs. So far, however, these authorities have been applied sparingly, even with respect to the most critical US policy objectives.

Under the Russia-related sanctions programs, several executive orders (including EOs 13660, 14024, and 14065) have been issued to authorize the imposition of sanctions on persons outside of Russia where they continue to trade with Russian sanctions targets under certain circumstances. as particularly harmful to US policy goals. Generally, as described in more detail in the guidance provided in OFAC FAQs 1091 and 1092, circumstances that may give rise to secondary sanctions include the provision of “material assistance, sponsorship or financial support, material or technological, or goods or services or in support of” (1) any person or entity sanctioned in accordance with the aforementioned EOs, or (2) that otherwise participates in such assistance or support in connection with the following :

  • Actions or policies that undermine democratic processes or institutions in Ukraine or threaten the peace, security, stability, sovereignty or territorial integrity of Ukraine.
  • Misappropriation of state assets of Ukraine or an economically significant entity in Ukraine.
  • Any of the following activities on behalf of or for the benefit of the Government of Russia:
    • Cyber-enabled malicious activities.
    • Interference with governmental elections of the United States or other foreign countries or actions or policies that otherwise undermine democratic processes or institutions in the United States or abroad.
    • Transnational corruption.
    • Assassination, murder, or other unlawful killing or infliction of other bodily harm against a US person or a citizen or national of a US ally or partner.
    • Activities that undermine the peace, security, political stability, or territorial integrity of the United States, its allies, or partners.
    • Transactions or business that are deceptive or structured to evade any US sanctions.
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Importantly, non-U.S. persons or entities may also be subject to secondary sanctions for “knowingly complicit[ing] in a significant transaction” with certain persons or entities determined by US authorities to be part of or operating for or on behalf of the defense and intelligence sectors of the government of the Russian Federation”. The list of persons and entities subject to this designation can be consulted here.

In particular, OFAC has promised to “leverage existing authorities to target entities and individuals in jurisdictions outside of Russia” for supporting the Russian military and defense industry, “including transactions by persons from third countries that provide material support in Russia’s military defense industrial base, and designated entities and individuals that operate or have operated in Russia’s defense industrial base” and foreign entities and individuals that facilitate the circumvention of US sanctions in Russia and Belarus.

In the October 14 guidance, US authorities further clarified that the application of secondary sanctions will not be limited to trade in obvious military goods, but will also include goods and technology that benefit Russian military interests, including microelectronics, such as semiconductors, which are considered “the lifeblood of Russia’s weaponry”.

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Giving an example

On September 30, 2022, OFAC designated Sinno Electronics Co., Limited (Sinno), a Chinese entity, and Taco LLC, an Armenian entity, to the SDN List because, despite their “awareness of export restrictions in Russia,” the companies continued to maintain a relationship with a Russian procurement firm linked to the Russian military. Prior to this designation, in June 2022, Sinno was added to the US Commerce Department’s entity list, which had already largely barred it from purchasing American technology.

key points

In summary, the October 14 guidance indicates that the United States is prepared to more aggressively deploy secondary sanctions against non-U.S. companies in wholly foreign transactions where those transactions may be viewed by U.S. authorities as: ( 1) facilitating the circumvention of US sanctions on Russia. or Belarus, or (2) aiding or abetting critical Russian sanctionable individuals or activities, particularly those linked to the military sector. For companies operating outside the United States in countries that have not yet imposed robust sanctions on Russia and/or Belarus, this announcement significantly increases the risks of doing business with counterparties in any jurisdiction.

In particular, US authorities have a broad view of what activity could constitute sanctions evasion, including any conduct that could be considered masking the involvement of sanctioned Russian parties with US markets (e.g. sanctioned Russian parties obtaining goods or services of the U.S. Similarly, U.S. authorities are likely to aggressively pursue companies that continue to provide goods or services that are deemed—even in retrospect—to directly or indirectly benefit Russian military interests. In light of recent statements and sanctions actions by US authorities, foreign parties that continue to trade with Russia that historically have not had the need to implement US sanctions compliance procedures should consider developing a risk-based approach to identify and verify the risks of second sanctions areas that may be generated by transactions linked to Russia.

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