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While Russia continues to be the focal point of the Biden Administration’s sanctions policy, China is reemerging as an area of particular attention. Expect additional sanction designations, sanction designation criteria, and other economic restrictive measures for both Russia and China by the Administration and Congress.
Russia
Russia sanctions have focused on the Kaliningrad corridor over the past few weeks. In mid-June, Lithuanian authorities stated that the E.U. ban on the transport of certain goods— including coal, metals, construction material, and advanced technology—came into effect, preventing Russia from shipping those materials to their non-contiguous province of Kaliningrad. On July 13, the EU modified its regulations to allow for the transport of those materials, resulting in the State Department issuing a statement reaffirming the EU’s move to allow for the transmission of such goods. Expect US sanctions policy to reflect this decision.
Additionally, no consensus was reached by the G-20 finance ministers on additional measures against Russia other than loosely condemning the war in Ukraine. However, Treasury Secretary Yellen and Japan Finance Minister Suzuki met July 11 and discussed continuing to work together to increase Russia’s cost of its war by implementing economic and financial sanctions, including through a price cap on Russian oil. The U.S. will likely work bilaterally to build support for such a measure.
After the joint issuance last month of the Treasury and Commerce departments’ alert to financial institutions on potential Russian and Belarusian export control evasion attempts, Treasury shifted focus to clarifying sanctions’ inapplicability to the agricultural sector and renewing a series of general licenses (GL). Treasury issued a fact sheet clarifying that U.S. sanctions against Russia do not target food, medicine, and agricultural commodities such as fertilizer and farm equipment. The Administration also renewed a number of general licenses during this timeframe. This included the following:
China
The Uyghur Forced Labor Prevention Act (UFLPA) took effect on June 21, and it bans the import of goods or commodities from China produced with forced labor, forcing U.S. companies to conduct due diligence of supply chains for products that may be produced wholly or in part in Xinjiang region or in anyway related to Xinjiang. The U.S. has been working with Mexico and Canada to halt the importation of Chinese goods made with Uyghur slave labor. The Administration has come under increasing bipartisan criticism from Congress on the pace and scope of the UFLPA’s implementation. Concurrently, reports indicate that the U.S. is also considering additional export restrictions for China’s SMIC.
Venezuela
The Treasury issued license 40A, authorizing the export of liquefied petroleum gas to Venezuela, which is a renewal of license 40 issued in July 2021. This fits with the Administration’s recent approach with respect to Venezuela of extending, but not expanding existing licenses.
North Korea
On July 6, the Cybersecurity and Infrastructure Security Agency (CISA), the FBI, and Treasury released a joint Cybersecurity Advisory that provides information on Maui ransomware, which has been used by North Korean state-sponsored cyber actors since at least May 2021 to target healthcare and public health sector organizations. The advisory specifically noted that FBI, CISA, and Treasury strongly discourage paying ransoms as doing so does not guarantee files and records will be recovered and may pose sanctions risks, consistent with a September 2021 advisory.
Iran
The President’s trip to Israel and Saudi Arabia, highlighting the need to tackle terror financing, signals an increased probability of more joint designations of Iranian-affiliated organizations. Prior to that trip, the Biden Administration continued to escalate their sanctions actions against Iran given the continued impasse in negotiations to return to the Iran nuclear agreement—known as the Joint Comprehensive Plan of Action (JCPOA). JCPOA talks continue in Qatar. On July 6th, the Administration designated two people and 13 entities located in the United Arab Emirates, Hong Kong, Vietnam, and Singapore in addition to Iran that are said to be linked to a network of illicit sale and shipment of Iranian petroleum, petroleum products and petrochemical products. This network includes the Triliance network that was detailed previously. See June 15-30 Sanctions Watch discussing Triliance and Iran sanctions. Additionally, anticipate more terrorism-related sanctions, including those targeting Hizballah given the ongoing focus on that organization.
NDAA Recap
On July 14, the House of Representatives passed the National Defense Authorization Act for Fiscal Year 2023 by a vote of 329 to 101. The legislation – which still needs to be reconciled with the Senate’s version in a House-Senate conference later this year – and its accompanying Committee Report contained a number of significant anti-money laundering and counter terrorist finance (AML/CTF), and sanctions-related provisions. Multiple provisions related to China and Russia were contained in the Committee-passed bill or were added on the floor. Most significantly, it contained a version of the Establishing New Authorities for Businesses Laundering and Enabling Risks to Security (ENABLERS) Act, which expands the scope of parties subject to AML/CTF requirements. Specifically, the bill expands this definition to include: persons who provide investment advice for compensation; persons who trade in works of art, antiques, or collectibles; attorneys, law firms, or notaries involved in financial or related activity on behalf of another person; certain trusts and company service providers; certified public accountants and public accounting firms; persons engaged in the business of public relations, marketing, communications, or other similar services in such a manner as to provide another person anonymity or deniability; and persons engaged in the business of providing third-party payment services.
The Senate Armed Services Committee recently filed their version of the NDAA this week, although the pathway for this legislation is unclear. Expect a number of Russia-related sanctions designations, particularly if there is a Ukrainian counteroffensive launched soon, but the expansion of designation criteria will likely continue to slow.
Clients of FS Vector will receive an exclusive updated analysis of the NDAA process pertaining to sanctions, AML/CTF, and export controls.