The G7’s attention has been and will continue to be focused on operationalizing the Russia oil-cap leading up to the implementation of the EU’s sanctions on Russia’s oil and related services sector. The Administration has continued to increase sanctions against the Iranian government but has yet to undertake strategically-significant designations in response to the ongoing protests in Iran. North Korea is re-emerging as an area of focus for both Administration and congressional sanctions.
This month, the Treasury Department issued a determination under EO 14071, and issued updated guidance and general licenses (which complements guidance that the UK released earlier in the month) outlining the compliance requirements for U.S. service providers carrying seaborne Russian oil after December 5. This determination and guidance were issued even as negotiations over the amount for the price cap have stalled in the EU, with the expectation that other coalition countries will release similar guidance before December 5. The guidance specifically states that there will be no penalties assessed for the transport of Russian-origin crude oil loaded and shipped prior to December 5, 2022 and unloaded at the destination port prior January 19, 2023. It also specifies that service providers will be afforded a “safe harbor” from enforcement if they follow an attestation and record-keeping process demonstrating that any oil that they ship or deal in was purchased at or below the price cap.
The next critical date is February 5, when the price cap is activated for both high and low-value product. The primary question is now with the risk tolerance of companies engaged in the maritime transportation of crude oil and crude products. The UK issued its guidance during the reporting period, whereas the Biden Administration had issued initial guidance in October. The objective remains the same; use the price cap to reduce Russia’s export generated revenue while keeping oil on the market. The U.S. and its allies also continued to target Russia’s defense industrial base (DIB).
Treasury imposed sanctions on two individuals and three entities involved in the transfer of Iranian unmanned aerial vehicles (UAVs) to Russia, and another designation package with 14 individuals and 28 entities constituting a transnational network for procuring technology supporting the Russian DIB.
Multilateral law enforcement efforts against Russia also continued during the reporting period with the Internal Revenue Service Criminal Investigation continued to target Russian oligarchs and other sanctions evaders and identifying potential sanction evaders or sanctioned assets as part of a global strategy to deter Russia’s aggression. During the same period, German police raided two branches of the Swiss bank UBS in Germany as part of an investigation into Russian oligarch Alisher Usmanov. As the Administration has requested an expansion in forfeiture authorities the UK government reported that British government sanctions have resulted in freezing over $21 billion of Russian assets to include Russian individuals, entities and banks.
Of note during the reporting period were the Administration’s G20 engagements. In particular, during an interview at the G20 conference in Indonesia, Treasury Secretary Janet Yellen noted that any peace agreement between Russia and Ukraine will only result in a modification of sanctions, and that the U.S. and allies are seeking a prolonged degradation of the Russian defense industrial base. October, the European Union approved the plan and expanded it to apply it directly to shipping, along with secondary services like insurance and financing.
The administration has relaxed some sanctions against Venezuela in response to the reinitiation of a dialogue between the Maduro government and the opposition that was initiated in September 2021 in Mexico but was suspended in October 2021 when Maduro ordered his delegation to withdraw in protest of the extradition to the United States of a close ally. The talks reportedly focused on the conditions for the presidential election in 2024, and the agreement to create a United Nations-managed fund to finance health, food and education programs for poor Venezuelans.
As part of this agreement, the U.S. has eased some oil sanctions on Venezuela, by issuing general licenses allowing for facility maintenance and for Chevron to conduct limited production in that country. This was done against the backdrop of long standing opposition from some quarters of Capitol Hill, which could respond legislatively in 2023.
The Administration has been increasingly targeting Iranian oil shipping networks, including two during the reporting period that supported both Hezbollah and Islamic Revolutionary Guards Corps (IRGC) activities—both designated terrorist organizations—and illegally sold Iranian petroleum and petroleum products, respectively. As the Administration builds out the networks associated with Hizballah and the IRGC that are operating in areas such as Singapore, the United Arab Emirates, and the Marshall Islands, and other areas in East Asia it is increasingly likely that they will have international touchpoints that will require additional due diligence measures from financial institutions operating in or with such jurisdictions.
The Administration is also imposing a series of sanctions for human rights abusers in Iran in reaction to the ongoing crackdown on protestors, in close coordination with the European Union, including sanctioning Iranian state television broadcasters Press TV for producing and broadcasting the forced confessions of detainees and the UK and Canada following with IRGC affiliated officials. Of particular interest is the information in the U.S. designation noting that the Islamic Republic of Iran Broadcasting (IRIB) is working with the Ministry of Intelligence and Security and the IRGC in extracting and airing the forced confessions of imprisoned protestors.
In addition to redesignating the cryptocurrency mixer Tornado Cash under North Korea sanctions, Treasury designated a network transporting electronic parts and goods from China to North Korea. The State Department also offered a reward for the arrest of Kwek Kee Seng, a Singaporean national and director of the Singapore-based shipping agency and terminal operations company Swanseas Port Services that reportedly violated U.S. and UN sanctions by delivering fuel to North Korea. As North Korea increases its provocations and testing of ballistic missiles expect the Administration to increase economic pressure against Pyongyang.
China/ Burma/ Narcotics
In the aftermath of President Biden’s meeting with Chinese President Xi, the Administration’s aggressive approach to imposing economic sanctions on Chinese entities or restrictive measures toward China may decrease in the near term, but likely to resume in the medium to long-term. FBI Director Chris Wray has warned about the Chinese government’s use of TikTok to collect the user data or control software of U.S. citizens and the recommendation algorithm, which could be used for influence operations.
During the reporting period, the U.S. and EU imposed sanctions against members of Burma’s military, and entities facilitating weapons purchases for the military.
General Sanctions Policy
With a slim Democrat majority in the Senate, and a narrow Republican majority in the House, any sanctions legislative activity is likely to be limited outside of three major legislative movements in 2023. The first is the annual National Defense Authorization Act—which has contained multiple sanctions, export controls, and anti-money laundering (AML) measures in the past. The second is the annual appropriations legislation which contains the spending for the next fiscal year, but often features sanctions and AML provisions although at a much-reduced rate to that of the NDAA. Finally, every five years, Congress revisits commodity law in the farm bill, a multifaceted measure that sets out how much federal money will be authorized to keep the nation’s food supply stable, but also regulates the Commodity Futures Trading Commission (CFTC).
China Sanctions Policy
Expect an aggressive anti-China agenda that may push the Administration to take further anti-China measures, either because of legislation or to preempt congressional action. In the House, there have been discussions about establishing a select committee on China, although the specifics of such a move have yet to be fully fleshed out, between the Congressional China Commission and the national security committees. The Senate has been less vocal on the need to establish a committee. Congressional efforts will likely focus on Taiwan; export control reform with China as the primary motivating factor; strengthening inbound foreign investment and creating outbound investment screening for U.S. companies; re-shoring and allied-shoring supply chains; Chinese language and cultural programming in the U.S.; intellectual property theft; and sanctions policy, including those associated with China’s human rights record.
The reaction to the price established in the oil price cap for Russia will be an indicator whether there will be a congressional push for additional Russia sanctions. As both the NDAA and appropriations processes start to conclude various sanctions or AML initiatives that have been not contained in either bill may be resuscitated next year.