Russia sanctions will continue to dominate the sanctions landscape, with expanded sanctions coming online in February, and the bulk of the consultations coming in January.
Russia remained at the epicenter of the Administration’s sanctions programs—particularly with respect to the oil price cap. The Treasury Department issued preliminary guidance for the second round of the Russia oil price cap determinations—this time dealing with high and low-value product. The initial guidance noted that the price cap will not apply when Russian crude oil has been substantially transformed through specified refining processes outside of the Russian Federation. Additionally, Treasury clarified that the price cap would no longer apply once there is an onshore sale in a jurisdiction other than Russia; after that the price cap would not apply to further onshore sales. Both Poland and Germany are reportedly turning to Kazakh crude to replace Russian stocks, although pipeline flows remain exposed to limited sanctions risk from US statutory measures under the Countering America’s Adversaries Through Sanctions Act (CAATSA). Concurrently, Russian President Putin signed a decree banning the export of crude oil and oil products to countries observing the oil price cap, directly or indirectly. There are indications that Russia has had difficulty in replacing European buyers as sanctions are reportedly starting to bite on not just oil buyers but with respect to Russia’s gas production and exports.
During the reporting period, the Administration continued to target Russia’s defense sector and defense industrial base for sanctions. The Administration imposed sanctions on 10 Russian naval entities that have operated in the defense sector, but this may expand further to the nuclear sector as the Ukrainians have called for the inclusion of Russian nuclear power company Rosatom and the nuclear sector generally. The Administration will also likely continue to work multilaterally to target the assets of Russian oligarchs. The Treasury Department recently released information on how Russian oligarchs have been moving their money around the world, including investing in high-value goods, moving money from accounts in Russia to other countries before the invasion, and transferring beneficial ownership of their companies, trusts, or accounts to their children, other family members, or close business associates. Given the new authorities provided to the Administration to confiscate the assets of Russian oligarchs in the NDAA, and the Canadian attempts to confiscate $26 million from Russian oligarch Roman Abramovich, additional measures to forfeit oligarch property for use in providing assistance to Ukraine could emerge, along with the associated litigation.
Iran’s provision of drones to Russia for use against Ukraine and Iran’s continued crackdown against ongoing anti-regime protests will continue to dominate the Administration’s approach to sanctions. The Administration has embarked on a broad effort using sanctions, export controls, and other activities to halt Iran’s ability to produce and deliver drones to Russia for use in the war in Ukraine. They have also significantly increased the use of human rights sanctions against the Iranian government for its crackdown on anti-regime protests, the most recent during the reporting period targeting senior security officials. However, the Russia-Iran relationship seems to be expanding beyond the defense relationship, as reports indicate that Iran may gain access to gas turbine technologies and establish their joint production in Russia. Germany has suspended their trade promotion programs with Iran, and the U.K. is designating Iran’s Islamic Revolutionary Guard Corps (IRGC) as a terrorist organization in its entirety—a significant step for a European country. Nonetheless, the Administration’s ambiguous statements regarding reentry into the Iranian nuclear agreement do hold the long-term potential for sanctions relief, although any breakthroughs in the near-term appear remote.
The Administration took a number of additional measures related to North Korea given that Pyongyang has tested approximately 90 ballistic and cruise missiles this past year. U.S. Customs and Border Protection determined that merchandise produced or manufactured Jingde Trading, Rixin Foods, and Zhejiang Sunrise Garment Group Co., were made with North Korean forced labor and, pursuant to CAATSA, cannot enter the United States and will be confiscated. Concurrently, the South Korean National Intelligence Service has reportedly warned that North Korea will likely engage in increased cybercrimes involving cryptocurrency theft and target South Korea’s technologies for nuclear plants, chips and the defense industry. Finally, reports emerged that North Korea is supplying military equipment and ordinance to the Russian mercenary group Wagner for use in Ukraine.
The Venezuelan opposition movement voted to end Venezuelan leader Juan Guaido’s term and the mandate of Venezuelan interim government. The opposition lawmakers said that they will establish a committee to manage the Citgo Petroleum Corporation, gold stored in the Bank of England, and other assets previously administered by the Guaido government. In the aftermath of the Administration’s easing of sanctions, the first diluent exports arrived in Venezuela. Meanwhile, Chevron is preparing to resume loadings of Venezuelan crude oil, and Citgo has noted that it is not interested in purchasing Venezuelan crude. Also of consequence was the rejection by a U.S. court of attempts by Alex Saab, a close ally of Venezuelan President Nicolas Maduro, to shield himself from criminal money laundering charges by claiming diplomatic immunity. Maduro’s socialist government has demanded the release of Saab as a precondition for resuming negotiations with the Biden Administration and Venezuelan opposition. The resumption of negotiations between the opposition and Maduro government in the absence of Saab’s release resulted in the easing of sanctions in the oil sector.
The Treasury Department amended multiple general licenses (GLs) to facilitate the delivery of humanitarian assistance, consistent with United Nations Security Council Resolution 2664, implementing humanitarian carveouts from asset freezes in U.N. terrorism sanctions programs. The new and amended GLs authorize the official business of the U.S. government; the official business of certain international organizations and entities; certain humanitarian transactions in support of nongovernmental organizations’ activities; and the provision of agricultural commodities, medicine, non-controlled medical devices.
Omnibus Appropriations Act
The omnibus appropriations legislation contains the following measures related to sanctions or other restrictive measures:
Reporting requirements and imposing follow-on sanctions for corruption, particularly related to natural resources extraction, and human rights violations. (Section 7031(c)).
Reporting on the status of U.S. bilateral sanctions on Iran, the reimposition and renewed enforcement of secondary sanctions, and impact sanctions have had on Iran’s malign conduct in the Middle East. (Section 7041(b)).
Permitting the Department of Justice to transfer to the State Department the proceeds of any covered forfeited property for use by the Secretary of State to aid Ukraine. The term “covered forfeited property” means property that belonged to, was possessed by, or was controlled by a person subject to sanctions and designated by the Secretary of the Treasury or the Secretary of State, or which property was involved in an act in violation of sanctions enacted pursuant to certain Russia sanctions (Executive Order 14024, et seq) (Section 1708).
Imposes sanctions on anyone who is working as part of the Government of Iran or acting on behalf of that Government or its proxies that are involved in harassment and surveillance who are responsible for the surveillance, harassment, kidnapping, illegal extradition, imprisonment, torture, killing, or assassination of citizens of Iran (including citizens of Iran of dual nationality) or citizens of the United States, inside or outside Iran promoting human rights (TITLE II—MASIH ALINEJAD HUNT ACT OF 2022).
Reformed rewards for whistleblowers who voluntarily provided information that led to the successful enforcement of the covered judicial or administrative action, or related action, in an aggregate amount equal to not less than 10 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions; and not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions (SEC. 401. WHISTLEBLOWER INCENTIVES AND PROTECTIONS).
In our previous Sanctions Watch, we reported that the Administration and Congress were considering an alternative designation to the State Sponsor of Terrorism (SSOT) designation that many in Congress wanted to label Russia. It was prior to Ukrainian President Volodymyr Zelensky’s speech before Congress that the congressional leadership was working to introducing legislation designating Russia as an “Aggressor State.” While the designation would provide the Administration additional sanctions authorities, it would reportedly fall short of the sanctions and restrictions that an SSOT would impose. This is an issue that will likely come up again this year, and it is likely that the Biden Administration will continue to oppose the application of SSOT sanctions and restrictions given their broad application.
China/ Intellectual Property Theft Sanctions
At the end of the session, Congress sent legislation to the President imposing sanctions on foreign individuals and entities who are engaged in the theft of U.S. trade secrets. The law requires that the Administration submit an annual report to Congress identifying foreign entities determined to have knowingly engaged in or benefited from significant theft of U.S. trade secrets. It would then impose sanctions against foreign individuals identified in the report.
The negotiations from now until mid-January between the U.S. and E.U./U.K. on the application of the second round of oil price cap restrictions; and for the introduction of legislation on the oil price cap and the SSOT designation for Russia.