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Russia and Iran will continue to dominate the sanctions landscape, while sanctions actions targeting China and related activities will likely be issued at a steady pace. The Administration’s anti-corruption efforts will likely increase over the next year after the number of coordinated actions taken for International Anti-Corruption Week.
Russia
The United States, Canada and the United Kingdom have ceased their import of Russian crude oil and refined petroleum products entirely. On September 2nd, the G7 Finance Ministers issued a statement reaffirming their commitment to implement a price cap and provided additional details on their plan. On September 9, the Treasury Department issued preliminary guidance on the price cap policy. Last month, the Treasury Department issued a determination implementing the price cap, and issued updated guidance and general licenses for compliance with the price cap. The UK also released preliminary guidance in November, with the EU doing so immediately after the decision on the $60 threshold to provide guidance for their providers carrying seaborne Russian oil after December 5. The next critical date is February 5, 2023, when the price cap is activated for both high and low-value products. The primary question is now with the risk tolerance of companies engaged in the maritime transportation of crude oil and crude products as unanticipated challenges, such as the recent oil tanker blockage in and around Turkey, continue to mount.
The proposed ninth package of sanctions against Russia by the European Commission may be running into strong headwinds, as EU ministers have failed to agree to it. This package would contain additional designations against Russian banks and individuals, and new export controls on dual-use products such as chemicals, nerve agents, electronics and IT components, and Russia’s access to drones and unmanned aerial vehicles (UAVs). Any EU expansion of sanctions may prompt additional action from the Biden Administration, including law enforcement action. During the reporting period, the head of the Department of Justice’s Task Force Klepto-Capture noted that the Administration is targeting a network of service providers that help Russian oligarchs move and hide their money. The Administration may also take additional action, such as a full or partial designation of Russia as a State Sponsor of Terrorism, as was reportedly discussed between US and Ukrainian officials recently.
Given that Western ship insurers are pulling their coverage for the Russian shipping company Sovcomflot, expect the Administration to take further action against Russia’s maritime assets to include either an expansion of sanctionable conduct or additional sanctions designations.
The Administration continues to engage in significant seizures of property belonging to Russian oligarchs and kleptocrats, including the $300 million yacht belonging to sanctioned Russian oligarch Suleiman Kerimov in Fiji on May 5th. While the Administration’s request for additional authorities targeting sanctions evasion networks was not included in the Ukraine supplemental appropriations legislation, the Treasury Department was given an additional $52 million and the Department of Justice another $67 million for targeting these networks.
Iran
The Administration has increased its application of sanctions against Iran during the reporting period, which should continue to increase over the next few weeks. The Biden Administration imposed sanctions on three Russian entities linked to the transfer of UAVs from Iran and designated a financial network linked to the Lebanon-based terrorist group Hizballah, with a particular focus on auditing. The Administration also designated a Turkey-based network selling hundreds of millions of dollars’ worth of oil for Iran’s Islamic Revolutionary Guard Corps-Quds Force (IRGC-QF), which is also a designated terrorist organization. Finally, the Administration continued to target Iranian security officials connected to the continued crackdown on protests in Iran.
Cryptocurrency
Against the backdrop of the FTX investigation, reports emerged that the Department of Justice is investigating Binance, the global virtual currency trading platform, for possible violations of U.S. anti-money laundering laws and sanctions prohibition. During the reporting period, Treasury also fined virtual currency exchange Kraken for violations of Iran sanctions, noting the need for Kraken to improve its sanctions compliance controls—a recommendation in line with other recent Office of Foreign Assets Control (OFAC) enforcement actions.
China/ Anti-Corruption
On December 9, International Anti-Corruption Day and Human Rights Day, the Administration designated over 40 individuals and entities that are connected to corruption or human rights abuse across nine countries including North Korea, El Salvador, Guatemala, Guinea, Iran, Mali, the Philippines, and Russia. The UK, Canada, and Australia also joined the US by imposing sanctions against similar targets. Of particular note were the sanctions under this effort that were imposed on Chinese entities related to Tibet and illegal fisheries operations, which was met by a stern rebuke by Beijing.
UN Humanitarian Aid
The UN Security Council (UNSC) adopted a resolution applying an asset freeze exception for certain humanitarian organizations to allow humanitarian aid to continue unhindered into countries targeted by UN sanctions. Given the focus of this effort in recent years, expect humanitarian organizations to increase the use of these exceptions.
Russia
The Russia oil price cap was met with a lukewarm response from the Hill. While legislation imposing the secondary sanctions was introduced by Senator Chris Van Hollen (D-MD) and Senator Pat Toomey (R-PA) as an amendment to the Fiscal Year 2023 National Defense Authorization Act has not been adopted, there remains some concern as to whether the price cap will work. In the statement issued after the G7 noted that the US must “utilize secondary sanctions to penalize any oil sales above the cap, if necessary….(o)ur sanctions proposal will provide the Administration with the tools to enforce the price cap and will strengthen our ability to grind Putin’s war machine to a halt.” After the European Union’s designation of Russia as a state-sponsor of terrorism, support on the Hill may be increasing again for such a move to include finding ways to seize Russia’s blocked assets.
China
Congressman Mike Gallagher (R-WI) was announced as the Chairman of the new House Select Committee on China for the 118th Congress, which will likely focus on Taiwan; export control reform with China as the primary motivating factor; strengthening inbound (CFIUS) and creating outbound investment screening for US companies; reshoring and allied-shoring supply chains; Chinese language and cultural programming in the US; intellectual property theft; and sanctions policy, including those associated with China’s human rights record. In the Senate, additional bipartisan measures were introduced targeting Chinese entities operating in the US, which will likely see movement in 2023. Senator Marco Rubio (D-FL) and Congressman Gallagher led an effort to introduce legislation that would ban ByteDance, the company behind TikTok, and other social media companies connected to China, Russia, or other countries of concern from operating in the US. Senators Tom Cotton (R-AR) and Van Hollen, along with Congressman Gallagher in the House, also introduced legislation forcing Treasury to sanction Huawei Technologies and other Chinese 5G technology firms that engage in sanctions evasion or other activities.
Venezuela
The Administration’s decision to ease oil sanctions against Venezuela continues to come under fire from Republicans in the House and Senate, with minimal defense from House and Senate Democrats. The critique has focused on allowing Venezuela to extract more crude oil while limiting US production, setting the stage for a debate over US energy policy next year.
Cryptocurrency
Against the backdrop of FTX hearings on the Hill, and the incitement of FTX employees, Senator Elizabeth Warren (D-MA) and Senator Roger Marshall (R-KS) introduced legislation that would apply more stringent AML requirements for cryptocurrency firms.
The Russia oil cap will remain a focus of the Administration and Congress, with the EU revisiting the cap in mid-January and the imposition of cap on petroleum products in February. Members in the House and Senate will likely work on introducing additional sanctions and export control measures prior to the end of the year to influence legislation in the next Congress—look for additional legislation related to China, Russia, Venezuela, and Iran.