Sanctions Watch

Spotlight on Russian Financial Sector Sanctions (Part 2 of 2)

May 3, 2022

The expansion of sanctions against the Russian financial sector — both in terms of sanctionable conduct and designations — is a likely course of action for the Biden Administration over the next 60-90 days, as demonstrated by the President’s announcement, on April 28, in support of statutory authorities. It will likely include an increase in the severity of sanctions against already-designated Russian banks, and a quantitative/qualitative increase in sanctions designations. 

Note: Part 1 of this Sanctions Watch is available here

The expansion of sanctionable conduct in existing sectors will likely continue — particularly in Russia’s financial sector. Central to increasing the effect of the financial sector sanctions effort is an increase in the quality and quantity of sanctions designations. 

As illustrated by the Administration’s moves towards enhancing their forfeiture authorities, the expansion of Russia-related designations, particularly under Executive Order 14024.  First, the Administration’s proposal includes a range of enhancements that could expand not only their ability to seize the property of Russian kleptocrats or property used for sanctions evasion, but also expand the potential for criminal prosecution for sanctions evasion.  Of particular significance are the following: 

  • Creating a new authority for the forfeiture of property blocked by the United States owned by sanctioned Russian oligarch, and making it unlawful for any individual or entity to possess the proceeds of Russian government corrupt activities; 
  • Enabling the transfer of the proceeds of forfeited Russian kleptocrat property to Ukraine; 
  • Extending the statute of limitations for money laundering offenses from five to 10 years; and 
  • Allowing for the forfeiture of the proceeds of sanctions evasion activities and integrating “sanctions evasion” into the definition of “racketeering activity” under the Racketeer Influenced and Corrupt Organizations Act.   

In an April 14 appearance before the National Press Club, National Security Advisor Jake Sullivan previewed this effort when he said that the Administration was preparing new efforts to prevent Russia from evading sanctions, and it had already designated multiple sanction evasion networks. On April 27, the House of Representatives passed legislation to authorize the President to seize assets belonging to a foreign person whose wealth is derived in part through political support for or corruption linked to Russian President Vladimir Putin. The proceeds of these assets can be used for the post-conflict reconstruction of Ukraine, humanitarian assistance and refugee support for the Ukrainian people, weapons for Ukraine’s uniformed military forces, and humanitarian and development assistance for the Russian people.

At present, the United States has not widely utilized secondary sanctions against Russia to the extent that such measures have been historically used against countries such as Iran or Syria. Yet, existing Executive Orders (EOs) and underlying law are heavily weighted towards the use of such measures.   EO 14024 has been the basis for expanding sanctions against Russia since its invasion of Ukraine and carries with it the ability to deploy a wide array of sanctions, including derivative designations that could have a secondary effect. Beyond EO  14024, the US has imposed Congressionally mandated secondary sanctions contained in the Countering America’s Adversaries Through Sanctions (CAATSA) Act. Of note is Section 228 of that Act. That law requires sanctions against anyone who “materially violates, attempts to violate, conspires to violate, or causes a violation of” CAATSA or a range of other Russia-related sanctions. Section 228 also mandates sanctions against anyone who “facilitates a significant transaction … for or on behalf of” anyone subject to Russia-related U.S. sanctions. 

With the Administration’s sanctions evasion request, attention turns to Congress, which will now consider the administration’s request for additional resources and authorities. Additional measures may include specific targeting of the Central Bank of Russia (such as targeting their Mir payment system), increased oversight measures (such as providing Congress with the ability to formally nominate sanctions targets or requiring a form of congressional review for EO 14024).  

Regardless of whether the Administration receives the requested authorities in whole or in part,  it is highly likely that  the number and significance of sanctions evasion networks targeted by the US will increase.