Sanctions and Export Controls News Digest - December 2023
SYSTEMIC CHANGES
US Department of the Treasury Amends Executive Order 14024
On 22 December 2023, in a bid to further disrupt Russia’s war effort and counter sanctions evasion and circumvention, the US Department of the Treasury released a new Executive Order on Russia amending Executive Order 14024. The amendment authorises the US to impose sanctions on financial institutions facilitating significant transactions on behalf of sanctioned persons and those providing services to Russia’s military-industrial base. This amendment has the potential to impede Russia’s continuing procurement of critical items for its defence sector through third countries and networks of intermediaries.
US Considering New Rule Aimed at Curbing Money Laundering in Real Estate
The US Treasury Department's Financial Crimes Enforcement Network (“FinCEN”) has proposed a rule aimed at curbing money laundering in real estate, which on 18 December 2023 reached the Office of Information and Regulatory Affairs. The rule would require real estate professionals to report identities of “beneficial owners” of companies buying real estate in cash. According to the Financial Accountability and Corporate Transparency Coalition, the rule would help prevent malign actors from hiding their wealth in US real estate. Unreported ownership structures represent a loophole in US asset transparency rules. This new rule, if formally proposed and adopted, could help to close this loophole and support investigations into corruption by facilitating identification of relevant actors. Following its review in the Office of Information and Regulatory Affairs, the rule would be subject to a two-month public comment period in February 2024.
US Money Laundering Law Takes Effect 1 January 2024
The Corporate Transparency Act (which took effect on 1 January 2024) requires US corporate entities to register their ultimate beneficial owners. Interest groups opposed to the law claim that it largely exempts big businesses (where ownership is already reasonably well documented) but places onerous reporting requirements on many small and newly formed firms. The law defines “beneficial ownership”, which includes shareholders who own 25 percent or more of a reporting company, but also individuals with “substantial control,” such as decision-making power. As part of their reporting, beneficial owners must submit their name, address, date of birth, and up-to-date identification records. According to FinCEN, the law is an attempt to address “ongoing exploitation of anonymous companies to hide and launder funds.” Reporting companies created or registered to do business in the United States before January 1, 2024 must file by January 1, 2025. Reporting companies created or registered to do business in the United States in 2024 have 90 calendar days to file after receiving actual or public notice that their company’s creation or registration is effective.
UK Amends Russia Sanctions Regulations
On 14 December 2023 the UK government published two regulations (The Russia (Sanctions) (EU Exit) (Amendment) (No. 4) Regulations 2023 and The Russia (Sanctions) (EU Exit) (Amendment) (No. 5) Regulations 2023) amending The Russia (Sanctions) (EU Exit) Regulations 2019 to further limit the supply of goods, technology, and financial support which it considers could facilitate Russia’s war effort. The various newly sanctioned items have been added to existing schedules in the Russia (Sanctions) (EU Exit) Regulations 2019, namely: 2A (critical-industry goods and critical-industry technology), 3A (luxury goods) and 3E (G7 dependency and further goods). These additional regulations enhance the UK’s ability to restrict the flow of critical goods to Russia.
UK Announces New Sanctions Agency - “OTSI”
On 11 December 2023 the UK government announced its establishment of an additional sanctions agency - the Office for Trade Sanctions Implementation (“OTSI”), part of the Department for Business and Trade – which will launch in early 2024. OTSI will oversee civil enforcement of trade sanctions. Its competencies include powers to investigate potential trade sanctions breaches, issue civil penalties and refer cases to HMRC for criminal enforcement where applicable. OTSI will sit alongside the Office for Financial Sanctions Implementation (“OFSI”). In its 2023 annual review OFSI explained it had undergone expansion during 2023, surging additional staff into its teams to meet the increased sanctions workload. OTSI’s establishment is aimed at increasing the UK’s capacity to effectively enforce sanctions.
European Council and Parliament Agree New Rules Criminalising Violation of EU Sanctions
On 12 December 2023, the European Parliament and European Council reached a political agreement on new rules to harmonise criminal offences and penalties for the violation of EU sanctions across the Union. The proposed rules, which will include a number of criminal offences, will ensure that all Member States apply unified standards, modes of liability and penalties to sanctions evasion and circumvention. Once the political agreement is formally adopted, it will enter into force on the 20th day following its publication in the Official Journal of the European Union. State Capture: Research and Action will produce a more detailed analysis on the new law once it is published in its final form.
RUSSIA SANCTIONS UPDATE
US Sanctions Updates
On 5 December 2023, pursuant to Executive Orders 14038 “Blocking Property of Additional Persons Contributing to the Situation in Belarus” and 14024 “Blocking Property With Respect To Specified Harmful Foreign Activities of the Government of the Russian Federation”, the US designated 19 individuals and entities that generate revenue for the Lukashenka regime, operate in the Belarusian defence sector, and facilitate Russia’s war of aggression against Ukraine. These designations are a further attempt to hold Lukashenko regime accountable for its complicity in Russia’s war against Ukraine.
EU Sanctions Updates
On 20 December 2023 the EU court in Brussels rejected a legal challenge brought by Russian billionaire Roman Abramovich against his EU sanctions. In its decision, the court noted Abravomich’s major role in Russian steel company Evraz, and its parent company, and the fact that steel provided a major source of revenue to the Russian government.
On 18 December 2023, the EU published its 12th Russia-related sanctions package. The package addressed Russian diamond trade, re-exportation to Russia (with a focus on particularly sensitive goods and technology), import-export controls and restrictions concerning dual use goods and technologies, enforcement and anti-circumvention measures, and enforcement of the oil price cap. The EU added 29 new entities to its export controls list of those directly supporting Russia's military and industrial complex (Annex IV to Regulation (EU) 833/2014), and designated an additional 61 individuals and 86 entities in the military, defence, IT and other important economic sectors. Analysts note that the 12th package was significantly watered down during negotiations between Member States.
