Sanctions and Export Controls News Digest – September 2024
SYSTEMIC CHANGES
OFAC Issues New Alert On Russia Sanctions Evasion Attempts
On 4 September 2024, OFAC issued an alert warning foreign jurisdictions and financial institutions about Russia’s attempts to evade sanctions by opening new overseas branches and subsidiaries of Russian financial institutions. The alert explains that Russia is increasingly using third countries to evade sanctions and continue procurement to support its military-industrial base. OFAC warns of the significant sanctions risks associated with facilitating Russia’s efforts to evade sanctions through activities such as maintaining accounts, transferring funds, or providing other financial services such as payment processing, trade finance, and insurance.
EU Updates List of Regulated Dual-Use Items
On 5 September 2024, the EU updated its list of dual-use items. The amendments are not yet in effect, but they will update the list of dual-use items concerning the control parameters, the technical definitions and descriptions, and the addition or removal of dual use items. The EU explained that its list of dual-use items, set out in Annex I of Council Regulation (EU) 2021/821, needs to stay current in order to ensure full compliance with international security obligations and to guarantee transparency.
UK Amends Russia Sanctions Regarding Provision of Legal Advisory Services
On 5 September 2024, the UK amended its Russia sanctions regarding the provision of certain legal advisory services to non-UK persons. Providing legal advisory services to non-UK persons in respect of conduct outside the UK is now only an offence when “knowing that the object or effect of the services” is to enable or facilitate activity which would be prohibited under UK sanctions. It also allows provision of legal advisory services relating to compliance with any UK or non-UK sanctions, Russian counter-measures, and any criminal legislation imposed by any jurisdiction. The definition of “legal advisory services” has also been updated (see Schedule 3J).
UK’s Office for Trade Sanctions Implementation (“OTSI”) Begins Working
On 12 September, the UK announced the newly established Office of Trade Sanctions Implementation, or “OTSI”, will begin operating from 10 October 2024. OTSI is intended to work in close partnership with HMRC to strengthen the implementation and enforcement of trade sanctions. Draft guidance on the relevant legislation and OTSI’s powers is available here. In summary, OTSI’s civil enforcement remit will cover:
o the provision or procurement of sanctioned services;
o moving, making available, or acquiring sanctioned goods outside the UK;
o transferring, making available or acquiring sanctioned technology outside the UK;
o providing ancillary services to the movement, making available or acquisition of sanctioned goods outside the UK; and
o providing ancillary services to the transfer, making available or acquisition of sanctioned technology outside the UK.
UK Expands Powers to Impose Penalties for Breaches of UK Trade Sanctions
On 12 September 2024, the UK announced that from 10 October 2024, it will have the power to impose penalties of up to 1 million GBP, or 50% of the value of breaches of trade sanctions (whichever is greater) in relation to certain breaches of UK trade sanctions. Enforcement will be carried out by the newly established OTSI.
DESIGNATIONS AND DESIGNATION CHALLENGES
US
In September 2024, the US Government made the following designations (among others):
- On 4 September, pursuant to Executive Order (“E.O.”) 14024, the USG designated 10 individuals and two entities in relation to Moscow’s malign influence efforts targeting the 2024 U.S. presidential election – efforts including digital and cyber tools, such as generative artificial intelligence (AI) deep fakes and disinformation.
- On 10 September, pursuant to E.O. 14059, nine Mexican nationals and 26 Mexico-based entities linked to a fuel theft network that generates tens of millions of dollars benefiting “a violent Mexico-based drug trafficking organization responsible for a significant proportion of fentanyl and other deadly drugs trafficked into the United States.”
- On 11 September, pursuant to E.O. 13224, three individuals, five companies, and two vessels that are involved in smuggling oil and liquified petroleum gas (LPG) to generate revenue for Hizballah in Lebanon.
- On 12 September, pursuant to Executive Order (E.O.) 13818, a Cambodian businessman for his role in serious human rights abuse related to the treatment of trafficked workers subjected to forced labor in online scam centers, as well five associated entities.
- On 27 September, pursuant to E.O. 13848, seven individuals as part of a coordinated U.S. government response to Iran’s operations that sought to influence or interfere in the 2024 and 2020 presidential elections.
UK
In September 2024, the UK Government made the following designations (among others):
- On 2 September, 1 entity and 3 individuals under the Iran sanctions regime, which provide for designation of those involved in the commission of a serious human rights violations or abuse in Iran; or hostile activity by the Government of Iran or an armed group backed by the Government of Iran.
- On 10 September, 4 entities and 3 individuals under the Iran regime, and 5 ships and 3 entities under the Russia regime - all involved in Iran’s military support to Russia, including those involved in ballistic missile and drone supply chains.
- On 11 September, 10 vessels involved in Russia’s shadow fleet. The vessels are regarded as “high-volume offenders” – vessels operating around the clock to transport large volumes of Russian oil. Just three of the vessels carried more than 5 billion USD worth of Russian oil since February 2022.
- On 26 September, 5 ships and 2 entities involved in the Russian Liquified Natural Gas (LNG) sector.
IMPORT AND EXPORT CONTROLS
US Concludes 200 million USD Settlement With RTX Corporation for Export Violations
On 30 August, it was reported by the US Department of State that the USG had concluded a settlement to the sum of 200 million, pursuant to ITAR §128.11, in relation to RTX’s unauthorised exports of defense articles.
US Permanent Subcommittee on Investigations Releases Findings on Semiconductor Manufacturers’ Compliance with Export Controls
On 10 September 2024, the US Permanent Subcommittee on Investigations released its report, commissioned in September 2023, which considers the compliance of Analog Devices, Intel, Texas Instruments, and Advanced Micro Devices Incorporated (AMD) with US export controls. The inquiry was initiated in response to the manufacturers’ products reportedly consistently appearing in Russian weapons, including Kh-101 cruise missiles. The Subcommittee’s inquiry found:
· The semiconductor manufacturing industry has not increased its compliance efforts effectively or fast enough to combat Russian diversion efforts.
· Exports from AMD, Analog Devices, Intel, and Texas Instruments to multiple countries with entities identified as assisting in Russian diversion efforts were significantly elevated in 2023 compared to exports prior to Russia’s war in Ukraine.
· Since the start of 2024, AMD, Analog Devices, Intel, and Texas Instruments have each identified and blocked sales to entities potentially involved in Russian diversion. However, these sales could have been identified and blocked earlier and faster with more proactive compliance regimes.
· Export controls compliance policies at AMD, Analog Devices, Intel, and Texas Instruments fail to meet best practices and recommendations from the Department of Commerce and non-governmental organizations. All (except for AMD) have failed to timely respond to external tracing efforts, and each presently lacks sufficient internal auditing and distributor auditing related to export controls compliance.
