Compliance with Sanctions on Russia: Latest Updates

What’s the Latest on the Situation in Ukraine?

On February 24th, Russian forces crossed Ukraine’s borders, with attacks reported across the country. While President Putin has claimed Russia does not intend to occupy the country, Ukraine has called the attack “a full-scale invasion.” Ukrainian President Volodymyr Zelensky has imposed martial law across the country, and barred males aged 18-60 are also barred from leaving. 

On Sunday February 27th President Putin placed Russia’s nuclear deterrent forces on high alert, condemning “aggressive statements” from NATO.

While peace talks are ongoing between the two sides in Belarus, there are few signs of a significant breakthrough so far.

So Far, What Sanctions Are on Russia?

The three main sanctions regimes targeting Russia so far are the United States, European Union & the United Kingdom. Continue below for more in-depth details of what these sanctions are and how they affect your organization.

United States (US) Imposed Sanctions on Russia

Announcing tough new sanctions on Wednesday, February 24th President Biden pledged, according to the Wall Street Journal, to make Vladimir Putin “an international pariah.” Taken together, the Office of Foreign Assets Control (OFAC) says the actions target 80% of Russia’s banking assets. 

The measures announced include:

Severe sanctions on Russia’s central bank, and largest banks

• Russia’s two largest financial institutions – Public Joint Stock Company Sberbank of Russia (Sberbank) and VTB Bank Public Joint Stock Company (VTB Bank) – will no longer be able to process payments through the US financial system. Sberbank – holder of almost a third of all bank assets in Russia – will have correspondent and payable-through account sanctions imposed on it. “Within 30 days, OFAC is requiring all U.S. financial institutions to close any Sberbank correspondent or payable-through accounts and to reject any future transactions involving Sberbank or its foreign financial institution subsidiaries.”
• On April 6th, sanctions against Sberbank were extended, subjecting the bank to full blocking sanctions, alongside Alfa Bank. Exceptions remain, however, for energy purchases.
• VTB Bank, holder of almost 20 percent of Russia’s banking assets, has also had full blocking sanctions imposed. As a result, its assets held in US financial institutions are frozen – this is, OFAC notes, “one of the largest financial institutions Treasury has ever blocked.”
• Blocking sanctions have also been imposed on three Russian financial institutions – Otkritie, Novikom, and Sovcom – which together hold assets worth $80bn. 
• On February 28th, the US confirmed it would impose sanctions on Russia’s central bank, National Wealth Fund of the Russian Federation and the Ministry of Finance. The new measures are reported to take effect immediately.

Debt and equity prohibitions against major state-owned and private entities

• OFAC has expanded its debt and equity restrictions to additional aspects of Russia’s economy. Specifically, OFAC will “prohibit transactions and dealings by U.S. persons or within the United States in new debt of longer than 14 days maturity and new equity of Russian state-owned enterprises, entities that operate in the financial services sector of the Russian Federation economy, and other entities determined to be subject to the prohibitions in this directive.”
• 13 major firms are covered by the directive, including six of Russia’s largest financial institutions. 

General licenses 

• OFAC also confirmed it has issued several general licenses to “minimize unintended consequences on third parties.” Energy has been a key focus of this effort. The licenses authorize certain transactions related to international organizations, the COVID-19 pandemic, emergency flights, energy, derivative contracts, the rejection of transactions involving certain blocked persons and the wind down of transactions involving certain blocked persons.

New actions targeting Russia elites

• A number of “elites close to Putin” are also targeted with new sanctions. OFAC believes many of these individuals “participate in, or benefit from, the Russian regime’s kleptocracy” and others “serve in leadership roles of companies designated or identified today.” Some individuals – including Ivanov and Patrushev – had been designated before, with the OFAC now redesignating them.

The individuals listed include:

• Sergei Borisovich Ivanov – believed by the US Treasury to be a close confidant of Putin, Ivanov and his son are designated in relation to Executive Order 14024. 
• Nikolai Platonovich Patrushev – Secretary of the Russian Federation Security Council – and his son, also pursuant to E.O. 14024.
• Igor Ivanovich Sechin – CEO and Chairman of the Board of Rosneft, one of the world’s largest publicly traded oil companies, and a former Deputy Prime Minister of Russia.
• Senior executives at state-owned banks, including high-ranking executives at VTB Bank.
• Dmitry Peskov, President Putin’s press secretary
• Alisher Usmanov, founder of Metalloinvest, a Russian mining company
• Nikolay Tokarev, chief executive of Transneft, an energy giant, and his wide, daughter and two associated real estate companies
• Billionaire brothers Boris and Arkady Rotenberg, as well as several family members
• Katerina Tikhonova and Mariya Putina, daughters of President Putin
• Dmitry Medvedev, former President and Prime Minister of Russia 
• Russian Prime Minister Mikhail Mishustin

State of the Union announcements

In his March 2nd State of the Union address, President Biden announced that the US Department of Justice is building a task force “to go after the crimes of Russian oligarchs.” Biden specifically called out the seizure of apartments, yachts and private jets.

The president also confirmed the US would close its airspace to all Russian flights.

Alluding to additional measures, Biden said Putin “has no idea what’s coming.”

Energy restrictions

On Tuesday, March 8th President Biden announced a US ban on imported Russian oil. Europe’s greater reliance on Russian energy imports makes this one potential area of action against Russia where Western powers won’t be fully aligned. The UK, however, has pledged to phase out Russian oil imports by the end of 2022.

On April 7th, these measures were further codified with Congress overwhelmingly approving a bill to ban imports of oil, gas, coal and other energy products from Russia. 

US sanctions enforcement 

As the conflict in Ukraine continues, US enforcement bodies are increasingly turning their attention to enforcing the extensive sanctions that have been imposed. On March 31st, OFAC designated 21 entities and 13 individuals as part of a crackdown on Kremlin illicit procurement networks and tech companies helping to fuel the conflict by evading US sanctions. OFAC focused heavily on technology companies alongside a renewed drive against cyber actors, including TsNIIKhM, which was involved in a 2017 cyberattack on a Middle Eastern petrochemical facility.

European Union (EU) Imposed Sanctions on Russia

European Commission President Ursula von der Leyen has said EU sanctions “will target the strategic sectors of the Russian economy by blocking the access to technologies and markets that are key for Russia.” 

Specific measures announced include:

• Sanctions against 351 members of the Russian State Duma who voted in favor of the motion to recognize the independence of Donetsk and Luhansk
• Sanctions against 27 individuals and entities who have “contributed to the undermining or threatening of the territorial integrity, sovereignty and independence of Ukraine”
• Limits on the ability of the Russian state and government to access EU capital and financial markets
• The exclusion of several major banks for the SWIFT payment messaging system
• On March 9th, the European Commission announced further sanctions against 160 individuals, with the goal of bringing the EU’s Russia and Belarus sanctions programs into greater alignment. This includes SWIFT prohibitions “similar to those in the Russia regime” as well clarifying that crypto assets fall under the scope of “transferable securities.”

On February 24th, the EU also agreed on further sanctions targeting Russia’s financial, energy and transportation sectors. Export controls and financing, visa restrictions and additional sanctions against Russian individuals will also be announced.

On February 25th, the EU confirmed it would freeze the assets of President Putin and Foreign Minister Sergey Lavrov.

On February 27th, President Ursula von der Leyen announced three new tranches of sanctions, including banning all Russian aircraft from EU airspace, measures targeting the Russia Today and Sputnik media outlets, and a widening of sanctions targeting Belarus.

On March 3rd President von der Leyen said the EU was waiting to see the impact of the sanctions it has already imposed before instigating any more, but suggested that further steps could include targeting crypto-assets.

On March 15th, the EU imposed sanctions on individuals including Roman Abramovich and Marina Ovsyannikova, the boss of a viral anti-war protestor at Russia’s Channel One. The EU also announced a ban on investments in Russia’s energy sector, and exports of precious stones, clothes and carpets worth more than 300 Euros.

EU energy sanctions

Much media and analyst speculation has focused on how the EU will approach extending its sanctions regime to the energy sector, given the reliance of many European countries on energy exports from Russia. On April 8th the bloc made some progress, announcing a fifth sanctions package, including:

•  A prohibition against importing or transferring coal and other solid fossil fuels into the EU if they originate in Russia, or are exported from Russia. This measure is effective from August 2022.
• A bank EU port access to vessels registered under the flag of Russia, with exceptions for energy, humanitarian, agricultural and food shipments.
• Additional export ban on jet fuel, quantum computers, advanced semiconductors, high-end electronics, software and transportation equipment. Import bans have been added on wood cement, fertilizers, seafood and liquor. 

In addition to energy market measures, the EU also announced: 

• An extended prohibition on deposits to crypto-wallets.
• A full transaction ban on four Russian banks which together make up 23% of the country’s banking sector.
• Sanctions on companies whose “products or technology have played a role in the invasion” alongside oligarchs, businesspeople, Kremlin officials and “proponents of disinformation and information manipulation.” The Council’s statement added that it would also sanction the family members of already sanctioned individuals to “ensure EU sanctions are not circumvented.”

United Kingdom (UK) Imposed Sanctions on Russia

Prime minister Boris Johnson has said that the UK will impose its “largest ever” set of economic sanctions on Russia. This will include a push to end Russia’s use of the Swift international payment system, as well as freezing the assets of all major Russian banks. Cash held by Russian nationals in UK banks will also be limited, and more than 100 individuals and entities will be sanctioned. Aeroflot, the Russian airline, will be banned from landing in the UK. 

The government also brought forward its economic crime bill, enabling assets to be targeted more effectively as well as greater transparency around ownership. Truss also said Britain had compiled a “hit list” of oligarchs who will face sanctions. Those confirmed as facing sanctions so far includes:

• Kirill Shamalov, Russia’s youngest billionaire and the former son-in-law of President Putin
• Denis Bortnikov, the chair of VTB Bank management board
• Yury Slyusar, the director of the United Aircraft Corporation
• Gennady Timchenko, a Putin ally with business interests across energy, transportation and construction
• Igor Rotenberg, a shareholder in the Gazprom Drilling company
• Oligarchs Alisher Usmanov and Igor Shuvalov
• Chelsea football club owner Roman Abramovich
• Igor Sechin, chief executive of Rosneft
• Five Russian banks, including:
  • Rossiya, a bank with stakes in a television company
  • The Black Sea Bank, created after Russia annexed Crimea 
  • The General Bank, a financial institution which operates in Crimea 
  • Promsvyazbank, a state-owned Russian bank
  • IS Bank

The UK has also sanctioned President Putin and Foreign Minister Lavrov. Liz Truss also said the government would launch an Oligarch Taskforce comprised of ministers and officials from several government departments to coordinate cross-government work on sanctions, and to support building an effective case for oligarchs identified as targets.

On Monday, February 28th, Chancellor Rishi Sunak announced the UK would join the European Central Bank and Federal Reserve in sanctioning Russia’s central bank. British citizens will not be able to make transactions with the central bank, its finance ministry or its wealth fund. The Atlantic has argued that central bank sanctions “could potentially bankrupt the entire Russian banking system and push the ruble into worthlessness.”

On March 9th, Liz Truss outlined new powers to detain Russian aircraft, and a ban on the export of aviation and space-related goods and technology.

On March 15th, the UK announced a huge swathe of new sanctions against 370 Russian and Belarusian individuals and entities, including 51 oligarchs and their families with a total estimated net worth of over £100bn. Defence Minister Sergei Shoigu, former president Dmitry Medvedev and Mikhail Fridman, founder of the largest non-state controlled bank in Russia – Alfa Bank – were all sanctioned.

New sanctions on Belarus

On March 1st, Truss also announced the UK’s first sanctions on Belarus as a result of its support for Russia’s invasion. Belarus’ Chief of the General Staff and 3 other deputy defense minsters have been sanctioned, alongside two military enterprises.

UK energy sanctions

In line with measures imposed by the US and EU, on April 6th the Foreign Secretary announced a suite of new measures to “bring an end to the UK’s imports of Russian energy and sanction yet more individuals and businesses, decimating Putin’s war machine.” Specific measures included:

• A pledge to end the UK’s dependency on Russian coal and oil by the end of 2022, with an end to gas imports “as soon as possible thereafter”
• Asset freezes against Sberbank and Credit Bank of Moscow
• An outright ban on outward investment to Russia, worth over £11 billion in 2020
• Sanctions on an additional eight oligarchs, including Viatcheslav Kantor and Andrey Guryev, leading Russian businessmen in the fertilizer industry
• Leonik Mikhelson, founder and CEO of Russia’s leading natural gas producer, Novatek
• Aleksander Dyukob, CEO of Russia’s third largest and state-owned oil producer GazpromNeft

Canada Imposed Sanctions on Russia

Prime Minister Justin Trudeau has announced two tranches of sanctions against Russia, including:

• Financial restrictions on 31 individuals and 27 banks, all connected to Russia’s elite
• The halting of all export permits, designed to curb exports worth $750 million across key sectors including aerospace, IT and mineral shipments
• Canada has also joined coordinated action against Russia’s central bank

On March 3rd Canada also become the first country to revoke Russia and Belarus’ status as preferential trading partners, instigating a 35 tariff on all exports from the two countries.

On March 7th, Trudeau imposed sanctions on 10 individuals close to President Putin based on a list compiled by opposition Alexei Navalny.

On March 15th, Canada’s government imposed sanctions on 15 more officials ahead of an address by Ukraine’s president to the Canadian parliament. The primary focus of the latest sanctions are Russian military defense officials, and wealthy private citizen Victor Pinchuk.

Future Canada sanctions

Canada’s foreign minister announced on March 21st that the country will impose new sanctions on Russia, announcing the details later this week.

Sanctions on Russia: Other Global Announcements

• Japan: Japan has imposed measuresSanctions will be imposed targeting Russian financial institutions, military entities and individuals according to the country’s prime minister. Measures alsowill include restrictions on chip exports. On February 27th, Japan confirmed it would join the US and others in blocking certain Russian banks’ access to the SWIFT messaging system. Japan is also extending $100m in humanitarian aid to Ukraine. In response, Russia announced it would discontinue peace treaty talks with Japan over its Kurile Islands dispute. 
• Singapore: Singapore’s Foreign Ministry issued strong language around the invasion of Ukraine, stating that: “Russia’s invasion of Ukraine contravenes the UN Charter and is a clear and gross violation of international law. While we continue to value good relations with Russia and the Russian people, we cannot accept the Russian government’s violation of the sovereignty and territorial integrity of another sovereign state. For a small state like Singapore, this is not a theoretical principle, but a dangerous precedent. This is why Singapore has strongly condemned Russia’s unprovoked attack on Ukraine.” Singapore has imposed export controls on items that can be used as weapons, restricted crypto transactions that pose a sanctions evasion risk, and imposed “targeted financial measures” on key banks. Financial institutions are also barred from providing services that might help Russia’s government raise funds.It marks only the second time that Singapore has taken such action against a foreign nation without UN Security Council approval. Singapore has also imposed export controls on items related to the conflict. The announcement made Singapore the first ASEAN country to join the coordinated sanctions action.
• Australia: Foreign Minister Marise Payne has said Australia will join the UK, US and EU in sanctioning President Putin and Foreign Minister Lavrov, alongside eight oligarchs and 339 members of Russia’s parliament. Payne said senior Belarusian figures would also be sanctioned over their role in the invasion. Australia has also sanctioned five members of the Russian government, including President Putin and Foreign Minister Lavrov. 25 senior military personnel, Promsvyazbank, Industrial Savings Bank, Genbank and the Black Sea Bank for Development and Reconstruction have all been sanctioned. Australia has also banned the sale of alumina and aluminium ores to Russia – the country was previously the source of 20% of Russia’s alumina. 
• New Zealand: Exports to Russia’s military and security forces are prohibited, and travel banks will be imposed against Russian officials, according to Prime Minister Jacinda Ardern. In March, New Zealand also passed its Russia Sanctions Act, enabling the country to impose economic sanctions on specific people, companies, assets and services in Russia for the first time.
• Taiwan: Taiwan has said it will join the international sanctions movement against Russia, including halting the export of its semiconductors. 

Western sanctions enforcement

Reflecting the unprecedented scope and scale of sanctions against Russia, Western powers have launched a number of bodies to coordinate enforcement. The European Commission launched a “Freeze and Seize” task force, while the US Justice Department announced a task force known as KleptoCapture. Both aim to work alongside the Russian Elites, Proxies, and Oligarchs (REPO) task force, coordinating finance, justice, home affairs and trade ministries across Australia, Canada, the European Union, France, Germany, Italy, Japan, the United Kingdom and the United States.

In addition to keeping allies aligned as the economic impact of sanctions bites, such bodies – and their aggressive publicization by governments – act as a pre-emptive warning to oligarchs and others who have been sanctioned. In this way, they aim to encourage proactive compliance with sanctions policies, and reduce the extent to which governments must directly enforce the measures they have imposed.

Russian counter sanctions 

In what may be the beginning of a wider program of counter sanctions, on March 15th Russia sanctioned 13 US officials including President Biden, Secretary of State Antony Blinken, Defense Secretary Lloyd Austin and former Secretary of State Hillary Clinton. All are now blocked from entering Russia, and any assets held in Russia are frozen. Russia stressed, however, that the sanctions will not affect high-level diplomatic work.

China

By contrast, China has announced it will open fully to Russian wheat imports, and a Foreign Ministry spokesperson highlighted Russia’s “legitimate security concerns” including American arms sales to Kyiv. China’s president, Xi Jinping, has called on Russia to hold high level talks with Ukraine. A UN Security Council resolution tabled on February 25th calling on Russia to withdraw all troops from Ukraine was met with an abstention from China, alongside India and the United Arab Emirates.

On February 28th, Bloomberg reported that Russian gas giant Gazprom took a step toward “potentially its biggest-ever natural gas supply deal” with China, signing a contract to design a pipeline that will stretch across Mongolia toward China.

Analysts have also argued that while Western powers exclude grain, oil and gas – Russia’s main exports – from sanctions, “the talk of China providing a lifeline to Russia in the short term is not that relevant.”

How is ComplyAdvantage responding to rapidly changing sanctions lists?

Sanctions regimes against Russia are changing fast. As a provider of real-time global sanctions screening, our customers rely on us to provide continued accurate coverage.

Updates made so far

Many sanctions updates are captured automatically, with automatic scrapers on sanctions lists. However, government officials sometimes announce new sanctions before they are officially designated. Other measures are announced through non-standard sources such as press releases, or require major changes to legislation, as is the case in the EU.

Ensuring data quality

While updating sanctions designations quickly is important, data quality is also critical. So our team assesses data before it is pushed into production. This helps to account for potential inaccuracies or discrepancies in information provided to ComplyAdvantage – in fast-changing situations where governments and regulators are moving quickly, this is inevitable. 

Sanctions compliance checklist

Systems and controls
Are firms’ client and payment screening platforms able to detect relevant risks? Once detected, are they able to manage these risks? For example, blocking transactions and/or freezing funds when required. Where sanctioned customers/entities are identified, apply a block on transactions to freeze accounts and allocate these funds to a relevant suspense account, making sure to continue to meet terms of contract. For financial institutions operating in securities markets, they should ensure sanctioned persons and entities can be identified in executed trades.  

Training
Firms should provide appropriate training and guidance for compliance staff to help them understand the latest sanctions measures, how to handle affected clients and/or transactions, along with updated communications as the situation changes. In a highly volatile situation, firms should aim to minimize the number of ‘false alarm’ alerts that are raised when these could have been discounted with the right training. 

Exposure
Firms should consider how they go about understanding their exposure not only to sanctioned entities, but also the wider nexus around them. For example, do they have systems in place to do this, or will it be a manual exercise? 

This should include: 

• Sweeping customer databases to identify all clients physically based in Russia or connected to sanctioned individuals and entities.
• Identifying clients that have significant business dealings with Russia to determine whether to apply enhanced monitoring to transactions of those clients. 
• Reviewing deals in the energy, transport and construction sectors where clients may have a deal in place with a Russian counterpart.
• Understanding beneficial ownership structures and limits on ownership and control as a result of sanctions from different countries to identify entities that may not be directly sanctioned but owned and/or controlled by a sanctioned entity / person.  
• Reviewing the terms of securities, money market instruments, loan and credit agreements where these have been identified as being held by sanctioned persons.
• Identifying any licensing requirements. 

Continuous monitoring
Compliance staff need a mindset similar to that adopted by traders watching the stock markets. It’s critical to monitor the latest news and alerts in real-time.

Holistic understanding
As well as understanding what sanctions are in place, compliance staff should be keeping up-to-date with geopolitics, trade, commerce and wider world events simultaneously. These are all likely to converge, with potential for cross-over sanctions risks. 

FAQs

How should businesses manage the opacity of shell companies?

At the client level – It’s key that firms ensure they have a full understanding of the ownership structures of their clients.  Where they don’t have this, they may want to enrich this information, either by requesting variable evidence from the client or using an external service/software provider that can pull such information together.  

At the transaction level – When a firm does not know who the ultimate beneficial owner(s) (UBOs) are for a payment, they should take extra care by taking reasonable steps to do due diligence on the party involved, and to understand the nature and purpose of the transaction. They can use open source information (if available), request further information from the client (with evidence if available) and/or using an external service/software provider.

Who should be following the latest sanctions updates? Are they just relevant to banks?

This is a key point – it can be especially challenging for smaller firms (whether that be legal, FinTechs or accounting firms) to manage sanctions risks. Large banks have big teams in compliance, whereas some smaller firms may only have one person in their compliance team. They should consider if technology and automation can help them spot risks – doing so manually would be very difficult. Regardless, they should be cognizant that they could be exposed, and so should be thinking about if they are capable of understanding and managing the sanctions risks.

How does a company deal with the ‘sphere of influence’ around PEPs?

Systems and controls, as well as training, are essential. Systems and controls ensure that PEP risks can be detected and managed. Systems used should be able to appropriately identify RCAs (Relatives or Close Associates). Training is also essential so that staff, including not only compliance but also sales etc, are aware of risks and know what they need to do when they identify PEPs and how to manage the associated risks. 

What has happened to Russia’s Swift access? 

In a joint statement on February 26th the European Commission, France, Germany, Italy, the UK and the US, Western leaders committed “to ensuring that selected Russian banks are removed from the Swift messaging system.” They argued that this would “ensure that these banks are disconnected from the international financial system and harm their ability to operate globally.” While the names of banks to be expelled have not yet been disclosed, a German government spokesperson said that all currently sanctioned banks will be affected, as well as other institutions if necessary. 

The BBC reports that more than 1 percent of Swift messages are “thought to involve Russian payments.” Russia is particularly reliant on Swift for its oil and gas exports. Iran is the only country to have been removed from Swift before, which led to it losing 30 percent of its foreign trade.

Russia’s exclusion from Swift also risks boosting China’s alternative platform, known as CIPS – the Cross Border Interbank Payments System. Launched in 2015, CIPS facilitates the transfer and settlements of international payments in yuan. At least 23 Russian banks are already connected to CIPS.

Explore our piece on SWIFT, BIC and Sanctions Compliance

Could Russia use cryptocurrencies to evade sanctions?

There are risks associated with the use of crypto to evade sanctions, and there is precedent in the example of Iran. However, crypto alone cannot recoup the financial losses Russia has sustained through Western sanctions. More likely, crypto will become a tool used by regular Russians to protect their wealth as inflation spirals and the value of the Russian ruble declines.

Explore our piece on Crypto, Russia and Sanctions Evasion Risks

It has never been more important – or more difficult – for firms to protect themselves from statutory asset freezes and travel bans imposed by governments around the world.

Explore our wider content on the Ukraine crisis, and sanctions best practices:

Guide: The Evolving Use of Sanctions

Putin’s Challenge and Western Sanctions

How to Ensure Russia Sanctions Compliance

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