OFAC Imposes Additional Sanctions and Export Controls on Russia in Coordination with the G7

On May 19, 2023, the US Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced new sanctions and export controls on Russia to further impair the country’s capacity to wage war against Ukraine. The new measures were announced at the 47th G7 Leaders’ Summit, which the Japanese presidency hosted in Hiroshima from May 19 to 21. 

In addition to facilitating discussions centered on economic security, building clean energy economies, nuclear disarmament, and fighting poverty, the G7 Leaders issued a “Statement on Ukraine” to highlight its commitment to mitigating the impact of Russia’s invasion. OFAC’s new sanctions packages reflect this commitment, cutting off over 70 companies from Russia,other countries from receiving US exports, and sanctioning more than 300 individuals, entities, vessels, and aircraft across the globe. 

New US Sanctions

The new designations focus on critical sectors connected to Russia’s military, including:

• Aerospace
• Marine
• Electronics
• Metals and mining
• Quantum computing
• Accounting
• Trust and corporate formation
• Management consulting
• Financial services
• Technology
• Defense 

Additionally, OFAC noted its commitment to enhancing the transparency of Russia’s immobilized overseas assets. To do this, the agency has amended Directive 4 under Executive Order (EO) 14024 to require US persons to report any real estate they possess or control in which the following Russian entities have an interest:

• The Central Bank of the Russian Federation.
• The National Wealth Fund of the Russian Federation.
• The Ministry of Finance of the Russian Federation.

Through amending the EO, the US, in coordination with the G7 and other international partners, plan to fully map out all of Russia’s sovereign assets. 

Following OFAC’s update, the ComplyAdvantage sanctions team promptly integrated the latest designations into our system to ensure our customers are screening against the latest lists. The table below shows the time it took to update our database following changes across three different watchlists. 

Sanctions Evasion Guidance

In March 2023, the Departments of Justice, Commerce, and the Treasury issued a joint compliance note on Russia-related sanctions and export control evasion. To effectively combat the threats posed by evasion attempts, the departments encourage firms to screen both new and current customers as well as intermediaries and counterparties. Each individual or entity should be screened against the Consolidated Screening List as well as OFAC’s Specially Designated Nationals (SDN) and Blocked Persons List. 

The joint note builds on an alert produced by the Financial Crimes Enforcement Network (FinCEN) and the Department of Commerce’s Bureau of Industry and Security (BIS) in June 2022. The alert reminded firms of their Bank Secrecy Act (BSA) reporting obligations, highlighting how suspected sanctions or export controls evasion should be reported to FinCEN. When filing a suspicious activity report (SAR) related to these illicit activities, compliance staff should take note of the following key terms when completing SAR field 2:

• Sanctions evasion: FIN-2022-RUSSIASANCTIONS
• Export control evasion: FIN-2022-RUSSIABIS 

Key Takeaways

With the ongoing invasion of Ukraine, firms need to stay informed about the evolving sanctions landscape for Russia. In light of the recent designations, compliance staff may consider reviewing OFAC’s guide on the essential components of a sanctions compliance program. The guidance notes that while each risk-based sanctions compliance program will vary, they should incorporate the following components:

• Commitment from management – E.g., Senior staff that ensures compliance units have the resources they need and promote a culture of compliance throughout the organization.
• Routine risk assessments – OFAC notes that while there is no “one-size-fits-all” risk assessment, the exercise should consist of a holistic review of the firm and assess its touchpoints to the outside world.
• Internal controls – These include policies and procedures to effectively identify, block, escalate, report, and keep records about activity that OFAC regulations may prohibit. 
• Testing and auditing – A comprehensive audit function within a sanctions compliance program ensures firms effectively identify program weaknesses and deficiencies. OFAC also notes it is the firm’s responsibility to enhance this program, including all program-related software, systems, and other technology, to remediate any identified compliance gaps.
• Training – An effective training program should be tailored to an entity’s risk profile and be provided to all appropriate employees and stakeholders. OFAC’s guidance notes that training programs should provide job-specific knowledge based on need, communicate the sanctions compliance responsibilities for each employee, and hold employees accountable for sanctions compliance training through assessments. 

OFAC sanctions compliance also requires compliance staff to collect and analyze large amounts of data from various sources. Since managing this data manually is unfeasible and can lead to costly human errors, firms should seek to integrate suitable smart technology tools to help them achieve regulatory compliance.