On December 20, 2023, the United States Department of Treasury’s Office of Foreign Assets Control (“OFAC”) tightened enforcement of the price cap on Russian oil. OFAC, in coordination with the Price Cap Coalition, updated the Guidance on Implementation of the Price Cap Policy for Crude Oil and Petroleum Products of Russian Federation Origin, implementing more stringent attestation and recordkeeping processes. Further, on the same day, OFAC sanctioned a Government of Russia-owned ship manager as well as several obscure oil trading companies who have emerged as frequent participants in the seaborne transportation of Russian-origin oil in violation of the price cap.
These actions align with the recent commitments made by Leaders of the Group of Seven (“G7”) on December 6, 2023 to tighten compliance and enforcement of the price cap policy on Russian oil, including by imposing sanctions on those engaged in deceptive practices and by updating compliance rules and regulations as necessary. An OFAC representative stated that the actions “demonstrate [OFAC’s] commitment to upholding the principles of the price cap policy, which advance the goals of supporting stable energy markets while reducing Russian revenues to fund its war against Ukraine.”
The Price Cap
As we have previously discussed, the United States is part of an international coalition of countries (“the Price Cap Coalition”), including the G7, the European Union, and Australia, that have agreed to prohibit the import of crude oil and petroleum products of Russian Federation origin. These countries have also agreed to restrict a broad range of services related to the maritime transport of crude oil and petroleum products of Russian Federation origin, unless that oil is bought and sold at or below the specific price caps established by the Coalition. That price cap at the time of this post is set at $60 per barrel. The price cap is intended to maintain a reliable supply of crude oil and petroleum products to the global market while reducing the revenues the Russian Federation earns from its war against Ukraine.
Designation Concerning Russian Owned Ship Manager
A UAE based ship management company owned by a Government of Russia-owned fleet operator was designated. The fleet operator is subject to certain restrictions under Directive 3 of E.O. 14024. The ship management company manages the SCF Primorye, a vessel OFAC previously identified as having engaged in the transport of Russian crude oil priced above the $60 price cap. Additionally, OFAC identified the SCF Primorye as property in which a U.S.-designated shipping company has an interest. As a result, the UAE based ship management company was designated pursuant to E.O. 14024 for being owned or controlled by, or for having acted for or purported to act for or on behalf of, directly or indirectly, the Government of the Russian Federation. The company was also sanctioned by the European Union and United Kingdom.
Designation Concerning Clandestine Oil Traders
Since the imposition of the oil price cap, oil traders with opaque ownership structures have emerged as frequent participants in the seaborne transport of oil produced by major Russian oil companies, shipping up to half of Russia’s oil exports. Targeting such actors, OFAC made the following designations:
Two Hong Kong-based oil trading companies that sharply increased their respective share of the trade of Russian oil since the price cap policy was implemented were designated. Since the middle of June 2023 alone, vessels chartered by the first company have made more than 150 port calls in Russia. That company has also borrowed from banks that OFAC has previously designated. Additionally, since May 2023, vessels chartered by the second company have made at least 23 port calls in Russia. Among the vessels that have made port calls in Russia while chartered by that company were the HS Atlantica, NS Champion, and Viktor Bakaev, all of which we have previously identified as having engaged in the transport of Russian crude oil priced above $60 per barrel price cap while having a US nexus. The second company also owns and as such was identified to have an interest in a Russia-flagged vessel, the Sanar 15. Additionally, OFAC identified the HS Atlantica, NS Champion, and Viktor Bakaev as property in which U.S.-designated shipping companies have an interest.
A UAE-based oil trading company that also sharply increased its share of the trade of Russian oil since the price cap policy was implemented was designated. Since June 2023, vessels chartered by that company have made at least eight port calls in Russia.
All three oil trading entities were designated pursuant to E.O. 14024 for operating or having operated in the marine sector of the Russian Federation economy.
Designations Concerning Russia’s Military-Industrial Base
This action builds upon the designation of more than 150 individuals and entities on December 12, 2023 who, per OFAC, materially support Russia’s war in Ukraine. In the same release, OFAC also targeted Russian military procurement networks and those who help Russia acquire machine tools, equipment, and key inputs, as well as Russia’s access to the international financial system.
The United States Department of State concurrently imposed sanctions on over 100 entities and individuals. Per the Department of State, the designated individuals and entities are engaged in sanctions evasion in numerous third countries, complicit in furthering Russia’s ability to wage its war against Ukraine, and responsible for bolstering Russia’s future energy production and export capacity.
Third-Country Suppliers and Procurement Networks
With these designations, OFAC continues to take action to identity and disrupt third-country individuals, entities, and networks that, per OFAC, facilitate, arrange, and enable the transfer of key technology, equipment, and inputs to Russian military-industrial base end-users. OFAC specifically highlighted Russia’s utilization of Türkiye, the United Arab Emirates (“UAE”), and the People’s Republic of China (“PRC”), as well as the use of complex transnational networks and third-country cut-outs, to acquire much-needed technology and equipment for its war economy.
Multinational Weapons and Technology Procurement Network
OFAC designated a network of four entities and nine individuals based in the PRC, Russia, Hong Kong, and Pakistan involved in the facilitation and procurement of Chinese-manufactured weapons and technologies to Russia. Per OFAC, Hu Xiaoxun, PRC-based private defense company Jarvis HK Co., Ltd., and its network has worked to structure deals circumventing United States sanctions and Chinese controls on the export of military-related materials. They have also attempted to mask the identifies of customers by obfuscating the end-user of products, including by coordinating shipments through third-party countries and organizing shipments through intermediary companies.
Country-Based Entities
OFAC also sanctioned multiple entities in different countries that were identified to be participating in Russian military procurement network.
OFAC designated seven different entities based in Türkiye, including companies providing shipments of ball or roller bearings, tantalum capacitators, integrated circuits and machines for the reception, conversion, and transmission of data, diodes and transistors, and the sale and service of navigation and communication systems, including radio navigational aid apparatuses, to Russia.
OFAC also designated eight entities based in the UAE, including companies providing shipments of aircraft parts, components, and materials, aircraft spare parts, fuses, metal cutting equipment, electrical equipment, electronic integrated circuits, machines for the reception, conversion, and transmission of data, x-ray systems, batteries, and radio navigational aid apparatuses to Russia.
Further, OFAC designated seven entities based in the PRC, including companies providing high-resolution observation satellite imagery, advanced electronics, sensitive electronic parts, and technological equipment and machine tools, including remote controls and metal-working machines, to Russia.
OFAC also designated Switzerland-based Thamestone SA (“Thamestone”) and Singapore-based Micro Electronics Technologies PTE LTD (“Micro Electronics Technologies”).
Thamsetone is a provider of wide range electronic products, including electrical connectors, circuits, and resistors. Per OFAC, Thamestone sent common high-priority items, such as integrated circuits and multilayer ceramic capacitators to Russia and sent hundreds of shipments to Russia-based Streloi Ekommerts, a wholesaler of electronic equipment and parts. Streloi Ekommerts was also designated by OFAC.
Micro Electronics Technologies is an independent electronics design house that offers electronic manufacturing services. Per OFAC, Micro Electrics Technologies sent common high priority items, including integrated circuits and multilayer ceramic capacitators, to Russia. OFAC also stated that Micro Electronics Technologies has sent hundreds of shipments to Russia-based Onshor Vind, and wholesaler of electronic equipment and parts. Onshor Vind was also designated by OFAC.
Finally, OFAC designated Kyrgyz Republic-based Weitmann Handeln Allianz LLC (“Weitmann”) and Maldives and Tajikistan-based entities Intermodal Maldives and Chamaiyati Doroi Masauliyati Makhdudi Kafolati Komil (“Kafolati Komil”).
Weitmann is a provider of turnkey supply, logistics, and customs clearances services to foreign clients. Per OFAC, Weitmann sent hundreds of shipments to Russia consisting of automatic data processing machines and disk storage devices.
Likewise, OFAC identified Intermodal Maldives and Kafolati Komil as two aerospace suppliers that shipped various items to Russia. Per OFAC, Intermodal Maldives has shipped aviation spare parts, machine components, and cellulosic fibers to Russian companies. OFAC also stated that Kafolati Komil has sent foreign-made aviation parts to Russia via the UAE.
Russia’s Military-Industrial Base
Aside from the above designations, OFAC designated more than 120 Russian entities for operating or having operated in various sectors of the Russian economy. These entities include UAV manufacturers and developers, ammunition and explosives manufacturers, metal, steel, and electrical manufacturers, and other entities operating in the defense and related materiel sector of the Russian Federation economy. OFAC also designated multiple entities for having operated in the manufacturing, transportation, and electronic sectors of the Russian economy. In particular, OFAC designated Expobank Joint Stock Company, Aktsionernoe Obshchestvo Obedinennaya Investitsionnaya Gruppa, Settlement Non Bank Credit Organization Metallurg, and Obshchestvo s Ogranichennoi Otvetstvennostyu Signal Invest for operating or having operated in the financial services sector of the Russian Federation economy. This action demonstrates that OFAC is enforcing its Russia sanctions program globally, and entities all around the world may be designated pursuant to this program.
OFAC Designation Implications
As a result of OFAC’s designations, all property and interests in property of the persons above that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. In addition, any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked. All transactions by U.S. persons or within (or transiting) the United States that involve any property or interests in property of designated or blocked persons are prohibited unless authorized by a general or specific license issued by OFAC or exempt. These prohibitions include the making of any contribution or provision of funds, goods, or services by, to, or for the benefit of any blocked person and the receipt of any contribution or provision of funds, goods, or services from any such person.
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