Written by Jackson Wood, Director, Industry Strategy, Global Trade Compliance, Descartes Visual Compliance
The United States Department of Treasury recently unveiled over 200 new OFAC Russia sanctions as part of continued efforts to cripple Russia’s military-industrial sector and its support from third countries. These new measures build upon earlier OFAC Russia sanctions and expand the multilateral campaign by several U.S. agencies and allies to restrict access to materials, technologies, and chemicals necessary for Russia’s war against Ukraine.
Additionally, 80 new sanctions were issued by the State Department on individuals and entities engaged in the development of Russia’s future energy, chemical weapons program, mining production as well as individuals linked to the death of Russian opposition politician Aleksey Navalny.
A substantial portion of the sanctions issued by both agencies, focuses on entities in other countries enabling sanction evasion, including the People’s Republic of China (PRC), Belgium, and The United Arab Emirates (UAE). These expanded designations pose serious regulatory, financial, and reputational risks to businesses with global operations.
In this article, we’ll explore what these new sanctions mean and share how the right denied party screening software and procedures can help businesses operating internationally reduce the risk of compliance violations and the associated fines and penalties.
Key Takeaways
- Multiple U.S. agencies and foreign allies continue to roll out expansive sanctions to degrade Russia’s war efforts.
- The new OFAC Russia sanctions focus primarily on specific aspects of the country’s military-industrial capabilities, including chemical manufacturing.
- Sanctions also aim for Russia’s future energy production by targeting those involved in natural gas projects.
- Additionally, these new OFAC Russia sanctions target international entities and third countries suspected of providing critical support to sustain Russia’s military capacity and evade sanctions.
- All organizations with international operations must establish or refine their OFAC search and denied party screening processes to reduce the risk of sanctions violation and penalties for non-compliance.
Expanded OFAC Russia Sanctions Intensify Pressure on Weapons, Energy, and Material Industries
The latest round of sanctions demonstrates a concerted effort by the Department of the Treasury, along with the Department of State, to hinder Russia’s military capabilities and support network. The large number of individuals and entities added to OFAC’s Specially Designated Nationals and Blocked Persons (SDN) List follows multiple warnings from both Secretary of State Antony Blinken and Secretary of the Treasury Janet Yellen.
This was re-emphasized in a recent press release by Janet Yellen: “Treasury has consistently warned that companies will face significant consequences for providing material support for Russia’s war, and the U.S. is imposing them [now] on almost 300 targets.”
Below is a summary of the comprehensive approach undertaken to disrupt Russia’s military capabilities.
Russia’s Military-Industrial Complex
Roughly 100 designations under the new OFAC Russia sanctions focused on specific entities that are crucial to the country’s military-industrial base. Among those added to the OFAC SDN list, are companies that are currently operating, or have previously operated, in the technology, defense and related materials, manufacturing, or transportation sectors of the Russian economy.
Acquisition of Explosives Precursors
Russia depends on external sources of explosive precursors, such as cotton cellulose and its byproduct nitrocellulose, which are essential for rocket propellants, explosives, and gunpowder. The new OFAC Russia sanctions target importers of these materials alongside two PRC-based exporters.
Russia’s Chemical and Biological Weapons Program Procurement
Several entities involved in enabling Russia’s chemical and biological weapons programs were added to the OFAC SDN List. These sanctions are being implemented by the Department of State’s imposition of the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (the CBW Act), as Russia has used chloropicrin poison gas against Ukrainian troops.
Disruption of Russia’s Natural Gas Infrastructure Expansion
Strategic sanctions targeting Russia’s future energy revenues and development of related projects further restrict its military manufacturing capabilities.
These sanctions include entities involved in natural gas projects. Limiting Russia’s energy capabilities will also have far-reaching effects, ideally motivating Russia to resolve the conflict.
Ongoing Focus on Facilitators of Russia Sanctions Evasion
The U.S. continues to take a hardline against sanctions evasion and circumvention. The latest OFAC Russia sanctions aims to disrupt Russia’s support network by designating companies and individuals suspected of enabling Russia to bypass previously imposed restrictions. New additions to the OFAC SDN list include 60 entities in the following countries:
- Azerbaijan
- Belgium
- The People’s Republic of China (PRC)
- Russia
- Slovakia
- Türkiye
- The United Arab Emirates (UAE)
Any organizations with partners or suppliers in these countries should conduct comprehensive OFAC screening to ensure they remain compliant.
What Do These New OFAC Russia Sanctions Mean for Businesses?
The new OFAC Russia sanctions have profound implications for businesses and global trade. As a result of entities designated on the OFAC SDN List, all transactions by U.S. persons or within (or transiting) the United States, involving the property or interests of designated or blocked persons are prohibited. This prohibition includes any entities that are owned, directly or indirectly, 50% or more by one or more of these SDNs.
The far-reaching scope of these OFAC Russia sanctions with their impact on financial transactions, disruptions to supply chains, and the potential to increase operational complexity, necessitates increased compliance measures.
OFAC compliance is the responsibility of every organization involved in the target industries and financial avenues that may enable evasion. With the current number of sanctions, every business operating internationally needs to have denied party screening processes.
The Significance of Compliance with OFAC Russia Sanctions
Compliance with OFAC Russia sanctions is required for any organization operating internationally and using the U.S. financial system, including foreign companies.
Non-compliance doesn’t require malicious intent, so if you violate sanctions, steep fines, and heavy penalties will likely be imposed. Willful violations may also incur criminal charges, although not levied by OFAC.
If found to be in violation of OFAC Russia sanctions, reputational damage and operational disruptions will likely occur. Assets may be frozen, and you may lose suppliers who further disrupt typical operations.
Investing in the right denied party screening platforms, processes, and people is crucial to reduce the risk of OFAC violations.
The Need for Thorough Denied Party Screening
Entities subject to not only OFAC Russia Sanctions but to all U.S., EU, or UN sanctions must be identified throughout an organization’s business network to avoid the consequences of non-compliance. Having the right software capabilities and personnel to perform global sanctions screening is vital.
Global sanction screening or denied party screening enables you to identify any individuals or entities targeted by sanctions before working with them in any capacity. Additionally, to ensure your due diligence process is comprehensive, denied party screening needs to be conducted regularly, as new sanctions are frequently rolled out.
While every organization that operates internationally needs automated and robust denied party screening processes to remain compliant, some regions are especially high-risk and require extra scrutiny, such as:
- Russia: Energy, technology, defense, and finance sectors are under scrutiny due to targeted sanctions
- China and Hong Kong: Dual-use technology and human rights-related sanctions
- Slovakia: Strategic location and trade relationships pose risks for circumvention of EU sanctions
- United Arab Emirates (UAE): Free zones and trade hubs potentially used for sanctions evasion
Also, all third parties must be evaluated for their compliance protocols. You may be at risk of enabling Russia’s military manufacturing or sanction evasion if you partner with someone improperly screening their international partners.
While the specific penalties you incur in these situations may vary, it’s worth the added effort to ensure all partners are investing in compliance with Russia sanctions.
Key Steps for Implementing Effective Global Sanctions Screening
Setting up a denied party screening process can seem challenging due to the complexity of sanctions regulations and the resources required to ensure accuracy and efficiency. These denied party screening best practices provide quick summary on how to set up and maintain an effective screening process:
- Automated screening systems: Manually screening against denied party lists will quickly become expensive and error prone. Automated and integrated denied party screening solutions are essential to ongoing OFAC compliance. Tools like those offered by Descartes allow teams to conduct initial and recurring denied party screening without intensive manual processes. Also provides real-time updates to reflect the latest changes in sanction lists.
- Evaluating and Validating Screening Results: While automated tools can handle the intensive process of cross-referencing denied party lists, results will still need additional analysis before being acted on. Hire or upskill compliance specialists who are able to evaluate results and make informed decisions regarding potential risks. Additionally, ensure the screening software you use supports seamless alert resolution and escalation.
- Robust internal controls: Develop and deploy compliance policies, procedures, and controls that prevent any lapses in sanction screening. Evaluate all business processes for a variety of potential risks and create clear guidelines to correct any inefficiencies.
- Training and knowledge resources: Conduct regular training so all personnel involved in these denied party screening workflows have the skills to do them accurately. Your OFAC screening software vendor should also have a rich knowledge base that keeps you updated on regulatory changes and industry developments.
Descartes Denied Party Screening Empowers Your OFAC Russia Compliance Efforts
Remaining compliant with OFAC Russia sanctions and other global trade controls requires comprehensive denied party screening processes powered by the right platform.
Our platform leverages our business intelligence capabilities to rapidly screen and rescreen new and existing partners, clients, or customers against known denied parties. New sanctions are constantly emerging — accordingly, our compliance data sets are updated in near real time to help businesses maintain continuous compliance and avoid costly consequences.
Descartes Visual Compliance™ and Descartes MK™ Denied Party Screening solutions are flexible and modular, allowing organizations to pick the specific and exact functionality and content they need for their particular compliance needs and scale up later as and when necessary.
Ready to strengthen your compliance due diligence with automated screening? Contact us today to speak to a sanctions compliance specialist. We have also put together a resource center for the Russia-Ukraine conflict to help you stay informed about the latest developments with business implications.
Additionally, you can read what our customers are saying about Descartes Denied Party Screening on G2 – an online third-party business software review platform. Or explore this testimonial ebook to see why we are listed among the Top 50 Best Software for Enterprises.
