US Ramps Up Russia Sanctions, Eyes China, UAE, and Turkey

Posted By:
Kreller Group
March 6, 2023

Just two months after enhancing the Anti-Money Laundering (AML) Whistleblower Improvement Act, a move largely seen as an attempt to crack down on Russian sanction evasion, the Biden Administration announced new sanctions on Russia and related entities on February 24, 2023. Less than a week later, the US also signaled that sanctions may be coming for China and other countries helping Russia circumvent restrictions, presenting an increasing need for tight supply chain management and awareness of the potential exposure of downstream and upstream partners.

On the somber anniversary of the Russian invasion in Ukraine, the U.S. Treasury Department, in partnership with the US’s G7 allies, increased the scope of the sanctions against Russia, focused on the mining and metals sector and increasing the pressure on Russian banks. The new package, which added 250 individuals and entities to the existing list of over 2,500 also included over 30 people and companies from Germany, Switzerland, and the Middle East, that are believed to be helping Russia evade sanctions. In an attempt to isolate Russia even further and reduce its options for funding the war, the US announced a new determination by the Office of Foreign Assets Control (OFAC), which expanded sanctions first announced in 2021 to any person or entity operating in Russia's metals and mining sectors.

Touted by the Treasury as “one of its most significant sanctions actions to date,” the new package specifically named Swiss-Italian businessman Walter Moretti and a network of his associates and companies, including entities based in Bulgaria, Malta, Russia, Switzerland, and the United Arab Emirates. According to the Treasury, the sanctioned entities had “covertly procured sensitive Western technologies and equipment for Russian intelligence services and the Russian military, including hydraulic presses, armament packages, and armor plating.”

In addition, a new round of export controls was announced on the same day, adding hundreds of items including coffee makers, toasters, hair dryers, microwaves, auto parts, and air conditioner units, to a list of products that now require a special license to export to Russia, which in most cases will be denied. This was perhaps expected as earlier in the week, Deputy Treasury Secretary Wally Adeyemo had said: “We’re seeing Russia increasingly use dual-use goods to further their military industrial complex, tearing out semiconductors from everything to fridges to microwaves in order to put them in military equipment.”

The combination of sanctions and export controls aims to hit Russia’s economy harder, as efforts in that direction have not been as successful as initially predicted. A Moody’s Investors Service report claimed that so far, the Russian economy had weathered sanctions better than expected in 2022, partly due to “the slow introduction of commodities sanctions.”

Reports also claim that Russia is faring better than expected, because it is receiving a lot of help in circumventing the sanctions from some of its neighbors. Countries making up a significant part of the world’s GDP, like China, India, Turkey, and the UAE have not participated in the sanctions and according to Former Treasury Secretary Larry Summers, their trade with Russia “has ramped up considerably in the last year, which suggests that they’re serving as a way station for goods to get into Russia.” According to the Financial Times, US officials are worried that the UAE in particular is “becoming a hub for the shipment of items such as electronics that can be repurposed to help Russia’s war effort” through a practice called “re-exporting,” with goods “routed through the UAE to sidestep restrictions.”

Starting in the second quarter of 2022, when sanctions on Russia were first implemented, India and China stepped in, buying up Russian oil, coal, and fertilizer. China’s trade with Russia has also grown, with brands such as Xiaomi and automaker Geely growing their market share significantly. And some reports indicate that China, despite publishing a 12-step peace plan for the conflict, may be considering providing military help to Russia. As a result, the United States and its G7 allies are now rumored to be sounding out potential sanctions for China, should it provide military help to Russia.

While the nature of any potential new restrictions on China is still unclear, it appears that the US and its allies aim to tighten the ring around Russia and new sanctions or export controls may be expected elsewhere. The U.S. departments of Justice, Commerce and Treasury said in a joint notice on March 02, 2023 that “businesses of all stripes should act responsibly by implementing rigorous compliance controls” and be aware of warning signs including the use of aliases, shell companies, and obscured shipping information, to avoid being inadvertently taking part in sanction evasion.

In the ever-changing sanctions landscape, companies working with partners in Armenia, China, India, the UAE, Uzbekistan, and Turkey, among others should put concentrated efforts into compliance and due diligence across the global supply chain. Especially given that the Justice Department is now hiring 25 new prosecutors in the counterintelligence and exports controls section, to help enforce the sanctions against Russia and any new restrictions to come.

About the Kreller Group

For nearly 30 years, Kreller has relied on “extensive boots-on-the-ground” research, conducted by investigators who are well-versed in worldwide military, law enforcement, business and government matters to deliver the concise information our clients need to make decisions.


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