Following Russia’s invasion of Ukraine in February 2022, the Biden administration implemented sanctions targeting Russia’s financial, military, and energy sectors. On February 23, 2024 — the eve of the invasion’s second anniversary — the Biden administration announced more than 500 new sanctions (opens a new window) in response to the death of jailed Russian opposition leader Alexei Navalny.
This new wave of sanctions builds on previous penalties and specifically targets companies and individuals worldwide that assist Russia in circumventing sanctions. Newly imposed sanctions include:
Freezing $5 billion of Russian central bank assets and excluding several Russian banks from SWIFT;
Import bans on Russian oil, gas, and coal;
Restrictions on investments in Russian energy firms; and
Export controls on high-tech goods and Russia’s $4 billion diamond industry.
The U.K. (opens a new window) and EU (opens a new window) have also announced new sanctions against Russia following Navalny’s death.
Implications for global businesses
Under the new sanctions, U.S. entities are prohibited from completing financial transactions or conducting business with entities placed on the Office of Foreign Assets Control’s (OFAC) Specially Designated Nationals and Blocked Persons (SDN) list (opens a new window). As a result, U.S. insurers are prohibited from transacting with sanctioned entities and are legally required to block assets, including insurance policies, for entities they insure that become sanctioned.
Separate from the SDN list, U.S. entities are prohibited from engaging in transactions with entities that meet the criteria of OFAC’s 50% Rule (opens a new window). The rule states that “entities are considered blocked if they are owned 50% or more, either directly or indirectly, in the aggregate by more than one blocked persons. This rule, however, does not apply to entities over which one or more blocked persons exercise control, but do not own, 50% or more in the aggregate.”
While U.S. insurance carriers broadly exclude coverage for operations in Russia, the latest tranche of sanctions specifically targets entities in China, Turkey, and the UAE that provide goods and materials that support Russia’s war effort and economy. As a result, insurance carriers will no longer be able to provide coverage for transactions or relationships with third-party intermediaries engaging in business with the Russian government.
The scale of Western sanctions on Russia’s economy has severely limited the country’s ability to engage in international financial and business transactions.
This new wave of sanctions comes on the heels of Russia’s increased military spending, which directly contributed to its 2.2% GDP growth in 2023 (opens a new window), according to the IMF, despite the sanctions imposed by the U.S., U.K., and EU since 2022.
As long as Russia continues its war in Ukraine and attempts to bypass sanctions, the U.S. and its allies are expected to persist in tightening measures.
Managing risk
For multinational businesses, ensuring compliance with the new sanctions will be essential. Risk professionals should coordinate with their counsel to ensure that they comply with OFAC’s sanctions programs, notably in the extended geographies of Turkey and the UAE. U.S.-based entities should consider working with their insurers to establish and uphold robust, risk-based measures for compliance. Multinational businesses must consider the risk of interacting with businesses outside of Russia that have ties to the Russian government or are subsidiaries of Russian businesses.
Multinational businesses should also engage in rigorous due diligence to identify the risk of their supply chains being implicated in violations of international law committed by Russia. The U.S. government also advises heightened human rights due diligence.
Multinational businesses should develop and implement forward-thinking strategies built around enhanced due diligence, close communication with risk management partners, and an understanding of the drivers behind the U.S., U.K., and EU sanctions programs.
Among other actions, organizations should ensure they capture and integrate pertinent information, conduct regular due diligence screenings, and adhere to OFAC's 50% rule. Businesses should also thoroughly evaluate their global supply chains to identify potential exposure to sanctions programs and to anticipate how future sanctions may affect their operations.
For a list of entities and individuals sanctioned by the U.S. government, consult OFAC’s Sanctions List Search (opens a new window). For updates on the Biden administration’s Russia sanctions program, view the news section of the U.S. Treasury Department's website (opens a new window).
