The U.S. government has continued to indicate, both in its announcements and actions in 2023, that it views economic sanctions as a critical tool to protect national security, foreign policy, and domestic economic interests. Here is an overview of key developments from the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) and other enforcement agencies in imposing U.S. sanctions. 

Russia

As Russia's military invasion of Ukraine continued, the Biden administration, through OFAC, expanded sanctions on numerous persons that it determined were involved in either violating, or aiding Russia in evading, U.S. sanctions. The agency issued multiple designations and guidance related to compliance with the Russia-related sanctions. 

Countering Diversion of Goods to Russia: With an increased focus on severing Russia's access to the U.S. financial system and revenue flows reportedly used to sustain the invasion of Ukraine, OFAC, in conjunction with other U.S. enforcement agencies and U.S. allies, used sanctions in an effort to disrupt Russia's ability to procure materiel, technology, and other battlefield goods. Some noteworthy actions by OFAC included full blocking sanctions against hundreds of individuals of persons allegedly involved in sanctions evasion. In announcing these sanctions designations, OFAC stated that these efforts closed "key backfilling channels, expose[d] facilitators and enablers," and severed Russia's access to revenue necessary to continue the war. OFAC also imposed sanctions on those who, according to OFAC, materially supported sanctioned persons or activities, such as third-party country actors who assisted Russia in procuring restricted material or technology for warfare. 

Focus on Financial Facilitators and Oligarchs: OFAC imposed sanctions targeting persons that OFAC deemed to be Russian "facilitators" of the war in Ukraine, oligarchs, and so-called financial elites. The prohibitions against these persons exemplify efforts by the U.S. government to isolate Russia from accessing the U.S. financial system. 

• On April 12, 2023, OFAC designated several Cyprus-based entities and individuals for facilitating financial assets for Alisher Usmanov, who has been sanctioned in multiple jurisdictions. 
• On August 11, 2023, OFAC targeted several Russian elites and business magnates who continued business as usual, sustaining Russia's war efforts. This included:
  • Petr Olegovich Aven, chairman of the board of a Russia-based insurance company and the Alfa Group
  • Mikhail Maratovich Fridman, founder and active member of the Alfa Group
  • German Borisovich Khan, member of the supervisory board of the Alfa Group and chairman of another Russian construction company
  • Alexey Vikotorovich Kuzmichev, member of the Alfa Group and also lead of a Russia-based investment company 

Expansion of Russia-Related Authorities: As indicated above, OFAC expanded Russia-related sanctions authorities by issuing additional determinations and amending Directive 4 to Executive Order (E.O.) 14024. 

• On May 19, 2023, OFAC issued a determination under E.O. 14024 that identified additional sectors of the Russian Federation economy whereby persons who have operated in or are operating in may be subject to U.S. sanctions. The identified sectors include architecture, engineering, construction, manufacturing, and transportation. This determination complements other determinations authorizing sanctions against persons operating in other identified sectors of the Russian economy, such as metals and mining, quantum computing, accounting, trust and corporate formation, management consulting, aerospace, marine, electronics, financial services, technology, and defense and related materials.
• OFAC issued another determination under E.O. 14071 on June 18, 2023, that prohibits the provision of professional services by any U.S. person related to architecture and engineering to any person in the Russian Federation. 
• OFAC also amended Directive 4 under E.O. 14024, requiring U.S. persons to report to the agency by June 18, 2023, and annually thereafter by June 30, any information about property that may be located within the U.S. that belongs to the Central Bank of Russia, the Russian National Wealth Fund, or the Russian Ministry of Finance. 
• On December 22, 2023, President Biden issued E.O. 14114, "Taking Additional Steps With Respect to the Russian Federation's Harmful Activities," which amends E.O. 14024 and E.O. 14068. As we discussed in further detail here, the new E.O. implements secondary sanctions authority, although limited to foreign financial institutions (FFIs) engaged in certain dealings with or involving Russia. 

Continued Implementation of the Price Cap: In late 2022, the U.S. government, as part of an international coalition, prohibited the use of certain services in the maritime transport of Russian origin crude oil and petroleum products, unless such products were under a certain set price, as set by a coalition of allied countries (the Price Cap). The U.S. adhered to the Price Cap by issuing determinations which prohibited U.S. persons from providing "covered services" such as trading/commodities brokering, financing, shipping, insurance (including reinsurance and protection and indemnity), flagging, and customers brokering, if the Russian oil was purchased above the Price Cap. 

On February 3, 2023, OFAC provided an updated and consolidated guidance, which was subsequently updated again on December 20, 2023. The latest version implements a recordkeeping and attestation process, in which U.S. services providers must comply with to benefit from the safe harbor provision. OFAC also issued an alert on April 17, 2023, warning U.S. persons about possible evasion of the Price Cap on crude oil of Russian Federation origin. The agency warned that oil exported through the Eastern Siberia Pacific Ocean (ESPO) pipeline and ports on the eastern coast of the Russian Federation may be traded beyond the Price Cap and may involve covered services provided by U.S. persons unbeknownst to them because of deceptive acts by non-U.S. persons engaged in the exports. 

Crucially, on October 12, 2023, for the first time, OFAC imposed sanctions on two entities for alleged violations of the Price Cap. As part of the same action, OFAC identified two vessels as blocked property that reportedly used Price Cap Coalition service providers while carrying Russian crude oil sold over the Price Cap. On November 16, 2023, OFAC designated three additional entities related to Price Cap violations and also identified three vessels as blocked property for carrying Russian crude oil above the Price Cap using Price Cap Coalition services providers. To further strengthen the Price Cap, OFAC also designated SUN Ship Management D Ltd (Sun Ship), a Russian government-owned ship manager on December 20, 2023. On that same day, OFAC also designated "under-the-radar" oil traders who frequently engaged in the transportation of Russian-origin oil. 

Joint Efforts with other U.S. Enforcement Agencies: OFAC demonstrated its ongoing collaboration with other U.S. enforcement agencies in its issuance of sanctions through a couple of joint compliance notes: 

• Tri-Seal Compliance Note: Cracking Down on Third-Party Intermediaries Used to Evade Russia-Related Sanctions and Export Controls
• Tri-Seal Compliance Note: Voluntary Self-Disclosure of Potential Violations
• Quint-Seal Compliance Note: Know Your Cargo: Reinforcing Best Practices to Ensure the Safe and Compliant Transport of Goods in Maritime and Other Forms of Transportation 

The respective notes discuss red flag indicators of potential sanctions evasion, among other guidance, such as how U.S. enforcement agencies address voluntary self-disclosure (VSD) policies related to U.S. sanctions, which we discussed in detail here. Moreover, in line with previous compliance notes the agencies have published, the Quint-Seal joint compliance note describes typologies undertaken by malign actors in the maritime and transportation industries to circumvent U.S. sanctions and export controls. We discussed this note in detail here. 

Iran

It appears that OFAC had two focal points in terms of designation and enforcement: (1) countering Iran's proliferation of and procurement of other military grade weapons; and (2) sanctions in response to human rights abuses allegedly committed by Iran's government. 

Countering the Procurement of Military Goods: OFAC designated various actors for allegedly violating or circumventing U.S. sanctions imposed on Iran. Persons that were designated were described by OFAC to either produce, or facilitate the procurement of, various military items, such as unmanned aerial vehicles (UAVs) or parts used for military goods, for or on behalf of Iran's military-industrial complex. For example, on January 6, 2023, OFAC designated six executives and board members of U.S.-designated Qods Aviation Industries (QAI), a key Iranian defense manufacturer, for allegedly designing and producing UAVs which were then transferred for Russian military use. On April 19, 2023, OFAC also designated one individual and six entities for alleged sanctions evasion. According to OFAC, the designation targeted Iran's Pardazan System Namad Arman (PASNA) and its alleged front companies and suppliers for facilitating the procurement of goods and technology for Iran. 

Sanctions Imposed in Response to Serious Human Rights Abuses: News outlets covered widespread outrage against the Iranian regime for allegations of suppression of human rights, such as the right to protest, abuse against women's and girls' human rights and dignity, and the wrongful detention of its citizens. In response, OFAC, together with its allies and partners, such as the European Union, U.K., and Australia, imposed several sanctions in an effort to address such alleged human rights violations.

Hamas-related Designations: In response to the October 2023 Hamas terrorist attack against Israel, OFAC imposed, along with the U.K., additional sanctions on Iran's Islamic Revolutionary Guard Corps – Qods Force (IRGC-QF), Hamas, and Palestinian Islamic Jihad (PIJ) under the Counter Terrorism Sanctions program. OFAC designated an IRGC-QF official for reportedly providing support to Hamas. OFAC also imposed sanctions on key Hamas officials and "the mechanisms by which Iran provides support to Hamas and [PIJ]." OFAC found the IRGC-QF transferred hundreds of millions of dollars to financially assist and furnish weapons and operational training to support Hamas' and PIJ's terrorist activities. In 2024 we've seen OFAC impose additional sanctions on persons who OFAC views as facilitating Hamas' financial networks. We will likely see such designations continue throughout this year if the conflict persists. 

Enforcement Actions: OFAC also entered several settlement agreements with entities in relation to potential Iran sanctions violations. 

• On May 17, 2023, OFAC announced it settled with Murad, LLC (Murad), for its potential civil liability for allegedly conspiring to export goods from the U.S. to Iran between 2009 and 2018. Murad agreed to pay $3,334,286 as part of the settlement. OFAC also settled with a U.S. person who allegedly caused Murad to export or reexport consumer goods to Iran. Specifically, the U.S. individual facilitated three transactions involving the export of Murad products to Iran through two distributor companies. Once Murad's parent, Unilever U.S., discovered the illicit exports, the U.S. person was instructed to inform one of the distributors to cease its operations. While the U.S. person did so, they simultaneously undertook measures to ensure the distributor's CEO would not reveal that Murad's executives, namely the U.S. person and others, approved the improper exports. The individual faced a $175,000 fine to resolve the matter with OFAC. 
• On August 16, 2023, OFAC announced it reached a settlement with Construction Specialties Inc. (CS), whereby the company agreed to pay $660,594 to resolve its potential civil liability for violating OFAC sanctions on Iran. The company's subsidiary allegedly exported U.S.-origin goods to Iran.

Advisories: OFAC also published two Iran-related advisories in the last year: Guidance to Industry on Iran's UAV-Related Activities (June 2023) and the Iran Ballistic Missile Procurement Advisory (October 2023). Through both advisories, OFAC noted its focus on countering Iran-related circumvention of sanctions, thereby suggesting persons implement appropriate due diligence controls to detect possible Iran sanctions evasion. 

Venezuela 

2023 brought impactful but short lasting change for Venezuela-related sanctions, as in October 2023, OFAC issued targeted relief from such sanctions through new or amended general licenses (GLs), which we discussed in detail here and here. The conditional sanctions relief was in response to a political agreement (the Barbados Agreement) between representatives of Maduro and the Unitary Platform, whereby the parties agreed to promote competitive and fair elections. Through the GLs, OFAC suspended certain sanctions imposed on several of sectors of the Venezuelan economy: oil and gas, gold, and finance. 

The relief was short-lived as OFAC determined certain apparent actions of the Maduro regime in 2024 were inconsistent with the Barbados Agreement. These included the apparent arrest of members of the democratic opposition and the barring candidates from competing in the 2024 presidential election. Accordingly, OFAC revoked GL 43, which authorized transactions involving the Venezuelan state-owned gold mining company, Minerven. Through the issuance of GL 43A, affected U.S. persons had until February 13, 2024, to wind down previously authorized transactions under the respective license. 

Additionally, on April 17, 2024, the U.S. announced that it would not renew GL 44, which impacts entities who had begun to initiate business with state-owned oil company Petróleos de Venezuela, S.A. (PDVSA) in Venezuela. In conjunction with the OFAC announcement, OFAC issued a 45-day wind-down license, GL 44A, which authorizes persons to engage in transactions or activities "ordinarily incident and necessary" to the wind down of activities previously authorized under GL 44. GL 44A expires on May 31, 2024. For more information on GL 44A, see our recent client alert here.

Cryptocurrency Developments

In recent years, OFAC has increased enforcement efforts targeting the cryptocurrency sector, including through at least three enforcement actions in just the last year. 

• On November 21, 2023, in one of the largest settlement actions in OFAC recent history, Binance Holdings, Ltd. (Binance), a large global cryptocurrency exchange, agreed to pay $968,618,825 to resolve civil liability for approximately 1,667,153 violations of multiple sanctions programs. According to the settlement, Binance facilitated illicit transactions involving sanctioned persons and users in sanctioned countries. OFAC's penalty imposed against the company is on top of the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN)'s civil penalty of $3.4 billion and a multi-faceted five-year monitorship overseen by FinCEN. In addition, the Department of Justice (DOJ) announced Binance pleaded guilty and agreed to pay over $4 billion to resolve the DOJ's investigation related to violations of the Bank Secrecy Act (BSA) and the International Emergency Economic Powers Act (IEEPA). 
• In addition to Binance, OFAC also settled with cryptocurrency exchange CoinList Markets LLC (CoinList) on December 13, 2023, whereby the company agreed to pay $1,207,830 to resolve its potential civil liability for processing 989 transactions for sanctioned users residing in Crimea, in violation of OFAC's Russia/Ukraine sanctions. 
• OFAC announced on May 1, 2023, that it settled with cryptocurrency exchange Poloniex, LLC (Poloniex) related to its potential violations of sanctions in relation to Crimea, Cuba, Iran, Sudan, and Syria. As part of the settlement, Poloniex agreed to remit $7,591,630 to settle its potential civil liability. 

Tornado Cash Founders Designations: On August 23, 2023, OFAC designated Roman Semenov, one of the three co-founders of Tornado Cash, which is a previously sanctioned virtual currency mixer, as we discussed in detail here and here. OFAC imposed derivative sanctions on Semenov because he purported to provided support to Tornado Cash and to the Lazarus Group, which is alleged to be a hacking group as part of the Democratic People's Republic of Korea (DPRK). Specifically, Semenov allegedly promoted Tornado Cash on online platforms through the provision of advice to users on how to anonymize their transactions and funds going toward Tornado Cash's infrastructure. OFAC's imposition of derivative sanctions against Semenov may indicate its focus on cracking down on persons using alternative currency schemes, such as cryptocurrency, to obfuscate potential prohibited activity. 

Increased Use of the U.S.'s Global Magnitsky Authority 

OFAC utilized its authority under its Global Magnitsky Sanctions Regulations to penalize individuals and entities who purported to engage in corrupt activities and serious human rights abuses. Given the uptick in designations made under this sanctions program, it appears that sanctions are increasingly being used to address official corruption and serious human rights abuses abroad. 

Corruption-related Designations: 

• In February 2023, OFAC sanctioned several Bulgarian government officials for their alleged involvement in corruption in Bulgaria. The Bulgarian officials, according to OFAC, received bribes and kickbacks from Russian energy companies, in exchange for fixed-price contracts. 
• In April 2023, OFAC sanctioned the former president of the Haitian Chamber of deputies, Gary Bodeau, for alleged corruption in Haiti. According to OFAC, Bodeau engaged in nefarious activity to influence the outcome of the Haitian political appointments through the facilitation and solicitation of bribes that were worth millions of dollars. 
• In December 2023, OFAC sanctioned Luis Miguel Martinez for purported involvement in corrupt activities in Guatemala. Specifically, OFAC noted Martinez was involved in a widespread bribery scheme, in which he colluded with other Guatemalan government officials to illegally award contracts to favored bidders outside of the Guatemalan government's formal procurement system. 
• Also in December 2023, OFAC sanctioned two former Afghan government officials, Mir Rahman Rahmani and his son, Ajmal Rahmani, for their alleged involvement in transnational corruption, including 44 associated entities. Using various Afghan companies, OFAC stated that the Rahmanis committed a complex procurement scheme, whereby millions of dollars from U.S. government-funded contracts that supported Afghan security forces were misappropriated. 

Serious Human Rights Abuse-related Designations: 

• On March 3, 2023, OFAC added six Russian nationals to its Specially Designated Nationals and Blocked Persons List (SDN List) for their purported involvement in human rights abuses against human rights defender, Vladimir Kara-Murza. 
• On August 24, 2023, OFAC also sanctioned six individuals for purportedly contributing to the escalation of conflict in the eastern Democratic Republic of the Congo (DRC), which began in November 2021. Specifically, OFAC noted that when the March 23 Movement (M23) occupied parts of the North Kivu province of the DRC, the Congolese Military (FARDC) and non-state armed groups, such as the sanctioned Democratic Forces for the Liberation of Rwanda (FDLR), responded by committing killing, maiming, and sexual violence against children.
• In light of the 75th Anniversary of the Universal Declaration of Human Rights, OFAC announced on December 8, 2023, that over the past year in 2023, the agency designated more than 150 individuals and entities globally related to human rights abuse. 

Outlook for 2024

Targeted Action Against Hamas and Hamas-Backed Groups and Persons Undermining Stability in Gaza and the West Bank: As the Israel/Gaza conflict continues, there are likely to be more designations of Hamas leaders and financiers as well as other persons that OFAC determines threaten peace, security, and stability of the region. Actions taken more recently include designations of several persons allegedly involved with, or funding, violent extremists in the West Bank under E.O. 14115, which President Biden issued on February 1, 2024. The E.O. aims to address "high levels of extremist settler violence, forced displacement of people and villages, and property destruction," which the Biden administration noted it views as a "serious threat to the peace, security, and stability of the West Bank and Gaza, Israel, and the broader Middle East region." 

In addition to potential future designations under E.O. 14115, OFAC is likely to designate other networks that may be similar to the Houthis and Hezbollah, under the Global Terrorism Sanctions Regulations (GTSR). Following the Houthis' ongoing attacks against international shipping in the Red Sea, OFAC has expressed its intent on severing the "illicit flow of funds to the Houthis." In doing so, on December 28, 2023, OFAC designated one individual and three entities for "facilitating the flow of" millions of dollars "to Houthi forces and their destabilizing activities." Recently, on January 19, 2024, the Department of State announced its designation of the Houthis in Yemen as a Specially Designated Global Terrorist Group (SDGT), pursuant to E.O. 13224, as amended, which we discussed in further detail here. The designation of the Houthis and its addition to OFAC's SDN List went into effect on February 16, 2024. It is also possible that either an executive order or sanctions program could be established to provide OFAC with broader authority to target global terrorists. 

Continued Steady Pace of Russia-related Sanctions: OFAC, along with other U.S. enforcement agencies, allies, and partners, will likely continue issuing sanctions related to Russia under existing or new authorities. As evidenced throughout 2023, OFAC will likely maintain its focus on imposing sanctions on sectors that the U.S. government views as providing resources or funds to Russia's military, those who evade the Price Cap, and those who assist Russia in evading sanctions. OFAC may also expand sanctions to impose further restrictions on Russia's energy sector and we can expect to see the roll out of a ban on diamonds mined in Russia, even if substantially transformed in third countries. For example, on December 22, 2023, OFAC announced it intends to issue a determination related to the importation of certain Russian diamonds that were processed in third countries. 

China Policy: With respect to China, the Biden administration's use of sanctions appeared to be relatively restrained in 2023, especially when compared to its use of new foreign investment restrictions and export controls to counter China's military and technological capabilities. For example the Department of Commerce's Bureau of Industry and Security (BIS) has continued to implement export controls broadly aimed at restricting China's access to strategically important technologies like advanced semiconductors, artificial intelligence, and supercomputers. 

Still, concern about the national security threats posed by China continues to be a major focus of Congress, and the larger U.S. government. Increase in military or political tensions between the U.S. and China, particularly with respect to Taiwan, and the outcome of the 2024 U.S. election are key factors that could alter U.S. sanctions policy towards China. As noted, while sanctions relating to China or Chinese entities have been modest in 2023, OFAC did designate 28 individuals and entities in a Chinese network allegedly involved with the international proliferation of illicit drugs, such as fentanyl, methamphetamine, and MDMA precursors in 2023. This action was followed the next month with discussions between Chinese President Xi Jinping and President Biden, where the two purportedly discussed bilateral cooperation on counternarcotics. Regardless, it is likely there will be more 2024 designations under OFAC's Illicit Drug Trade Sanctions Regulations.

Continued Collaboration with Allies: There is also growing collaboration with U.S. allies and partners regarding sanctions actions. As related to Russia sanctions, we may continue to see growing coordination amongst the U.S., U.K., and the EU partner countries under sanctions programs. For example, on June 28, 2023, OFAC and the U.K. Office of Financial Sanctions Implementation (OFSI) issued the first Joint Fact Sheet, which clarifies areas where humanitarian aid is permitted through licenses, exemptions, and other authorizations. The information therein outlined guidance that certain humanitarian actors, non-governmental organizations (NGOs), financial institutions, and companies that are engaged in agricultural trade or the provision of medical supplies and assistance can utilize when dealing in transactions that may be subjected to sanctions. Continued collaboration can be anticipated in 2024 to further improve sanctions globally. 

For more information, please contact:

Timothy P. O'Toole, totoole@milchev.com, 202-626-5552

Laura Deegan, ldeegan@milchev.com, 202-626-5942

Melissa Burgess, mburgess@milchev.com, 202-626-5914

Manuel Levitt, mlevitt@milchev.com, 202-626-5921

Annie Cho, acho@milchev.com, 202-626-1570

Rebecca Tweedie, rtweedie@milchev.com, 202-626-1487
 

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