On October 14, 2022, the US issued an alert on the impact of sanctions and export controls on Russia’s military-industrial complex, which was published jointly by the US Department of the Treasury, the US Department of Commerce and the US Department of State. The alert provides a summary of US actions taken by the Treasury Department’s Office of Foreign Assets Control (“OFAC”), the Commerce Department’s Bureau of Industry and Security (“BIS”), and the State Department since the Russia launched its unjust war in February 2022, including OFAC’s and the State Department’s efforts to immobilize approximately $300 billion worth of assets of the Central Bank of the Russian Federation and the imposition of approximately 1,500 new and 750 amended sanctions listings in an effort to limit Russia’s ability to fund the war, while the BIS has focused on and degraded Russia’s military capacity by denying exports, reexports and transfers within Russia and Belarus which target, among others products, those needed for oil refining and chemical and biological weapon production; industrial and commercial items needed for Russia’s defense industrial base, and the addition of certain military end users to BIS’s Entity List which enables the US to deny items to specific end users.
The alert also reports that the strategic actions taken by the US and its allies and partners in response to the unjustified and unprovoked invasion of Ukraine are having “significant and long-lasting” impact on Russia’s defense industrial base. According to the alert, the collective impact of global sanctions and export controls has “degraded the Russian defense industry’s ability to replace weapons destroyed in the war, including over 6,000 pieces of military equipment such as tanks, armored personnel carrier, and infantry fighting vehicles” forcing Russia to turn to Iran and North Korea for supplies and equipment. In addition, the recent restrictions on microelectronics imposed by the US and its allies have caused Russia’s import of semiconductors from global sources to drop by approximately 70 percent while the production of hypersonic ballistic missile production in Russia has nearly ceased. The US further reports that, due to the semiconductor shortage, the Russian military has reportedly resorted to “cannibalizing chips from dishwashers and refrigerators to fix their military hardware” which has caused their production of cars in Russia to fall by three-quarters compared to last year. The deluge of new sanctions against Russia has also prompted banks in several countries to curtail ties with the Russian financial sector, and, in particular, suspend the use of Russia’s Mir National Payment System, while more than 1,000 global companies are estimated to have suspended or curtailed their operations in Russia.
The alert also indicates that Russia is attempting to evade US and partner sanctions and export controls in an effort to overcome impacts upon its military supply chain, including the use of front company and fraudulent end-user licenses to unlawfully procure foreign components. In order to address these efforts, OFAC and the State Department have and will continue to impose sanctions against persons, both inside and outside of Russia, who assist with sanctions evasion or circumvention. In an effort to help the public identify possible efforts to evade export controls, in June 2022, the Financial Crimes Enforcement Network (FinCEN) and the BIS issued a joint alert which focused on methods that Russia and Belarus may use to circumvent export restrictions.
US Treasury, Commerce, State Alert: Impact of Sanctions and Export Controls on Russia’s Military-Industrial Complex