(Bloomberg) -- President Joe Biden’s administration is expanding the use of secondary sanctions on Russia with an eye toward curtailing the sale of semiconductor chips and other goods to Russia, targeting third-party sellers in China and elsewhere as it looks to further choke off Vladimir Putin’s war machine in Ukraine.
The new measures include all Russian companies, people and entities that have been previously sanctioned, including banks Sberbank and VTB, increasing the risk to third-country financial institutions or companies who do business in the Russian economy. The measures also include sanctions on new Russian natural gas projects and Russia’s main stock exchange, the MOEX, as well as the National Clearing Center and the country’s main settlement depository.
“We are increasing the risk for financial institutions dealing with Russia’s war economy and eliminating paths for evasion, and diminishing Russia’s ability to benefit from access to foreign technology, equipment, software, and IT services,” Treasury Secretary Janet Yellen said in a statement. “Every day, Russia continues to mortgage its future to sustain its unjust war of choice against Ukraine.”
On the energy front, new measures target Russia’s planned liquefied natural gas projects, including Obsky LNG, Arctic LNG 1, Arctic LNG 3 and Murmansk LNG. The measures also target seven LNG tankers at Russian shipyard Zvezda, including three vessels for an Arctic LNG 2 project hit by an earlier round of sanctions that prevented the start of exports from Russia’s newest LNG export plant.
New sanctions also target RusGazDobycha, which is Gazprom PJSC’s partner in a project to produce liquefied natural gas and other products at Ust-Luga on the Baltic Sea, and insurer Sogaz. General licenses permitting trade in agriculture, medicine and other forms of energy, including oil, remain in effect.
Chips are another key target of the expanded sanctions. Russia is still managing to source chips from third-party countries for use in missiles and other inputs critical to the battlefield despite a push to curb Moscow’s access to technologies supporting its war effort. To counter this, the administration is broadening the scope of existing export controls and restrictions to target US-branded goods even if they’re not made domestically.
“These actions heighten the risk for financial institutions dealing with Russia’s war economy, closes down avenues for evasion, while diminishing Russia’s ability to benefit from access to foreign technology, equipment, software and IT services,” National Security Advisor Jake Sullivan told reporters Wednesday.
The move comes as Biden prepares to join Group of Seven leaders for a summit in Italy, where one of their top concerns will be securing new ways to bolster aid to Ukraine and further constrain Russia. Biden will meet Thursday with Ukrainian President Volodymyr Zelenskiy.
Russia’s war, now in its third year, has seen a renewed offensive and intensified aerial bombardment of Ukrainian cities as Moscow seeks to capitalize on a months-long delay in US aid that hampered Ukraine’s defenses.
Third-Party Sellers
One of the biggest changes in the expanded sanctions relates to how the US enforces requirements that require an export license for manufacturers or third-party sellers to sell chips and other goods to Russian military entities, according the people familiar with the moves, who spoke on condition of anonymity ahead of the formal announcement.
US regulators aim to curb sales of chips made abroad, and sold abroad, if they’re US-branded or if they’re made based on US technology or with US-linked equipment, and thus subject to sanctions. Previously, enforcement has focused more on US-origin goods. The US will identify third-party sellers and warn them that they are restricted from sending US-branded chips to Russia, a person familiar with the matter said. The resellers are often based in China.
The US is also publishing addresses — without a known company name — on its list of sanctioned entities for the first time, according to the people. That includes eight addresses in Hong Kong that the American government says are linked to reshipments of chips to Russia.
Resellers can apply for a license for sale if it’s for a legitimate, non-military purpose, people familiar with the matter said. Companies violating sanctions could be subject to criminal penalties or restrictions on their own inputs, one of the people said.
The Biden Administration is also detailing so-called temporary denial orders related to firms they accuse of flouting restrictions and selling goods, particularly related to Russia’s aviation sector, one of the people said. And the US is expanding restrictions on enterprise software used in Russia, which would have the practical effect of halting updates for that software.
Technology Access
The move to expand enforcement to cover chips made abroad is the latest step in a long-running push by the US and European Union to curb Russia’s access to technologies used for its war effort. Despite multiple rounds of trade restrictions, Russia has in part circumvented restrictions by importing what it needs through third countries or networks of intermediaries.
Last year, Russia imported more than $1 billion of advanced chips. Some of those shipments were built by subsidiaries and subcontractors of US and European firms and moved by resellers and intermediaries.
Earlier: Most of Russia’s War Chips Are Made by US and European Companies
The European Union is currently discussing proposals demanding companies enhance checks and making them responsible for the actions of firms they control. Several member states are pushing to water down these proposals, however, over concerns they place too heavy a burden on companies and are difficult to enforce.
The EU is discussing sanctions on banks in third-party countries that are enabling some of these transactions by using Russian alternatives to the SWIFT payments system, which processes many international money transfers.
--With assistance from Alberto Nardelli, Anna Shiryaevskaya and Olga Tanas.
(Updates with additional details on LNG projects in paragraphs 4-5, adds comment from Sullivan in 7th paragraph)
