We are now two years on from Russia’s invasion of Ukraine – in that time, sanctions measures have grown and evolved, partly in response to circumvention.
Moody’s Nicola Passariello, Industry Practice Lead – Financial Crime Compliance & Third-Party Risk, Director for Southern Europe & Africa, commented on the impact of sanctions over the last two years:
“There are several indicators that demonstrate fragility in the Russian economy and the impact of sanctions on Russia. At the moment, economic sanctions have been countered by a transition to a war economy model, where the State predominantly represents the largest share of demand. Russia's economic performance exceeding IMF expectations has been the subject of propaganda. Government spending and subsidies, such as low-interest home loans, have kept the economy afloat, with significant expenditures directed towards social pay-outs and national defence.
A good example of why sanctions have been effective is the financial deterioration of Gazprom following the reduction of gas exports to Europe, with researchers predicting its profitability to diminish by 2023 due to the failure of China and other countries to replace gas consumption in Europe, despite the initial gas price spike and increase in revenue.
For the US national security interest, Europe would have to remain resilient despite Putin's efforts to leverage Russia's energy exports against the region. Examples of collaborative efforts include the US-EU Task Force on Energy Security and the increased export of liquefied natural gas from the US.
In addition to the risk of US secondary sanctions, the next round of sanctions will continue to be coordinated between the US and its allies with the intent of closing loopholes.”
In our latest podcast, host Alex Pillow speaks with sanctions expert Dr Andrea Viski, founder and director of the Strategic Trade Research Institute and editor-in-chief of the Strategic Trade Review, on how the global sanctions environment has changed since the invasion, and where the biggest risks in sanctions-related financial crime lie.
To date, the European Union (EU) has adopted 12 sanctions packages, with the latest package – its 13th – approved this month. A total of $300 billion in Russian reserves has been frozen. Most recently, the European Council adopted a regulation to steer profits from frozen Russian assets to Ukraine’s reconstruction efforts.
Beyond the EU, a global community has enforced bilateral and regional sanctions on Russia. For instance, since the invasion, the United States (US) has imposed new sanctions restrictions and tightened export controls in attempts to thwart Russia’s war efforts. The Treasury’s Office of Foreign Assets Control (OFAC) is continually updating its List of Specially Designated Nationals and Blocked Persons (SDN), and has embargoed the Donetsk and Luhansk regions of Ukraine annexed by Russia.
In the past year, global sanctions measures have largely focused on a few key areas of risk:
These are some of the evolving sanctions policies currently implemented by the international community.
Major policy updates
Executive Order (EO) 14114
This EO, issued by President Biden in December 2023, strengthens US oversight on sanctions enforcement. It expands existing important prohibitions on certain Russian goods and, more significantly, authorizes secondary sanctions on foreign financial institutions (FFIs) that support Russia’s military-industrial base – regardless of whether the FFI had knowingly or unknowingly facilitated these transactions .
EU’s anti-circumvention tool
Introduced in the 11th package of sanctions in June 2023, the anti-circumvention tool seeks to reduce the sale, export, or transfer of high-risk goods entering Russia through third countries or intermediaries. The third countries or intermediaries identified are those with a higher risk of being used for circumvention or sanctions evasion.
EU’s “No Russia” clause
Under this new measure introduced in the EU’s 12th package in December 2023, companies are contractually obliged to restrict re-export to Russia and re-exportation for use in Russia of sensitive technology and goods.
Japan’s additional sanctions measures under the Foreign Exchange and Foreign Trade Act
Japan announced imposing additional sanctions against Russia in December 2023, which included freezing the assets of 35 individuals and 44 entities, an export ban to some Russia organizations and those in other countries, and an import ban on non-industrial diamonds shipped from Russia.
Recommended resources for KYC teams
Please get in touch with the team at Moody’s if you would like to learn more about our sanctions screening solutions to support your third-party risk and compliance programs.