Expansion of US Sanctions on Russia Aims to Deter Countries Like China from Engaging in Business with Moscow

As the G7 leaders readied to convene in Italy for a summit with the aim of bolstering support for Ukraine and weakening Russia’s war efforts, the United States expanded its sanctions against Russia on Wednesday.

On Wednesday, Chinese companies that assist Russia in its war efforts in Ukraine were the focus of the package. This move has intensified the consequences for foreign financial institutions that collaborate with sanctioned Russian entities.

In an effort to restrict the inflow and outflow of funds in Russia, the sanctions also aimed at the financial infrastructure of the country. The Moscow Exchange, in response to the announcement of sanctions, promptly declared the suspension of transactions involving dollars and euros.

As the war rages on, the U.S. has taken measures to cut off the flow of money and armaments to Moscow, which has gained an upper hand in the battlefield due to its superior firepower. Over 4,000 Russian businesses and individuals have been slapped with sanctions to achieve this objective. However, despite these efforts, Russia continues to create new companies and restructure supply chains to keep its operations running.

According to Aaron Forsberg, Director for Economic Sanctions Policy and Implementation at the State Department, it is important to acknowledge that Putin is a highly skilled adversary who is willing to adjust his tactics and seek out willing partners. Forsberg made these comments to The Associated Press, highlighting the need for vigilance and adaptability in dealing with Putin and his allies.

According to him, the sanctions imposed on Russia are subject to change and constantly evolving. He referred to them as a “dynamic affair.”

To combat the issue of companies reopening under a new name at the same address, listing addresses for the first time is now being implemented.

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The flow of illicit goods has not been halted despite the sanctions imposed. However, the main objective is to increase the difficulty for Russia in procuring essential technology while also causing an increase in the cost of these goods. The package that was announced on Wednesday is aimed at disrupting over $100 million worth of trade between Russia and its suppliers for the war effort.

The latest round of sanctions, which totals over 300, is primarily intended to discourage individuals and businesses in countries like China, the United Arab Emirates, and Turkey from assisting Moscow in bypassing Western restrictions on accessing critical technology. Additionally, the sanctions warn global financial institutions against conducting transactions with any Russian entity that has been sanctioned. This serves to reinforce the American belief that the Kremlin has shifted the Russian economy towards a wartime stance.

According to Treasury Secretary Janet Yellen, the Russian military is eager to obtain access to the global community.

Moments before President Joe Biden’s arrival in Italy for the G7 summit, an announcement was made regarding urgent aid for Ukraine. The leaders of the G7 are considering various measures to support Kyiv, including the conversion of frozen Russian assets into billions of dollars of financial assistance.

On Wednesday, it was reported that seven companies from China and Hong Kong have been accused of transporting materials worth millions of dollars to Russia, some of which could potentially be used to create weapons systems.

According to U.S. officials, China is the primary provider of essential components to Russia, offering both Chinese and Western technology.

Officials reported on Wednesday that a Chinese state-owned defense company had been sanctioned by the U.S. for allegedly transporting military equipment to be used in the Russian defense sector.

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According to Benjamin Hilgenstock, a senior economist at the Kyiv School of Economics, the recent move by the U.S. indicates that they are ready to take more risks by intensifying the pressure on the Chinese government.

On Tuesday, reporters were informed by John Kirby, the White House national security spokesman, that they plan on confronting China’s non-market policies that are causing harmful global spillovers. Additionally, they will be addressing China’s support for the Russian defense industrial base.

When President Vladimir Putin invaded Ukraine, China did not impose sanctions on Russia. In fact, during Putin’s visit to China in May, he highlighted the growing strategic relationship between the two nations.

Janis Kluge, a sanctions specialist on Russia at the German Institute for International and Security Affairs in Berlin (SWP), expressed that the Chinese leadership does not have any interest in ensuring the success of these sanctions.

According to Kluge, Beijing is hesitant to put an end to a profitable trade that generates significant revenue. At the same time, China is reluctant to increase the pressure on Putin amidst the ongoing conflict.

Russia relies heavily on imports from China as the country is a major producer of critical components, which are essential for Western companies. Moreover, Chinese companies serve as intermediaries for the sale and shipment of Western components to Russia.

Hilgenstock revealed that even though Chinese technology has been identified in the Ukrainian battlefield, the majority of the components used still originate from Western countries. This is particularly true for the high-tech drones and ballistic missiles, where the components are primarily sourced from Western nations.

Officials have revealed that the United States has also targeted businesses in Turkey and the United Arab Emirates, in addition to China. The targeted businesses were found to have sent high-priority items to companies in Russia, some of which were already under sanctions.

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Last December, the White House had announced that sanctions could be imposed on foreign financial institutions that collaborated with entities within Russia’s defense sector. However, the recent development has expanded the scope of sanctions, and now such institutions could be subjected to such measures for working with almost any sanctioned Russian entity.

As President Joe Biden prepares to attend the G7 summit, his foreign policy expert, Jake Sullivan, has a stern warning for China and other nations. Sullivan shared with reporters that the Treasury Department is keeping a close eye on their actions and they are in danger of facing a sanctions regime if they do not comply with regulations. The message is clear: any attempt to violate the rules will not be tolerated.

According to analysts, the threat of triggering secondary sanctions is a powerful tool that instills fear.

According to Kluge, Chinese banks are cautious about becoming a target of secondary sanctions as it could result in significant costs. While President Xi Jinping may not be inclined to aid Western sanctions against Russia, Chinese banks have been known to sever ties with Russian clients to avoid being targeted.

The package intends to limit the growth of Russia’s energy industry and potential revenue streams, including projects for Arctic liquefied natural gas that have received crucial technology from a Chinese firm.

Moreover, the sanctions package specifically aimed at individuals who were complicit in the coerced relocation and expulsion of Ukrainian children to Russia. The package included penalties for five individuals in Russia and Russian-occupied Ukraine who played a role in the forced militarization and reeducation of these children, as well as providing them with Russian passports.

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