The Pivot
Treasury focuses on Iran, Terrorism, and Cartels
Every new administration will have its priorities when the new President takes office, establishing new focus in everything from foreign and economic policy to domestic concerns.
When former President Biden entered the White House, priorities shifted to Covid relief, the $1.9 trillion American Rescue Plan Act enacted in March 2021, and an expansive sanctions policy, which included designations against 13 different countries in his first 100 days in office, according to due diligence firm, Castellum.ai.
When Russia launched its full-scale invasion of Ukraine in February 2022, the Biden Administration executed a major pivot to holding Russia accountable for its aggression. Thousands of sanctions and other restrictions were imposed on Russian individuals and entities, including a $60 price cap on Russian oil, restrictions on exports of various goods and technologies critical to Russia’s invasion, and designations on those who facilitated Russian sanctions evasion.
President Biden in December 2023 signed Executive Order 14114, giving the US Treasury new authorities to impose sanctions on foreign financial institutions that help Russia build up its war machine. At the time, I explained the new EO this way:
The new EO amends the existing EO 14024, authorizing sanctions, including full blocks and restrictions on correspondent accounts, on foreign financial institutions that are either (1) facilitating significant transactions on behalf of persons designated for operating in certain key sectors of the Russian economy that support the country’s military-industrial base; or (2) facilitating significant transactions or providing services involving Russia’s military-industrial base, including those relating to specific manufacturing inputs and technological materials that Russia is seeking to obtain from foreign sources.
Then, last June, the US Treasury declared that any entity designated pursuant to EO 14024 is part of Russia’s pivot to a wartime economy, and therefore subject to secondary sanctions. Therefore, any foreign financial institution conducting significant and continued transactions with any individual or entity sanctioned under EO 14024—several thousand individuals and entities—can be subject to secondary sanctions.
The Biden administration relied heavily on sanctions and coordinated actions with our partners and allies to limit Russia’s resources to conduct its war in Ukraine, and I have often been critical of Biden’s timid approach.
There was, however, no doubt that sanctions against Russia, trade controls limiting Russia’s access to critical goods and technologies to help it conduct its war, and slashing Russia’s resources was a major priority for Biden.
The Pivot.
The priorities of the second Trump administration are different, and the Treasury is currently executing a pivot. Unlike our allies and partners, the Trump administration did not mark the third anniversary of Russia’s full-scale invasion of Ukraine with thousands of designations.
Indeed, since President Trump took office, and despite several threats issued by him and members of his administration against Russia should Vladimir Putin refuse to end the war, not a single designation has been issued against Russia under EO 14024.
Not one.
Instead, OFAC has been focusing on Iran, its terrorist proxies, and drug cartels. If you look at Treasury’s Press Release page, you will see terrorism, Iran, and cartel designations, and the only new Russian designation targets last month were related to a Huthi weapons and commodities procurement network.
Vladimir Putin has been intransigent about continuing his all-out war against Ukraine. The Senate allegedly has a veto-proof commitment from 72 Senators who support sanctions against Russia and its allies should Putin refuse “serious negotiations” to end the war in Ukraine.
The draft legislation, which Senator Lindsey Graham claims includes broad support in the House of Representatives, includes a 500 percent tariff on imports from countries that buy Russian oil, petroleum products, natural gas, or uranium. Other sanctions would also prohibit US citizens from buying Russian sovereign debt.
We shall see. The key to any effective sanctions policy is enforcement. Will the United States finally commit to enforcing these penalties against Russia and its allies?
Now that the minerals deal with Ukraine has been signed, perhaps the United States will act to protect its economic interests against Russia, despite the absence of explicit security guarantees. (Please see the full text of the agreement here.)
Does this mean the US Russia sanctions regime is gone?
No, the US sanctions regime against Russia is very much active. As a matter of fact, the White House last month extended the National Emergency with respect to specified Russian harmful foreign activities declared by Biden in April 2021 for another year, meaning that the EO 14024 sanctions are still in effect.
All the designations, until specifically removed, are still active.
Secondary sanctions risks for foreign financial institutions transacting with any individual or entity designated under EO 14024 still exist.
And the Trump Administration in March allowed General License (GL) 8L under the Russian Harmful Foreign Activities Sanctions Regulations to expire, resulting in prohibitions applying to transactions involving energy with a broad set of systemically significant Russian financial institutions on OFAC’s SDN List.
I was very critical of the Biden administration at the time GL 8L was issued, because the White House, terrified of shocks to global energy markets, authorized transactions with sanctioned Russian banks, such as Sberbank, VTB, and Alfa to ensure the availability of viable payment channels for Russian energy.
That authorization no longer exists, but again, we need to actually enforce these restrictions in order for them to be effective.
The Justice Department since the new President took office, has had limited enforcement of violations of sanctions against Russia and other restrictions, and those were mostly focused on export control violations.
Russian national Oleg Patsulya last month was sentenced to 70 months in prison for his role in a conspiracy to export controlled aviation technology to Russia and to launder money in connection with the illegal export scheme.
Israeli freight forwarder, Gal Haimovich, in February was sentenced to 24 months in prison and three years of supervised release for conspiracy to illegally ship aircraft parts and avionics from US manufacturers and suppliers to Russia, including for the benefit of sanctioned Russian airline companies.
In February, Flighttime Enterprises Inc., a US subsidiary of a Russian aircraft parts supplier, along with three of its current and former employees, were charged with crimes related to a scheme to illegally export aircraft parts and components from the United States to Russia and Russian airline companies without the required licenses from the Department of Commerce.
So although the sanctions and strategic trade controls focused on Russia are still in effect, the pivot of the Trump administration is clear. There have been 28 updates to the SDN list since the President took office on January 20th, and all but two have been focused on Iran, counterterrorism, and transnational organized crime.
Additional clues.
In addition to OFAC designations, a glance at guidance, regulator assessments, and geographic targeting orders, can give firms and financial institutions some insights into the Trump administration priorities.
Several drug cartels have been designated as foreign terrorist organizations (FTOs) by the current administration, meaning that US entities that transact with businesses that are owned by these cartels risk being charged with providing material support to terrorist organizations.
Cartels designated as FTOs are involved in sectors that may not be normally considered high-risk, such as fuels, agriculture, and dairy. For example, cartels such as Sinaloa and Cártel de Jalisco Nueva Generación (CJNG) are heavily involved in these enterprises, increasing regulatory risk for US firms and financial institutions that transact with entities in Latin America involved in those sectors.
FinCEN in March issued a new geographic targeting order, requiring money services businesses in 30 zipcodes along the US Southwest Border to file currency transaction reports (CTRs) on cash transactions of more than $200, possibly to prevent smurfing (a money-laundering technique that involves depositing illicit funds into multiple bank accounts below the reporting threshold to avoid detection).
FinCEN today, in coordination with OFAC, and the DEA, FBI, and Homeland Security Investigations, issued an alert urging financial institutions to be vigilant in detecting, identifying, and reporting suspicious activity connected to CJNG, Sinaloa Cartel, Gulf Cartel, and other Mexico-based transnational criminal organizations that smuggle stolen crude oil from Mexico across the US southwest border into the United States. FinCEN highlights that the cartels are using complicit Mexican brokers in the oil and natural gas industry to smuggle and sell crude oil stolen from Mexico’s state-owned energy company, Petróleos Mexicanos (Pemex), to complicit, small US-based oil and natural gas companies operating near the US southwest border.
Through these schemes, the Cartels are stealing billions of dollars of crude oil from Pemex, fueling rampant violence and corruption across Mexico, and undercutting legitimate oil and natural gas companies in the United States.
OFAC today also designated three Mexican nationals and two Mexico-based entities involved in a drug trafficking and fuel theft network linked to the CJNG.
And FinCEN last month issued a Financial Trend Analysis focused on patterns and trends identified in Bank Secrecy Act (BSA) data linked to fentanyl-related illicit finance. Another FinCEN alert in late March focused on bulk cash smuggling and repatriation by Mexico-based transnational criminal organizations.
Based on current sanctions, guidance, and other regulatory developments, we can definitely see the direction of the Trump administration’s pivot, so monitoring possible new developments, designations, and other restrictions having to do with illicit drugs, Iran, terrorism, or Iran’s terrorist proxies in various regions is key. That said, please don’t think that just because the priorities changed, your organization can violate existing sanctions on Russia and its facilitators with impunity.
The risks haven’t changed, but rather increased thanks to additional priorities that can make compliance even more complicated.