Secondary Sanctions on Russia

For any business or bank outside the U.S. and EU, Russia secondary sanctions are a major headache. Why? These rules penalise non-U.S. and non-EU companies for doing certain business with sanctioned Russians. They extend Western sanctions across the globe. The ultimate penalty is losing access to the U.S. financial system—a blow that can cripple a company’s international operations.

Secondary Sanctions – These are restrictive measures imposed by one country (e.g., the U.S.) on third-country persons or entities (e.g., a bank in Turkey or a company in China) for engaging in specific transactions with a primary sanctioned target (in this case, Russia). Their purpose is to deter non-U.S./EU actors from supporting Russia’s economy and military efforts.

Foreign Financial Institution (FFI) – As defined by U.S. sanctions authorities, this term broadly includes banks, securities dealers, money services businesses, and other entities engaged in financial services outside the United States. FFIs are a key target of Russia-related secondary sanctions.

What Exactly Are Russia Secondary Sanctions and Who Do They Target?

Think of secondary sanctions as a powerful economic weapon with extra-territorial effects. Primary sanctions hit Russian individuals, companies, and parastatal entities directly. But secondary sanctions have a different audience: third-country actors who help those primary targets. The goal is simple. Isolate Russia from the global economy by punishing its international friends.

At the top of the target list are Foreign Financial Institutions (FFIs). For a bank in Central Asia, the Middle East, or China, the threat is existential. Losing the ability to process U.S. dollars is a potent deterrent. The U.S. can terminate an FFI’s correspondent account or payable-through account with American banks, which effectively slams the door to the global financial system.

These sanctions aren’t random. They specifically focus on any transaction that benefits Russia’s military-industrial base. This means providing financial services or facilitating trade for Russian companies in the technology, defence, construction, aerospace, or manufacturing sectors is now squarely in the crosshairs.

How Does the U.S. Legally Enforce Sanctions on Third Countries?

The United States uses a formidable legal framework to project its sanctions power globally. Its main enforcement arm is the Office of Foreign Assets Control (OFAC), a powerful division of the U.S. Department of the Treasury.

Several key laws and orders provide the legal muscle:

• Executive Order 14114: Issued in December 2023, this order was a game-changer. It amended the earlier Executive Order 14024 to give OFAC authority to impose blocking sanctions on any FFI that conducts or facilitates a significant transaction for a person operating in Russia’s key economic sectors. This grants the Treasury enormous discretion to go after non-U.S. banks.
• Countering America’s Adversaries Through Sanctions Act (CAATSA): Enacted in 2017, CAATSA remains a cornerstone. Section 231 of the act requires sanctions on anyone who knowingly participates in a significant transaction with Russia’s defence or intelligence sectors.
• Enforcement and Penalties: The worst-case scenario is getting placed on OFAC’s Specially Designated Nationals (SDN) List. This is a commercial death sentence. It triggers blocking sanctions, freezing all of the entity’s assets in U.S. jurisdiction and banning U.S. persons from dealing with them. For an FFI, this means no more U.S. dollar clearing, and it becomes radioactive to other international banks. This is why it is crucial for businesses to understand who must comply with sanctions.

How Has the European Union Expanded Its Sanctions Regime?

The European Union doesn’t like the term “secondary sanctions,” but its restrictive measures can feel awfully similar, creating extra-territorial effects. The EU’s legal authority comes from Council Regulation (EU) No 833/2014, in force since July 31, 2014, and its related Council Decision 2014/512/CFSP.

While the EU’s methods differ from the U.S., it has grown far more aggressive in cracking down on sanctions evasion through third countries.

• The “anti-circumvention tool”: A powerful mechanism introduced in the 11th and 12th sanctions packages. It gives the EU the power to restrict the sale, supply, transfer, or export of specific dual-use goods and advanced technology to certain third countries. This happens if there’s a high and persistent risk those countries are just pass-throughs for getting goods to Russia.
• Listing Third-Country Entities: The EU Council isn’t shy about targeting companies outside its borders. It has already listed firms in China, Uzbekistan, the United Arab Emirates, Syria, and Armenia for directly supporting Russia’s military-industrial base. Once listed, these companies face the EU’s toughest trade restrictions.

This expansion shows a clear convergence in U.S. and EU strategy. They’re working together to close loopholes and tighten the economic vise on Russia. These measures are a critical part of the wider Ukraine-related sanctions program.

Do sanctions on Russia work?

That’s the billion-dollar question, and the answer is debated constantly. Economically, they’ve clearly hurt Russia’s access to Western tech and money, making it harder to build advanced weapons and sustain military operations. Being cut off from mainstream banking has forced a pivot to less efficient, more expensive workarounds.

But enforcement is a huge challenge. Russia adapted. It now uses a “shadow fleet” of oil tankers to get around price caps and builds complex evasion networks through countries in the Caucasus, Central Asia, and the Middle East. So while the sanctions have inflicted real pain, they haven’t yet achieved their ultimate goal: stopping the war.

Are there UN sanctions on Russia?

No. The UN Security Council (UNSC) has not imposed any comprehensive sanctions on Russia for the war in Ukraine. The reason is simple: as a permanent member of the UNSC, Russia can veto any such resolution. This lack of UN consensus means the current sanctions regime is a coalition of the willing—led by the U.S., EU, UK, and G7—not a globally mandated action.

What Are the Key Risks for Businesses in Third Countries?

If your company or bank operates in a country that hasn’t sanctioned Russia, this secondary sanctions regime is a minefield.

1. Financial Isolation and De-Risking: The biggest fear is being severed from the U.S. dollar and Euro systems. Just a whisper of suspicion—the mere possibility you facilitated a banned transaction—can cause giant international banks to “de-risk” and close your correspondent accounts. Critically, this can happen without any formal action from OFAC, simply because the risk you present is too high for your partners. These sanctions risks for global businesses are a top concern for any compliance team.
2. Intense Due Diligence Burden: You must now vet your entire supply chain, every customer, and all counterparties with a fine-toothed comb. One significant transaction with a sanctioned Russian, or even a non-sanctioned company that helps Russia’s military, can invite catastrophic penalties. This means digging deep into ownership structures and figuring out the true end-use of goods and services.
3. Caught Between Conflicting Laws: Russia has its own counter-measures, like Decree of the President of the Russian Federation No. 252. This law forbids Russian entities from honoring certain contracts with people from “unfriendly states.” This creates an impossible situation where complying with U.S. secondary sanctions might force your company to break Russian law.

Comparing U.S. and EU Secondary Sanctions Approaches

The takeaway: The U.S. approach is all about the money, using the dollar’s dominance to force compliance. The EU’s model is more about the physical flow of goods, trying to stop sensitive tech from reaching Russia. For a bank, the U.S. regime is the more immediate existential threat. For an exporter or logistics firm, both regimes present serious, and slightly different, risks.

This article is published by an independent law firm for informational purposes only and does not represent or claim affiliation with any government body, international organization, or official authority.