By: Daniela Melendez, Associate at The Volkov Law Group, and Alex Cotoia, Regulatory Compliance Manager. Daniela can be reached at [email protected] and Alex can be reached out at [email protected].

In a significant development underscoring the U.S. government’s continued efforts to counter Russia’s destabilizing activities, the U.S. Department of the Treasury recently announced the designation of Gazprombank as a Specially Designated National (“SDN”) under Executive Order 14024. This action, aimed at one of Russia’s largest financial institutions, highlights the Treasury’s ongoing strategy to target key players in Russia’s financial sector that facilitate the evasion of sanctions and provide critical support to the Russian Federation’s harmful activities. By designating Gazprombank, the Treasury has effectively frozen all of its assets under U.S. jurisdiction and prohibited U.S. persons from engaging in any transactions involving the bank unless specifically authorized by the Office of Foreign Assets Control (“OFAC”).

The designation of Gazprombank is emblematic of a broader strategy to disrupt the financial networks supporting Russia’s military and economic activities. Historically, Gazprombank has been a key financial conduit for Russian state-owned enterprises and industries essential to the Russian economy. By subjecting the institution to SDN restrictions, the Treasury seeks to dismantle its role as a facilitator of transactions that undermine the effectiveness of U.S. and allied sanctions. This measure serves as a clear warning to foreign financial institutions that any engagement with sanctioned entities carries significant risks of enforcement action.

In addition to the designation of Gazprombank, the U.S. Department of the Treasury imposed sanctions on several entities and individuals integral to Russia’s financial and military operations. These actions targeted companies within Russia’s technology and defense sectors, which provide critical components supporting its military-industrial base. By restricting access to key resources and technologies, these measures aim to impair Russia’s ability to sustain its war efforts. The Treasury also sanctioned individuals managing sophisticated financial networks designed to facilitate sanctions evasion, including the use of shell companies to obscure illicit transactions.

Along with the announcement of Gazprombank’s designation, OFAC also issued an alert regarding the sanctions risks associated with participation in Russia’s financial messaging system, Sistema Peredachi Finansovykh Soobscheniy (“SPFS”). Established in 2014 by the Central Bank of Russia, SPFS was explicitly designed as an alternative to the Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) in response to Russia’s partial disconnection from the global financial system following its illegal annexation of Crimea. SPFS has since been positioned as a mechanism for Russian financial institutions to evade sanctions and maintain international financial connectivity, with notable participation from other sanctioned jurisdictions such as Iran. OFAC’s alert warned foreign financial institutions that joining SPFS may result in their designation under E.O. 14024 for operating within the Russian Federation’s financial services sector.

The alert further emphasized that the act of joining SPFS after the publication of this guidance would be considered a red flag, signaling potential complicity in sanctions evasion. OFAC underscored that foreign financial institutions should exercise extreme caution in their dealings with banks utilizing SPFS, as such entities often serve as channels for sanctions circumvention. By targeting SPFS, the Treasury aims to limit the Russian Federation’s ability to sustain economic operations outside of the SWIFT network and to impede the financial flows that support its military efforts.

Collectively, these developments reflect the U.S. government’s ongoing commitment to imposing severe economic consequences on entities that enable Russia’s destabilizing conduct. The simultaneous designation of Gazprombank and the issuance of the SPFS alert are part of a coordinated strategy to close loopholes in the sanctions regime and enhance the efficacy of global enforcement efforts. Taken together, these measures highlight the risks foreign institutions face when engaging with Russian financial entities and systems that facilitate sanctions evasion, thereby reinforcing the need for robust compliance protocols and heightened vigilance when engaging in cross-border transactions.