US working on sanctions to curb chip sales to Russia Chinese firms on target

The United States is widening sanctions on the sale of semiconductor chips and other goods to Russia, targeting third-party sellers in China and elsewhere as it looks to further choke off Russia's war in Ukraine.

The Biden Administration on June 12 will announce changes that broaden the scope of existing export controls and restrictions to target US-branded goods even if they’re not made domestically, according to people familiar with the move who requested anonymity to detail the plans before the announcement, according to Bloomberg.

Chips, in particular, are a key target of the changes. Russia is still managing to source chips from third-party countries for use in missiles and other inputs critical to the battlefield, according to the people, despite a push to curb Moscow’s access to technologies supporting its war effort.

The US will widen the categories of restricted items by publishing broader product codes and also identify, by address, Hong Kong entities it alleges are funnelling goods to Moscow, the people said.

National Security Council spokesman John Kirby confirmed new measures were coming while declining to discuss specifics.

“We’re going to continue to drive up costs for the Russian war machine, and this week we will announce an impactful set of new sanctions and export control actions,” Kirby told reporters on June 11.

The actions will target entities and networks helping Russia procure goods for use in war, tighten rules for “financial facilitators” and curb key sectors, Kirby said. The Commerce Department, which oversees export controls, declined to comment.

The move comes as Biden prepares to join the Group of Seven leaders for a summit in Italy, where one of their top concerns will be securing new ways to bolster aid to Ukraine and further constrain Russia. Biden will meet on June 13 with Ukrainian President Volodymyr Zelenskyy.

Russia’s war, now in its third year, has seen a renewed offensive and intensified aerial bombardment of Ukrainian cities as Moscow seeks to capitalize on a months-long delay in US aid that hampered Ukraine’s defences.

Third-Party Sellers

One of the biggest changes in the expanded sanctions relates to how the US enforces requirements that require an export license for manufacturers or third-party sellers to sell chips and other goods to Russian military entities, according to the people familiar with the moves.

US regulators aim to curb sales of chips made abroad, and sold abroad if they’re US-branded or if they’re made based on US technology or with US-linked equipment, and thus subject to sanctions. Previously, enforcement has focused more on US-origin goods. The US will identify third-party sellers and warn them that they are restricted from sending US-branded chips to Russia, one of the people said. The resellers are often based in China.

The US will also publish addresses — without a known company name — on its list of sanctioned entities for the first time, according to the people. That includes eight addresses in Hong Kong that the American government says are linked to reshipments of chips to Russia.

Resellers can apply for a license for sale if it’s for a legitimate, non-military purpose, the people said.

Companies violating sanctions could be subject to criminal penalties or restrictions on their own inputs, one of the people said.

The Biden Administration will also detail so-called temporary denial orders related to firms they accuse of flouting restrictions and selling goods, particularly related to Russia’s aviation sector, one of the people said. And the US is expanding restrictions on enterprise software used in Russia, which would have the practical effect of halting updates for that software.

Technology Access

The move to expand enforcement to cover chips made abroad is the latest step in a long-running push by the US and European Union to curb Russia’s access to technologies used for its war effort. Despite multiple rounds of trade restrictions, Russia has in part circumvented restrictions by importing what it needs through third countries or networks of intermediaries.

Last year, Russia imported more than $1 billion of advanced chips. Some of those shipments were built by subsidiaries and subcontractors of Western firms and moved by resellers and intermediaries.

The European Union is currently discussing proposals demanding companies enhance checks and making them responsible for the actions of firms they control. Several member states are pushing to water down these proposals, however, over concerns they place too heavy a burden on companies and are difficult to enforce.

The EU is discussing sanctions on banks in third-party countries that are enabling some of these transactions by using Russian alternatives to the SWIFT payments system, which processes many international money transfers.

Biden has been ratcheting up support for Ukraine ahead of his rematch with Republican Donald Trump in November. Trump has been critical of US support for Ukraine, raising worries in some foreign capitals about the US commitment to Kyiv if the former president returns to office.

Biden last week met with Zelenskyy and announced a $225 million aid package for Ukraine. Biden is also allowing Ukraine to strike some military targets in Russia using US-provided weapons, a move he previously resisted for fears it would draw other nations into the war.

World leaders are also headed to a weekend summit on Ukraine in Switzerland, where the US will be represented by Vice President Kamala Harris and National Security Advisor Jake Sullivan.