An ochipyat crept into the sanctions list – Newspaper Kommersant No. 211 (7412) dated 11/15/2022

The United States is tightening sanctions against Russian manufacturers and developers of microelectronics. Washington has imposed blocking restrictions on a number of companies that the US believes helped Russian chipmaker Milandr place orders abroad. Kommersant’s sources call the new sanctions a precedent, emphasizing that so far there have been no attempts to block foreign partners of Russian chip developers. This threatens to completely isolate the Russian Federation from foreign capacities, while domestic factories are able to cover only 3% of the demand for microcircuits.

The United States recognized the Russian PKK “Milandr” as violating the sanctions regime, the country’s Ministry of Finance said in a message dated November 14. As a result, blocking sanctions were imposed on Mikhail Pavlyuk, General Director of the PKK Milandr, the Milur company associated with Milandr, and legal entities that are called foreign structures in the United States – Taiwanese Sharp Edge Engineering Inc., Armenian Milur Electronics LLC and Swiss Milur SA (according to the US, it is the parent structure of Milur Electronics).

Sharp Edge, according to the US, purchased microelectronics from Asian companies for Milandra. Milur Electronics also, according to Washington, was created to place orders with foreign factories, with the employees of “Milandr” “trying to get direct access to its business connections.”

The US Treasury also imposed sanctions against two citizens who are credited with being involved in the creation of Milur Electronics, Swiss Jacques Pasha and Swiss and Estonian citizen Holger Lahn. Milandra declined to comment.

Information about the current shareholders and financial performance of PKK Milandr JSC is not available in the available information disclosure databases. According to official website company, “Milandr” develops integrated circuits with a manufacturing process up to 28 nm, is engaged in the development and production of electronic modules, packages for integrated circuits, and so on. The site also says that over the past ten years, Milandr has completed more than 240 development projects, the main consumers of which are manufacturers of communication equipment, radio systems, on-board computers, etc. The company is also developing processors for smart electricity meters, microcontrollers , RAM boards. In total, it produces about 550 thousand microcircuits a year.

After the outbreak of hostilities in Ukraine, the United States consistently introduced and tightened sanctions against Russian developers and manufacturers of electronics. In March, Baikal Electronics JSC, MCST JSC, STC Modul and SPC Elvis fell under export restrictions. The sanctions assumed that foreign counterparties were required to coordinate with the Bureau of Industry and Security (BIS) of the US Department of Commerce all deliveries of any products to these companies (see “Kommersant” dated March 5). In September, Baikal Electronics, JSC MCST and JSC SPC Elvis were already included in the SDN list (implies the blocking of any assets and a complete ban on transactions; see “Kommersant” dated September 15).

A top executive at a major Russian electronics manufacturer says the US-blocked companies were needed by Milandra to gain access to Asian factories capable of producing microcontrollers and other components. “This is a very dangerous precedent for the Russian industry. If the US continues to hit on such “layers”, it threatens to finally cut off Russian electronics developers from foreign factories. Although both the regulator and the companies themselves expected to continue working with the help of such schemes after the imposition of sanctions,” he says. The situation is complicated by the fact that Russian semiconductor manufacturers can cover the needs of the Russian market by no more than 2-3%, the interlocutor of Kommersant adds.

Yaroslav Petrichkovich, the founder of the Elvis Design Center, agrees with this assessment: “Inclusion of “layer” companies in the US sanctions list can harm Russian manufacturers in all areas, namely, make it impossible to place orders for the production of microcircuits, lead to difficulties in purchasing components and equipment for the production of semiconductors.

The US authorities are actively identifying supply chains to Russia for technologies and products that are subject to export restrictions, said Mergen Doraev, partner at the EMPP Law Office. “They have accumulated considerable experience in this area, since similar work has been carried out for many years in relation to Iran and Syria,” he says.

Affiliation with a sanctioned entity is usually hidden by options and quasi-corporate agreements, but it is difficult to identify them, so it is easier to use the mechanism of secondary sanctions, that is, include a foreign company directly on the SDN list, adds Mikhail Zhuzhzhalov, senior lawyer at Tomashevskaya & Partners. In the future, in his opinion, the US authorities will seek from jurisdictions to tighten the requirements for the turnover of shares, in particular, the disclosure of options and their conditions through registration.

According to Mergen Doraev, as a result, procurement schemes will become even more confusing, and “communication with the end consumer will become increasingly difficult to trace,” which inevitably affects the cost of products.

Nikita Korolev, Yuri Litvinenko, Timofey Kornev, Anna Zanina