New technological sanctions may affect parallel imports

On February 24, the US Department of the Treasury and the US Department of Commerce imposed new sanctions on Russian companies and individuals, and also approved new export restrictions restricting the import into Russia of smartphones over $300, printers, consumer electronics, TV set-top boxes and much more – 276 items in total.

The most severe restrictions were imposed by the Office of Foreign Assets Control (OFAC, a division of the US Treasury Department). Under blocking sanctions (SDN-list) fell the developer of base stations and data storage systems (SHD) “KNS Group” (“Kernel”), the developer “Norsi-trans”, and also “IKS holding” and Bastion LLC entering into it , Citadel LLC and JSC NPK Kryptonit. The Minister of Digital Development of the Russian Federation Maksut Shadayev, the Minister of Education and Science Valery Falkov, the Deputy Prime Minister Tatyana Golikova, the governors of the Murmansk Region and the Khabarovsk Territory Andrey Chibis and Mikhail Degtyarev, the CEO of ICS Holding Anton Cherepennikov and the CEO of Norsi-Trans also fell under the sanctions. Sergei Ovchinnikov.

U.S. sanctions can be divided into blocking, personal and export control measures, Kira Vinokurova, Special Counsel for Sanctions at Pen & Paper, explains. Blocking sanctions mean a ban on doing business in the United States and with American persons, as well as blocking access to the American financial system, the lawyer said. As follows from her words, the assets in the United States belonging to these persons will be blocked. It was these measures that were applied to KNS Group, X Holding, and also, for example, to Shadayev, Vinokurova specified.

Personal sanctions for individuals mean a ban on entry into the United States and transit, explained Yaroslav Shitsle, head of the “Resolution of It & Ip disputes” law firm Rustam Kurmaev and Partners. In addition, this means freezing assets, i.e., all accounts held by sanctioned persons in US banks, as well as a ban on providing them with funds, he added.

It follows from the documents of the Ministry of Finance that KNS Group, ICS Holding, Norsi-Trans, and a number of other companies fell under sanctions because they produce equipment for SORM (a system of operational-search measures. – Vedomosti), explains the general director of “Promobit” Maxim Koposov. “The main business volume of KNS Group is the production of storage systems, servers, in particular those used in SORM in pursuance of the Yarovaya law,” he said. “The companies included in the SDN list are the largest players in the SORM market, which is directly connected with the state and law enforcement agencies.”

The director of the Basis consortium, Arseniy Brykin, admits that the decision to include KNS Group in the SDN list could also be influenced by the fact that the company became the only supplier of base stations under forward contracts with the Big Four telecom operators. At the end of December 2022, the Ministry of Digital Development announced that Beeline, Megafon, Tele2 and MTS signed forward contracts for the supply of domestic base stations to their networks. About 75,000 stations worth more than 100 billion rubles will be supplied by them until 2030, Vedomosti wrote.

The company will continue to fulfill its obligations to partners and customers in full, he specified. Ovchinnikov from Norsi-trans noted that the company produces everything on its own and is completely independent of American technologies. Therefore, according to him, the new sanctions will not affect either technology or supply chains.

Experts agree that the blocking will not be critical for the operation of companies. Back in September, Aquarius, the structure of KNS Group, Kernel Fab Dubna, Baikal Electronics, MCST and SPC Elvis were included in the SDN list. “Russian companies have been living under sanctions for a long time and, as far as possible, have adapted to them. Yadro is no exception in this sense,” says Brykin. The SDN list is primarily a blow to supply chains, a ban on the supply of certain technologies or components to Russia, the expert explains. “Theoretically, some partners of KNS Group may refuse to work with them as a result, but the company could have foreseen this story and found partners from friendly countries in advance,” said Brykin.

Among the ways to circumvent sanctions are the supply of components for parallel imports and the creation of “chains of cooperation from companies in different jurisdictions,” says Koposov. He believes that during the restructuring of logistics routes, Yadro may experience a shortage of components, in connection with which the delivery time and cost of equipment will increase. “But after the new chains start working, both time and cost, in fact, will return to pre-sanction indicators,” Kolosov notes.

Under the export restrictions of the Ministry of Trade (BIS) – they are not of a prohibitive nature, but require separate approvals for deliveries to Russian counterparties – the operator “Megaphone”, developer of face recognition systems VisionLabs, technopark, institute and fund“Skolkovo“, aviation complex named after. Ilyushin, “Kamaz”, Zelenograd Nanotechnology Center. The Ministry of Commerce documents indicate that, according to them, such restrictions will lead to an increase in the number of requests for export licenses by several dozen pieces a year.

Export controls usually target specific types of goods and technologies, explains Pen & Paper’s Vinokurova. The companies are included in the list of persons in favor of which the export of goods made in the United States or incorporating American components and technologies is prohibited, the lawyer explained. But unlike blocking sanctions, being on the BIS list does not mean blocking assets and a ban on any economic transactions, she clarified.

In 2020, export restrictions have already been introduced against a number of Russian defense enterprises and universities, including the Moscow State Technical University. N. E. Bauman, reminded Shitsle. After that, the university could not acquire a license for Windows software, he said.

The BIS export restriction means that now any American organization must refuse to supply goods to a counterparty if its final buyer is a sanctioned organization, the lawyer said. That is, it will be more problematic for Megafon and VisionLabs to gain access to software and high-tech equipment, he believes.

Export restrictions are imposed against these companies, coupled with the so-called opt-out policy. Ivan Timofeev, program director of the Russian International Affairs Council, explains that in this way an American manufacturer from which Megafon or any other company from the list tries to buy equipment will initially face a tough refusal from the US Department of Commerce.

The economic potential of sanctions has already been exhausted by previous packages, so the introduction of new restrictions will have a minimal impact on the economy, said Alexander Shirov, director of the Institute for Economic Forecasting of the Russian Academy of Sciences. The package was adopted by the “next date”, it can be called rather formal, the economist believes. According to him, de facto export sanctions were already in force, now they have been fixed de jure.

From the point of view of the GDP forecast for 2023, the restrictions will not have a significant effect, says economist Alexander Isakov. The experience of countries that have experienced a similar level of pressure, including similar sanctions against the financial sector, suggests that the potential impact on growth in them does not exceed 0.5-1% per year, the expert points out. According to him, if such estimates are confirmed, then Russia will miss out on the order of 1-1.5% of growth every year while the restrictions are in place.

Despite the absence of qualitative changes and a shock effect on the Russian economy, a new wave of sanctions is still quite noticeable, Timofeev believes. The sanctioning of consumer electronics is a serious tightening of restrictions in the technology sector. According to the expert, such measures also hit parallel imports. If earlier it was possible to import goods into Russia that suffered from a boycott of companies, now, given the ability of the United States to introduce criminal prosecution for violating sanctions, parallel imports are becoming a much more risky activity, Timofeev believes.

Harm is also caused by financial restrictions that limit the ability of counterparties to work in dollars and euros. As a result, Timofeev sums up, despite the absence of fundamentally new restrictions in terms of quality, the imposed sanctions are quite serious and “hawkish moods” in relation to them are inappropriate.

The export restriction will affect all smartphones that are manufactured in the United States, says Denis Kuskov, CEO of Telecom Daily. In addition to the iPhone, the ban will apply to the import of devices Samsung, Google, he lists. If we are talking about smartphones more expensive than $300 (wholesale price per unit of goods, about 23,000 rubles), then about a quarter of the market belongs to smartphones with such a cost, a Vedomosti source close to the distributor indicates. First of all, we are talking about the flagships of Apple and Samsung, he confirms.

But devices not from American vendors, but, for example, Chinese ones, which use 25% of components from the USA, may also fall under the restrictions. The question of how to count this, the interlocutor notes: “You can simply add up all the components in the device and select a quarter of the American components from them, or you can count according to the US patent for technology in a particular semiconductor and recognize the entire system as American.”

A new round of US sanctions calls into question the parallel import of Apple products, says Mikhail Burmistrov, CEO of Infoline Analytics. “It is one thing when an American company, on its own initiative, officially stopped deliveries to Russia, and quite another when the delivery is prohibited by sanctions,” he points out. This may threaten further restrictions for large retailers, most likely, these risks will significantly increase the cost of equipment. Indeed, now retail chains, when selling Apple devices, assume warranty obligations provided for by law, the expert points out.

Most likely, the imposition of sanctions means that it will be more difficult for small brokers to supply everything because they can be punished, Kuskov said. It is possible that large retail chains will completely refuse to sell Apple equipment, as this is fraught with secondary sanctions, warns Burmistrov. In addition, devices can “turn into a brick” and then the user will bring them back, and the seller will have to return the money, he says.