Washington will expand the sanctions against Russia to include software services beyond existing hardware export bans starting Sept. 12 this year.
The US Department of Treasury announced the latest sanction efforts – which included hardening secondary sanctions – in a press release on Thursday ahead of the G7 summit on June 13-15 in Italy.
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The latest information technology (IT) ban, in particular, will limit the provision of IT services and support to “any person in the Russian Federation” and not limited to state-affiliated companies.
Washington said the goal is to “restrict the ability of [the] Russian military-industrial base to take advantage of certain US software and [IT] services” and “disrupt the Russian military-industrial base’s reliance on foreign IT [systems].”
“To implement this policy, Treasury, in consultation with the Department of State, has issued a new determination under Executive Order (E.O.) 14071, which prohibits the supply to any person in the Russian Federation of (1) IT consultancy and design services; and (2) IT support services and cloud-based services for enterprise management software and design and manufacturing software. The determination will take effect on Sept. 12, 2024,” read the announcement.
However, the agency added that certain telecommunications, in relation to humanitarian causes, and free information flow can be exempted under General Licenses 6D and 25D as the US “strongly supports the free flow of information and communications globally.”
Other sanction efforts
Washington’s latest efforts also included more secondary sanctions and introduced new sanctions on Russian and foreign entities that aided Moscow’s attempt to procure war materials and generate income for its war in Ukraine.
“Treasury is targeting the architecture of Russia’s financial system, which has been reoriented to facilitate investment into its defense industry and acquisition of goods needed to further its aggression against Ukraine.
“Treasury is also targeting more than a dozen transnational networks laundering gold for a designated Russian gold producer, supporting Russia’s production of unmanned aerial vehicles (UAVs), and procuring sensitive and critical items such as materials for Russia’s chemical and biological weapons program, anti-UAV equipment, machine tools, industrial machinery, and microelectronics,” read the announcement, adding that efforts are also underway to curb Moscow’s revenue through liquefied natural gas sales.
What’s the implication of the latest IT ban?
As most of the major industrial and enterprise software firms are based in the US, the latest ban might affect Russia’s ability to maintain and operate its systems.
The ban would affect Russia’s access to industry-standard systems such as the business intelligence (BI) tool Tableau and computer-aided design (CAD) software AutoCAD, just to name a few.
The Treasury defined the scope of the industries and offered examples of what is prohibited under the new ban.
Examples of banned cloud-based services:
- A US company sells a cloud-based enterprise resource planning software subscription to a Russian company.
- A US company provides a software patch to a Russian company to fix a bug in its CAD software.
- A US employee of a third-country company provides customer support services to a Russian company that is experiencing technical difficulties with its human resources software.
There might be potential issues with the last point as a number of support services are outsourced. For example, a US support staff might receive support requests from a Russian company through their employer, which is a support service provider based in Turkey that continues to work with Russian firms.
Examples of banned consultancy and design services:
- A US company signs a contract with a Russian company to assist the Russian company in upgrading its IT systems; The US consulting company advises on, among other matters, the kinds of software and hardware needed for the Russian company’s operations and how best to procure such technology.
- A US company works to modify existing web applications to be functional within a Russian company’s internal IT environment, [i.e., a form of software development.]
- A US service provider signs a contract with a Russian company for the design and engineering of bespoke (i.e., custom-made) software that the Russian company uses for internal purposes, [e.g., an inventory system for a Russian warehouse.]
- A US person working at a third-country company signs a contract with a Russian company to design the structure of their sales website.
Potential issues might arise from the last point since an employee at a company might not have the choice in choosing the project. For example, a US national, working for an Israeli company, might be required to sign a contract with a Russian company on a staff augmentation basis under the company’s order.
Meanwhile, the Treasury also listed things that are not prohibited under the new ban.
Examples of consultancy and design services:
- A US service provider provides a Russian company with internet access.
- A US service provider provides a Russian company with internet services. The delivery of internet services includes, for example, Domain Name Services.
- A US company provides Russian individuals and entities with continued access to cloud-based, free-of-charge, publicly available web applications, such as email, spreadsheet, and document applications.
- A US company provides virtual private network (VPN) services to customers in the Russian Federation.
Examples of cloud-based services:
- A US company sells a cloud-based electronic health records software subscription to a Russian company.
- A US company provides customer support services to a Russian individual who is experiencing technical difficulties with their publicly available cloud-based spreadsheet web application.
- A US person working at a third-country company provides customer support services to a Russian individual who is experiencing technical difficulties with their free-of-charge publicly available teleconferencing application.
- A US company provides IT support services to a Russian individual to a non-covered software application.
However, how the new ban will work in practice remains to be seen.
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