US expands Russia sanctions, targets chips routed through China

The United States on Wednesday dramatically broadened sanctions on Russia, including by targeting China-based companies selling semiconductors to Moscow, as part of its effort to undercut the Russian military machine waging war on Ukraine.

Among the steps, the US Treasury said it was raising "the risk of secondary sanctions for foreign financial institutions that deal with Russia's war economy," effectively threatening them with losing access to the US financial system.

It also said it was moving to restrict the Russian military industrial base's ability to exploit certain US software and information technology (IT) services and, with the State Department, targeting more than 300 individuals and entities in Russia and beyond, including in Asia, Europe and Africa.

Separately, the Commerce Department said it was targeting shell companies in Hong Kong for diverting semiconductors to Russia, taking steps that would affect nearly $100 million of high-priority items for Moscow including such chips.

US origin chips and other technology have been found in a wide range of Russian equipment captured on the battlefield in Ukraine, including drones, radios and missiles.

After seizing Crimea from Ukraine in 2014, Russia launched a full-scale invasion of its neighbor in 2022, triggering a host of new US economic sanctions on Moscow.

While many analysts do not expect US and other nations' sanctions to materially change Russian President Vladimir Putin's calculus, they believe they will both make it harder for Moscow to wage war and, over time, weaken Russia's economy.

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"Today's actions strike at their remaining avenues for international materials and equipment, including their reliance on critical supplies from third countries," Treasury Secretary Janet Yellen said in a statement.

"We are increasing the risk for financial institutions dealing with Russia’s war economy and eliminating paths for evasion, and diminishing Russia's ability to benefit from access to foreign technology, equipment, software, and IT services," she said. "Every day, Russia continues to mortgage its future to sustain its unjust war of choice against Ukraine."

The news came as President Joe Biden departed early Wednesday for a summit in southern Italy with leaders from other Group of Seven democracies: Britain, Canada, France, Germany, Italy, Japan and the United States.

One of the G7 leaders' priorities is boosting support for Ukraine, now in the third year of resisting Russia's invasion, and disarming the Russian war machine.

Peter Harrell, who served as White House senior director for international economics in 2021 and 2022, described the latest sanctions as a "paradigm shift" because they expose foreign banks to the threat of being cut off from the US financial system if they deal with large sanctioned Russian banks.

"For the first time, the US is shifting towards something that begins to look like ... an effort to set up a global financial embargo on Russia," Harrell said.

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"The message here is really one to banks in China and Turkey and the UAE and elsewhere outside of the G7 they face sanctions for continuing to engage in transactions with the big Russian banks and other sanctioned Russian banks," he added, saying this would likely spark a "major retreat" by those banks from Russia.

"That financial pullback, in turn, is probably going ... to complicate the flow of goods from countries that are continuing to trade with Russia," he said.