Brief: Business Compliance Requirements for Sanctions Relating to Russia’s Invasion of Ukraine
14 Nov 2022 /
Brief: Business Compliance Requirements for Sanctions Relating to Russia’s Invasion of Ukraine
3.7.22 Update On Sanctions
In the week since our original post, there have been a variety of developments in the counter-Russia sanctions landscape in the form of additional countries imposing sanctions as well as the type and target of those sanctions.
Additional Sanctioning Countries:
In addition to the list provided above, the following countries have also imposed sanctions against Russia and, in some cases, Belarus as well: Canada, Singapore, South Korea, Switzerland, and France (which is taking enforcement actions against luxury items like yachts and sports cars in its implementation of EU sanctions).
Scope of Sanctions Widened:
Each country continues to have a specific list of sanctions that it is imposing, along the lines of the regimes described above, but the scope of some have also expanded to include:
- Some Belarussian persons now the target of sanctions;
- Additional Russian persons added to sanctions lists;
- Closure of air space to Russian aircraft;
- Closure of ports to Russian vessels;
- Russian financial institutions unable to access the SWIFT payment system;
- Visa revocation and not permitting visas in exchange for investment.
The banning of exports to Russia continues to focus on goods with a military-related use, a military-related recipient, and technology.
Voluntary Private Sector Measures: In addition to sanctions imposed by governments on Russia and Belarus, a wide variety of companies such as Microsoft, Apple, BP, ExxonMobil, Volkswagen Group, IKEA, and Airbnb (to name just a few) have chosen to boycott Russia in different ways. Various cultural and sports organizations have decided to do the same by banning Russian teams and/or participants from sport leagues such as FIFA and the International Olympic Committee, moving events that were to be held in Russia to other countries, and canceling global performances by Russian artists, and several artists cancelling their planned appearances in Russia.
On February 24th 2022, the Russian military began what has been nearly universally recognized as an invasion of the country of Ukraine. As a result of Russia’s aggression, several countries including the U.S., the U.K. and the European Union have imposed new sanctions against Russia, and against specific people and companies located or organized in those countries. If you or your company is doing business with any individual or company in Russia, or if individuals or companies from Russia can take advantage of your products or services through, for example, online systems, this is important information which may require you to take certain actions.
This brief will cover U.S., U.K. and E.U. sanctions pertaining to Russia and Russian-controlled part of Ukraine. If you are a citizen of the U.S., the U.K. or a Member State of the E.U. (wherever you are located), or if you have an office in, a legal entity formed in, or are otherwise located in the U.S., the U.K., or any country in the E.U. you should be aware of the new sanctions rules in the relevant jurisdiction. As of today, Australia, New Zealand, Japan and Taiwan have also imposed sanctions against Russia. Please reach out to Gravis Law if you need further information relating to sanctions imposed by those countries. The situation is quickly evolving, and there is every chance that these sanctions will be expanded in the next few days and weeks.
For the purposes of this brief, the term “person” or “persons” refers to both individuals/natural person and corporate entities/organizations.
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Violating Sanctions Laws
Countries have varied sanctions law regime, but in the U.S. sanctions laws are imposed and enforced by a section of the U.S. Treasury called the Office of Foreign Asset Control (“OFAC”) in conjunction with other U.S. government agencies. Criminal and civil penalties can be imposed for violations. Criminal penalties can vary widely because enforcement can take place at both the federal and the state level and be initiated by multiple agencies simultaneously. OFAC has taken the position that credit will not be given for fines paid by the defendant to another government body. Most sanctions regimes, and specifically those in the U.S., E.U. and U.K., apply to both (i) companies and individuals located or organized in the jurisdiction, and also (ii) citizens of that jurisdiction no matter where they are located. Therefore, an American must abide by U.S. sanctions against Russia, even if the individual is located in France. That American will likely also have to abide by E.U. sanctions because they are located in France.
Since many of the sanctions are targeted Russian financial institutions and oligarchs, it is expected that those affected will seek to evade these sanctions by using non-traditional financial tools such as crypto currency and decentralized finance (DeFi). We expect an increase in government monitoring and enforcement actions in this space.
The U.S. has instituted new sanctions related to Russia’s invasion of Ukraine. So far, all the sanctions are list-based, existing screening will be updated, but it’s a good idea to confirm. If you are not already doing OFAC screening, it’s a good time to review whether screening should be implemented.
On April 15, 2021, President Biden issued Executive Order 14024, “Blocking Property with Respect to Specified Harmful Foreign Activities of the Government of the Russian Federation” (the “EO”). That EO authorizes the expansion of the already-existing, targeted sanctions imposed under the Ukraine-/Russia-Related Sanctions Program to include the ability to block all U.S.-based or controlled assets of additional categories of Russian persons including, among other things, persons engaged in the Russian technology/defense sector, malicious cyber activities, disrupting gas/energy supplies, interfering in elections, and “activities that undermine the peace, security, political stability, or territorial integrity of the United States, its allies, or its partners.” However, until persons or sectors are identified through an OFAC Directive, no prohibitions exist in practice. When the EO was originally issued, OFAC also issued Directive 1, which was updated and replaced with Directive 1A on February 22, 2022, prohibiting U.S. financial institutions from dealing in rubles, non-ruble bonds issued by certain Russian financial entities, and lending funds to those financial entities.
On February 24, 2022, OFAC issued two new Directives under the EO targeted at the Russian financial system. They are targeted at Russian banks and the holdings of influential Russian oligarchs who control some of the country’s critical industries.
- Directive 2: U.S. financial institutions may no longer open or maintain a correspondent account or a payable through account for specified foreign financial institutions listed on Annex 1 of Directive 2, and may not process any transaction involving those foreign financial institutions. This prohibition goes into effect on March 26, 2022 at 12:01am. Additional financial institutions may be added to this list.
- Directive 3: No U.S. person or person located in the U.S. may provide new debt of longer than 14 days maturity or equity to any person listed on Annex 1 of Directive 3. This prohibition goes into effect on March 26, 2022 at 12:01am. Additional persons may be added to this list.
The U.S. Treasury Department has published Frequently Asked Questions related to these three Directives.
U.S. Export Controls
If you export products or services to Russia, they may be subject to new restrictions.
The U.S. Commerce Department imposed new export controls to “severely restrict Russia’s access to technologies…needed to sustain its aggressive military capabilities” under the Export Control Reform Act of 2018. U.S. persons that export technology to Russia, and persons that produce equipment, software, or blueprints that are used in foreign products that are exported to Russia, should review the relevant regulation and fact sheet in detail.
The E.U. has implemented list-based sanctions, as well as region-specific restrictions on imports from Donetsk and Luhansk Oblasts. Persons in the E.U. should review their supply chain to ensure compliance, and either confirm that current screening lists are updated, or consider implementing screening. U.K sanctions are forthcoming; but are expected to include list-based sanctions as well as import and export restrictions.
The E.U. published sanctions aimed at Russia and the portions of Ukraine no longer under Ukrainian Government control (the Donetsk and Luhansk oblasts) on February 23, 2022. Together, the measures target the financial, energy and transport sectors, and impact export controls and visa policies as well. The sanctions:
- Extend restrictive measures to 351 measures of the Russian State Duma and an additional 27 high-profile individuals and entities (similar to the U.S. SDN List). Restrictive measures include asset freezes, prohibition on making funds available to them, and travel bans. The list of persons subject to the restrictive measures can be found in the published sanctions.
- Impose an import ban on goods from the Donetsk and Luhansk oblasts, as well as restrictions on some trade and investment in the regions, tourism, and an export ban for certain goods and technologies.
- Prohibit financing the Russian Federation, its government or its Central Bank.
United Kingdom Sanctions
The U.K. government legislation imposing new sanctions on Russia have not yet been published. When the specific are published, you will find them on the U.K. Foreign, Commonwealth and Development Office webpage specific to Russia-related sanctions. However, the U.K. Foreign Secretary, Liz Truss, provided an outline of the new sanctions regime in a press release. They will include:
- asset freezes against all Russian financial institutions
- measures to prevent Russian companies from issuing transferable securities and money market instruments in the UK. This will form a sweeping addition to existing financial restrictions. This is in addition to the prohibition of the Russian state raising sovereign debt in the UK already announced
- a power to prevent designated banks from accessing Sterling and clearing payments through the UK. This will match the power the US already has. Banks subject to this measure will be unable to process any payments through the UK or have access to UK financial markets
- new restrictions to cut off wealthy Russians’ access to UK banks including £50,000 limits on bank accounts
- a set of measures to strengthen significantly our trade restrictions against Russia. This will include a prohibition against the export of a range of high-end and critical technical equipment and components in sectors including electronics, telecommunications, and aerospace
- the previously announced extension of financial and trade measures applying to Crimea to the DNR and LNR regions
- any General Licenses related to sanctions against VTB will be published on OFSI’s pages.
The UK’s Financial Sanctions Target List, updated as of February 24, 2022, provides the U.K.’s list of persons subject to financial sanctions in a variety of formats.
Steps to Take Now
Determine whether any of the Russian sanctions regimes might impact you or your business.
- Are you a citizen, or is your company formed under the laws, of the U.S., the U.K., and E.U. Member State, Australia, New Zealand, Japan or Taiwan?
- Do you or your business operate in one of the places listed above?
- Are you a crypto currency, defi or similar platform?
If the answer to any of those questions is “Yes,” answer these questions:
- Are you engaged in financial transactions of any kind with persons in Russia?
- Do you have Russian customers or users of your technology products or services?
- Are you are providing goods that are being sold directly to, or being used in products that will eventually be sold to, persons involved in the Russian military, defense, or energy sectors?
- Do you import any products or services from Ukraine? Specifically, from the Donetsk or Luhansk oblasts?
- Do you allow transactions without identification of individuals or their locations?
If the answer to any of those questions is “Yes,” you should:
- Review your customer and transaction data and consider whether any of them may be affected by the sanctions, or whether you are in control of any assets that must be blocked.
- Review your sanctions, export and import controls, and consider whether the new Russia sanctions merit an adjustment such as:
- Implementing geo-fencing technology on your website to prevent access from sanctioned locations,
- Implementing screening of customers and other third parties against the relevant sanctions list.
- Implementing new internal policies, procedures or training.
- Excluding all transactions to or from Russia, Ukraine or other locations deemed at risk for elevated evasion activity.
- If you are a citizen of Australia, New Zealand, Taiwan, or Japan, or are an entity conducting business there, you are subject to the Russian sanctions regimes in those countries. Contact Gravis Law if further information is required.
If you have any questions about how these sanctions might apply to you, or what you should do in response, please reach out to Heather Lowe, Senior Attorney at email@example.com or Jill Williamson, Managing Attorney and Principal, at firstname.lastname@example.org. Or you may reach out to your primary point of contact at Gravis Law for assistance.