Western Sanctions Targeting Russia Increase Business Risks For Companies

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Companies doing business in or with Russia or Russian companies should carefully assess the impact of the new sanctions on their operations and activities and review their compliance procedures. This includes ensuring that all customers, suppliers, agents, distributors or other third parties located in Russia or Ukraine are screened against any applicable sanctions lists and establishing the necessary procedures to avoid violations potential US and other sanctions arising from this conflict. On February 24, 2022, the United States imposed a new round of sanctions against Russia and its ally, Belarus, in response to the expansion of Russian military operations in Ukraine. The United States has also imposed licensing requirements on certain exports to Russia, including foreign items made using American technology.

These sanctions build on previous actions taken by the United States as well as the United Kingdom (UK), Germany and the European Union (EU) to implement economic sanctions targeting Russia for following Russia’s recognition of the Donetsk People’s Republic (DNR) and the Lugansk People’s Republic. regions of Ukraine (LNR). These sanctions include geo-bans and bans on doing business with identified Russian individuals and financial institutions.

While these sanctions regimes share some Russian objectives, they vary in scope and require different compliance obligations for companies under their jurisdiction. And, as the geopolitical situation continues to evolve, the United States and other Western countries will likely impose additional sanctions in the coming days, so it will be important to follow the latest developments and consult an attorney to better understand and address the impact of the sanctions on your business.

US sanctions against Russia and Belarus

US sanctions prohibit the import of goods, services and technology from and exports to the DNR and LNR regions, as well as any new investment in the region, and extend the ban on trading Russian sovereign debt to the secondary market bonds issued after March 1, 2022.

In addition to the February 24 sanctions, the US Treasury Department’s Office of Foreign Assets Control (“OFAC”) on February 22 designated the Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank (VEB) and Promsvyazbank Public Joint Stock Company ( PSB), 42 identified subsidiaries of PSB and VEB, and five vessels owned by PSB as Specially Designated Nationals (SDN).1

OFAC also added Nord Stream 2, AG (and its CEO) to the SDN list, along with five Russian individuals:

  • Sergei Vladilenovich Kiriyenko (First Deputy Chief of Staff, Presidential Office (previously designated));

  • Vladimir Sergeevich Kiriyenko (son of S. Kireyenko and CEO of VK Group, parent company of VKontakte);

  • Petr Mikhailovich Fradkov (CEO of PSB);

  • Denis Aleksandrovich Bortnikov (VTB Vice President and Chairman of the Board of VTB Bank);

  • Aleksandr Vasilievich Bortnikov (father of D. Bortnikov and director of the FSB and permanent member of the Security Council of the Russian Federation [previously designated]).

U.S. persons anywhere and non-U.S. persons located in the United States are prohibited from engaging in substantially any transaction or other activity involving an SDN without the authorization of the Office of Foreign Assets Control (OFAC ) the United States. US persons are prohibited from most transactions involving sanctioned individuals and entities. Penalties for violating US sanctions, even unintentionally, can be severe. Civil penalties can exceed $300,000 per individual transaction, and criminal penalties can be up to $1,000,000 and/or 20 years in prison per violation in cases of intentional violations. Often, heavy fines applied per offending transaction (which can be identified as each separate payment, supporting instance, completed transaction, signed agreement, or other action) escalate large enforcement cases. Companies found to facilitate or support SDNs also risk self-designation, significant reputational damage, and loss of access to the US financial system and the ability to do business in most jurisdictions.

British sanctions against Russia

The United Kingdom announced on February 22, 2022 that it had sanctioned five Russian banks: Bank Rossiya, IS Bank, General Bank, PSB and Black Sea Bank. Each of these banks, with the exception of PSB, had previously been designated as SDNs in the United States. The UK has also sanctioned three people: Igor and Boris Rotenberg and Gennady Timchenko, who are already on the US SDN lists. Igor Rotenberg is majority shareholder of Gazprom Drilling; Timchenko is one of the main shareholders of Bank Rossiya and Boris Rotenberg is a co-owner of the SGM group.

On February 24, 2022, the United Kingdom designated the following additional entities and individuals:

  • Denis Alexandrovich Bortnikov

  • Petr Mikhailovich Fradkov

  • Kirill Nikolaevich Shamalov (Vice Chairman of the Board of PAO SIBUR Holding)

  • Yury Borisovich Slyusar (General Manager, United Aircraft Corporation)

  • Elena Alexandrovna Georgieva (chairwoman of the board of directors of Novikombank, a subsidiary of Rostec [Russian Technologies State
    Corporation])

  • Rostec

  • United Aircraft Corporation

  • Tactical Missile Company

  • UralsVagonZavod

  • United Shipbuilding Society

  • VTB Bank

The UK has frozen all assets held by these individuals and entities in the UK; people are banned from traveling to the UK; and UK nationals and entities, individuals located in the UK and companies doing business in the UK are prohibited from any dealings with sanctioned parties. The UK government has announced that sanctions already imposed over Crimea will be extended to non-government controlled territories in the DNR and LNR regions.

EU sanctions against Russia

The EU announced sanctions against 351 members of the State Duma of the Russian Federation who voted in favor of recognizing the independence of the DNR and LNR regions, as well as those elected to represent Crimea and Sevastopol, and the head and deputy head of the Election Commission of Sevastopol.

The EU also sanctioned a number of individuals and entities and agreed to impose additional sanctions targeting the financial sector, energy and transport; dual-use goods; and export control and export financing.

Take away food :

  • Entities doing business in the US, UK and Europe should check whether any of their business is conducted with/within Russia, Ukraine and/or Belarus and should implement blocks, if necessary.

  • U.S. entities should ensure continued compliance with the new sanctions by updating restricted party searches and conducting regular sanctions checks.

  • Businesses should assess the potential implications of any payment involving accounts with Russian financial institutions.

  • Companies should closely monitor changes to applicable export control laws related to Russia.

  • As Russia-related sanctions continue to expand and evolve daily, organizations should consult OFAC’s guidance to ensure compliance.

To learn more about Lowenstein’s Global Trade & National Security team, click here.

Footnote

1 The full list, including designated subsidiaries and vessels, is available here.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.