1. EU sanctions and restrictions

Since Russia’s recognition of the areas of Donetsk and Luhansk oblasts as independent entities, and the ensuing Russian invasion of Ukraine, the EU has adopted several ‘sanctions packages’. The first package mainly targets individuals and entities and imposes financial and economic restrictions directly related to the areas of Donetsk and Luhansk. The second package targets more individuals and entities, but imposes economic, financial, and sector-specific sanctions on Russia as a whole. In addition to these two packages, more sanctions and restrictions have been imposed (i.e., a flight ban and a prohibition to make transactions with the Central Bank of Russia) and announced (i.e., excluding certain Russian banks from SWIFT and new EU sanctions regimes targeting corruption and the spreading of fake news).

2. US & UK sanctions and restrictions

Both the US and the UK have adopted sanctions and restrictions targeting Russia and Belarus in coordination with the EU.

On 24 February 2022, the US imposed new sanctions (a third tranche) and additional export controls targeting Russia. The third tranche of US sanctions (U.S. Treasury Announces Unprecedented & Expansive Sanctions Against Russia, Imposing Swift and Severe Economic Costs | U.S. Department of the Treasury) includes full blocking sanctions, correspondent and payable-through account (CAPTA) sanctions, and restrictions on transactions involving new debt and equity. Compared to earlier tranches, this third tranche covers more industries, although the focus is still largely on financial institutions. The US also imposed sanctions on entities and individuals in Belarus that are connected to the defense and financial sectors.

The new export control measures published by the US Commerce Department’s Bureau of Industry and Security (BIS) primarily target the defense, aerospace, and maritime sectors of Russia. Although the new measures will not be published in the Federal Register until 3 March 2022, they took effect on 24 February and are accessible in unpublished form at: Federal Register: Public Inspection: Export Administration Regulations: Implementation of Sanctions against Russia. These new measures include, but are not limited to, licence requirements on exports and reexports to all Export Control Classification Numbers in Categories 3 through 9 of the Commerce Control List; an expansion of existing controls for military end-use and military end-users in Russia applying to all items subject to the Export Administration Rules EAR), including EAR99 items, and two new Foreign Direct Product Rules, one applying to all of Russia (the Russia FDP Rule) and the other specifically targeting Russian military end-users (Russia MEU FDP Rule).

The UK imposed asset freezes on a number of Russian banks and on individuals with close ties to Russian President Vladimir Putin on 22 and 24 February 2022. On 25 February, asset freezes were also imposed on President Putin and Russian Minister of Foreign Affairs, Sergey Lavrov. The UK asset freezes in principle have the same effect as the EU asset freezes, including the prohibition to make available economic resources. Similar to the EU asset freezes, any entity owned for more than 50% or controlled, directly or indirectly, by a designated person, is also subject to such asset freezes.

On 24 February, the UK also announced forthcoming legislation (expected to be considered on 1 March 2022) authorizing additional sanctions covering, among other restrictions: asset freezes against all Russian financial institutions; restrictions on sovereign Russian debt; a prohibition from accessing Sterling and clearing payments through the UK; and a prohibition of exports of high-end and critical technical equipment and components in sectors such as electronics, telecommunications, and aerospace. This was followed on 28 February by an announcement of the intention to take further restrictive measures targeting the Central Bank of Russia. The UK Sanctions List is accessible at: The UK Sanctions List - GOV.UK (www.gov.uk).

3. Countermeasures by the Russian Federation (update 10 March 2022)

 

While the various sanction regimes against Russia are being implemented, many foreign companies and investors announced that they will suspend their Russian operations and/or decided to leave Russia. As part of a reaction against the various sanctions imposed by foreign countries Russia implemented several countermeasures which may impact companies doing business in or with Russia. We have listed a non-exhaustive list of these measures here below but the situation is rapidly developing and operators should therefore continue to monitor the situation closely.  

1.Rules for transactions with ‘Persons from Unfriendly Countries’ (PUC’s) which will require prior clearance Government Commission on Control over Foreign Investments

    1. Unfriendly countries currently include:  Australia, Albania, Andorra, Canada, EU member states, Iceland, Japan, Lichtenstein, Micronesia, Monaco, Montenegro, New Zealand, North Macedonia, Norway, Republic of Korea, San-Marino, Singapore, Switzerland, Taiwan (China), Ukraine, the United Kingdom (including Jersey, Anguilla, BVI, Gibraltar) and the USA
    2. Transactions subject to control/approval:
      1. transactions between Russian residents and PUC’s to extend rouble-denominated loans to these persons;
      2. transactions between Russian residents and PUC’s resulting in title to securities and/or real estate;
      3. transactions listed in ‎(i) & (ii) made between Russian residents and foreign persons that are not PUC’s if they involve securities and/or real estate such foreign persons acquired from PUC’S after 22 February 2022;
      4. currency operations involving residents extending foreign currency loans to non-residents;
      5. transfer of foreign currency by residents to their accounts (deposits) with banks and other financial market organisations outside the Russian Federation;
      6. money transfers made by residents without opening a bank account using electronic means of payment furnished by foreign payment service providers.

2. Export ban for certain goods to Unfriendly Countries

Russia  has announced an export ban on a wide range of goods covering various industries (telecom, automotive, pharmaceutics, agricultural products, electrical equipment, as well as some forestry products). The restrictions will also include exports of goods made by foreign companies operating in Russia.

2. Nationalising assets of foreign firms that leave the country

As previously announced prominent politicians close to the President of Russia have made declarations that Russia intends to seize foreign assets. On Wednesday 9 March 2022 Russia approved legislation that took the first step towards nationalizing assets although it is not possible, at the time, to accurately assess the scope and impact of such measures if Russia were to persist

 

4. What can businesses do?

 

  1. Screening

    Considering the high number of new listings, a screening of existing and potential new counterparties is strongly recommended. If a counterparty is in any way linked to a listed individual or entity, an in-depth assessment of potential applicable sanctions or restrictions is required.
    In addition, a general check of your business against the applicable sector specific sanctions is recommended when dealing with Russia, Belarus or Ukraine.

  2. Review of financing and other commercial arrangements

    Companies doing business in Russia, Belarus and Ukraine should review their financial and commercial contractual arrangements to see if these include specific restrictions in light of the imposed sanctions.  

  3. Pre-payment

    If it is established that current or new dealings with Russian or Belarusian counterparties do not fall within scope of the current sanctions and restrictions, it is recommended to demand a pre-payment for new transactions or to include a pre-payment clause in the existing contractual agreements to guarantee payment in case of new sanctions or restrictions.

  4. Winding down business

    Insofar as current activities or business falls within the scope of the applicable sanctions and/or restrictions, an immediate suspension is highly recommended to prevent a violation of the sanctions and restriction and the imposition of strict penalties (i.e., administrative and criminal fines, and prison sentences).

    Subsequently, it should be verified whether the legal framework allows for a wind down of the activities or business and under which conditions (e.g., contracts concluded before the entry into force of the sanctions and restrictions).

5. Overview of EU legal framework

 

Council Regulation (EU) 2022/259 of 23 February 2022 amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

Council Implementing Regulation (EU) 2022/260 of 23 February 2022 implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

Council Implementing Regulation (EU) 2022/261 of 23 February 2022 implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

Council Regulation (EU) 2022/262 of 23 February 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine

Council Regulation (EU) 2022/263 of 23 February 2022 concerning restrictive measures in response to the recognition of the non-government controlled areas of the Donetsk and Luhansk oblasts of Ukraine and the ordering of Russian armed forces into those areas

Council Decision (CFSP) 2022/264 of 23 February 2022 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine

Council Decision (CFSP) 2022/265 of 23 February 2022 amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

Council Decision (CFSP) 2022/266 of 23 February 2022 concerning restrictive measures in response to the recognition of the non-government controlled areas of the Donetsk and Luhansk oblasts of Ukraine and the ordering of Russian armed forces into those areas

Council Decision (CFSP) 2022/267 of 23 February 2022 amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine

Council Implementing Regulation (EU) 2022/300 of 24 February 2022 implementing Article 8a of Regulation (EC) No 765/2006 concerning restrictive measures in view of the situation in Belarus

Council Decision (CFSP) 2022/307 of 24 February 2022 amending Decision 2012/642/CFSP concerning restrictive measures in view of the situation in Belarus

Council Decision (CFSP) 2022/327 of 25 February 2022 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine

Council Regulation (EU) 2022/328 of February 25, 2022 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine.

Council Regulation (EU) 2022/330 of February 25, 2022 amending Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

Council Implementing Regulation (EU) 2022/332 of February 25, 2022 implementing Regulation (EU) No 269/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

Council Decision (CFSP) 2022/327 of February 25, 2022 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilizing the situation in Ukraine.

Council Decision (CFSP) 2022/329 of February 25, 2022 amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

Council Decision (CFSP) 2022/331 of February 25, 2022 amending Decision 2014/145/CFSP concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

Council Decision (EU) 2022/333 of February 25, 2022 on the partial suspension of the application of the Agreement between the European Community and the Russian Federation on the facilitation of the issuance of visas to the citizens of the European Union and the Russian Federation.

Council Regulation (EU) 2022/334 of 28 February 2022 amending Council Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine

Council Decision (CFSP) 2022/335 of 28 February 2022 amending Decision 2014/512/CFSP concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine