Sanctions And Trade Update: Russia And Ukraine

Author:Mr Ronald Meltzer, Naboth van den Broek, Jacques Bourgeois, Katrina Carroll, David M. Horn and Marik A. String

Summary: The United States, European Union, and other nations have imposed targeted sanctions against a variety of Russian and Ukrainian persons, as well as broader trade restrictions, following recent events in Ukraine. Although the measures remain relatively limited in scope, they create several new compliance challenges for US and foreign firms. Further sanctions and trade restrictions could follow in the near future.

In response to recent events in Ukraine, the United States, the European Union, Canada, Switzerland, and other nations have adopted a series of targeted asset freezes and travel bans, which vary in scope, as well as broader trade restrictions against Russia. The sanctions have targeted several dozen former Ukrainian officials, officials in the Ukrainian region of Crimea, senior Russian officials, members of the Russian Government's inner circle, and a Russian state-owned bank, Bank Rossiya. These measures create a variety of new compliance challenges for US and foreign firms and are likely to be followed by additional sanctions, unless there is a de-escalation of political tensions in the region.

The US and EU have also imposed a series of broader trade restrictions on Russia, including a freeze of EU-Russia trade talks and a suspension of US licensing for exports and re-exports of defense items and dual-use equipment by the US Departments of State and Commerce, respectively. Negotiations on Russia's accession to the Organization for Economic Cooperation and Development (OECD) and the International Energy Agency (IEA) have also been suspended. At the same time, Russia has retaliated with similar targeted sanctions against a variety of US and other officials, and a series of tit-for-tat measures could continue.

Compliance Challenges

The recently imposed sanctions represent the most severe sanctions imposed against Russia since the dissolution of the Soviet Union. Nonetheless, most transactions with Russian or Ukrainian entities are unlikely to be affected. The measures do not generally block trade with or investment in Russia, and most Russian business enterprises will only be affected to the extent that they are owned or controlled by sanctioned individuals.1

These sanctions regulations create a variety of new compliance challenges. Generally, the sanctions impose obligations on all nationals, wherever located, of the respective sanctions-issuing jurisdiction, as well as to all individuals and entities operating or registered in that jurisdiction. The sanctions also prohibit a wide range of transactions with the targeted persons and entities, including, in certain situations, transactions involving intangible assets (such as contracts) that can be used to obtain funds, goods or services.

Firms operating in Russia, Ukraine, and the region more generally, as well as those with significant client bases from the affected countries, should review their records to determine whether they have engaged in past dealings with sanctions targets, either directly or through entities beneficially owned by them. This should include firms that act as intermediaries for certain transactions, including clearing banks. The regulations also generally prohibit the facilitation of activities to evade sanctions, which may include attempts to move or disguise assets or develop legal arrangements, such as shell companies, to shield assets from sanctions. Firms affected by the sanctions—including those who may need time to wind down activities with a sanctioned person—may in certain cases apply for specific licenses with the appropriate regulatory authorities.

With the US Congress prepared to finalize new Russia sanctions...

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