Russia’s recent invasion of Ukraine has prompted the United States (US) and other countries to impose sanctions and restrictions on Russia. Companies doing business in Russia or the region should take steps to keep up with this changing landscape and ensure that their transactions and exports comply with applicable laws and regulations.

Although sanctions against Russia are not new, Western countries plan to impose tougher sanctions after recent events in Ukraine. In fact, some sanctions have already been imposed by the United States and the European Union (EU), including those that cut off the Russian government from Western funding so that Russia can no longer raise funds from the West and can no longer trade its new debt with the United States or European markets. President Joe Biden on Monday signed an executive order stating that any institution in the Russian financial services sector is the target of new sanctions.

The presidential decree prohibits:

• New investments in the Donestsk People’s Republic (DPR) and Luhansk People’s Republic (LPR) regions of Ukraine and other regions in the future, as determined by the Secretary of the Treasury;
• Import items, technology, or services from these Covered Regions into the United States; and
• Export of any item, technology or service to these Covered Regions from the United States or by a US person.

The Office of Foreign Assets Control (OFAC) has already issued several general licenses authorizing certain communications-related transactions and other humanitarian efforts. The Bureau of Industry and Security (BIS) also issued a final rule implementing a series of new export control measures under the Export Administration Regulations (EAR) against Russia.

The United States has also issued additional sanctions against Russian financial interests. More than 80% of Russia’s daily foreign exchange transactions and half of its trade is in US dollars. The United States sanctioned two of Russia’s state banks – the State Bank for Development and Foreign Economic Affairs Vnesheconombank and Promsvyazbank Public Joint Stock Company – and prevented them from trading their debt in the US and European markets. This includes freezing all assets of these banks under US jurisdiction. The two Russian banks are considered particularly close to the Kremlin and the Russian military, with more than $80 billion in assets. The new sanctions against Russia also include the country’s “elites” and their family members, as well as the civilian leaders of the Russian hierarchy. OFAC has also imposed additional sanctions on various Belarusian individuals and entities for supporting or otherwise facilitating Russian actions against Ukraine.

The EU also announced sanctions against Russia in response to the Russian invasion of Ukraine. The initial sanctions target Russian politicians who voted for the recognition of the two breakaway regions (DPR and LPR) in Ukraine, as well as other Russian officials and institutions in the defense and banking sectors. Politicians and officials are the target of asset freezes and visa bans and include the 351 members of the Duma, Russia’s lower house of parliament, who have called on Russian President Vladimir Putin to recognize the two regions as independent . The EU has also sought to limit Moscow’s access to EU capital and financial markets, and banks funding Russian policymakers and other operations in those territories are also targeted.

Additionally, Germany halted the certification process for the Nord Stream 2 gas pipeline from Russia – an $11.6 billion project owned by Russian state gas company Gazprom – a profitable deal long sought by Moscow but criticized by the United States for increasing Europe’s dependence on Russia. energy.

The UK also announced sanctions against five Russian banks and three Russian billionaires – Gennady Timchenko, Boris Rotenberg and Igor Rotenberg – who own the SGM Group, which manufactures oil and gas infrastructure, and the private investment company Volga Group. Additionally, the UK announced that Britain would prevent Russia from selling sovereign debt to London and said it was prepared to go much further if Russia did not withdraw, including limiting the ability of the Russian state and Russian companies to raise funds in the UK. markets, banning a range of high-tech exports and further isolating Russian banks from the global economy.

This is a rapidly evolving situation and further US sanctions are expected in the future. Similarly, the EU recently announced its intention to freeze Russian assets in the EU and prevent Russian banks from accessing European financial markets. While it is unclear exactly what additional sanctions we can expect, it is clear that further sanctions against Russia are on the way as the conflict in Ukraine progresses, both from the United States and of the EU.

What you can do to comply

In this changing landscape, it’s imperative to ensure your business has an up-to-date export controls and sanctions compliance program to keep up with these (and other) rapidly changing sanctions programs. At a minimum, companies should consider:

• Investigate whether they have a relationship with any of the targets of the new sanctions and take appropriate steps to ensure compliance with administration orders, including additional OFAC and BIS regulations;
• Update all automated sanctions control systems to ensure that they identify and flag transactions and customers involving new sanctions and export control targets;
• That some of the more recent sanctions also prohibit non-US financial institutions and businesses from engaging in transactions or business relationships with the sanctioned entities. For example, non-U.S. financial institutions are prohibited from engaging in transactions or other business relationships with Russian state-sanctioned banks if those activities have a direct or indirect connection to the United States, such as a bank foreign that relies on US branches to process transactions;
• This 50% OFAC rule will require you to perform due diligence on an entity that is 50% or more owned, directly or indirectly, by the new sanctions targets (and most others). Even if the entity has not been added to OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List), it could still be subject to sanctions under the 50% rule;
• That non-U.S. financial institutions and businesses may be subject to secondary sanctions, including being added to OFAC’s SDN list, if they engage in a “significant” transaction with a sanctioned entity or an entity subject to the rule 50%.