US Sanctions On Russia Keep Coming, And The Legal Issues And Risks Keep Growing – International Law

The United States has had economic sanctions in place against
Russia since 2014, when it invaded the Crimea Region of Ukraine.
But reaction to Russia’s wholesale military incursion in 2022
has taken the extent and degree of sanctions to a far higher level,
creating the need for U.S. companies to establish much stronger
diligence programs and in some cases deal with complex compliance
issues. Further, the adoption of varying sanctions by numerous
other countries and Russia’s recent moves to impose counter
sanctions and take steps against companies complying with
international sanctions have made operating in the global
marketplace a complicated and high-risk proposition. And there is
every indication the U.S. and other countries are looking for
further sanctions to impose. Few businesses are equipped to assess
and manage this new and fast-changing paradigm, and reliance on
experienced counsel has never been more important.

Types of Sanctions

Current sanctions fall into three general categories: (1)
blocking sanctions, (2) sectoral sanctions, and (3) new investment
bans.

• Blocking sanctions ban U.S. persons and
  entities, broadly defined, from engaging in a wide array of
  business activities with the growing number of individuals, groups,
  and entities listed on the Specially Designated Nationals and Blocked Persons
  list (SDN List). Unless otherwise authorized or exempted,
  transactions by U.S. persons and entities are prohibited if they
  involve the transfer of products or payments to, or financing of
  any property interest of anyone on the SDN List. The property and
  assets of any entity that is 50% or more owned, whether
  individually or in the aggregate, directly or indirectly, by any
  SDN-listed party are also blocked, whether or not the entity itself
  is listed.




• Sectoral sanctions bar transacting in,
  providing financing for, or otherwise dealing in debt or equity on
  behalf of participants in sectors of the Russian economy identified
  on the Sectoral Sanctions Identifications (SSI)
  List.




• New investment bans  prohibit any new
  infusion of funds to a specified country or region, as well as any
  imports, exports, financing, facilitation, or other transaction to
  that area by a U.S. person, wherever located. The U.S. previously
  adopted a new investment ban on the Crimea Region of Ukraine and,
  as of April 6, 2022, added one on the Russian Federation.

Primary and Secondary Sanctions

Primary sanctions apply to U.S. persons and non-U.S. entities in
situations in which there is a “U.S. nexus,” including
when a non-U.S. person “causes” a U.S. person to violate
U.S. sanctions. Secondary sanctions refer to sanctions imposed
extraterritorially on non-U.S. entities with no U.S. nexus
involved. For example, a foreign entity that does business with an
entity on the SDN list could be subject to secondary sanctions,
even where no part of the transaction connects to the U.S. The
framework for imposing secondary sanctions is less clearly defined
than for primary sanctions, but the general goal of such sanctions
is to cut off foreign parties from access to U.S. financial
and commercial markets if these entities seek to evade U.S.
sanctions and conduct business in a manner considered detrimental
to U.S. foreign policy.

Implementation and Enforcement of Sanctions

The U.S. government’s authority to impose sanctions and
enforcement penalties is based on a number of federal laws,
regulations, executive orders, and interpretive guidance. Even the
federal government’s webpage is having difficulty keeping up
with the rapid changes that are occurring, but a collection of
sanctions directives, general license information, and frequently
asked questions can be found at the website of the U.S. Department of the Treasury’s Office of
Foreign Assets Control (OFAC), which implements and
enforces the sanctions program along with export controls
administered by the Commerce Department’s Bureau of Industry and
Security (BIS).

In general, a violation of U.S. sanctions laws can result in a
civil monetary penalty for anyone who violates, attempts to
violate, conspires to violate, or causes a violation of a sanction;
civil penalties can range up to the greater of $250,000 or twice
the amount of the underlying transaction. Criminal penalties of up
to $1 million, imprisonment for up to 20 years, or both may be
imposed on any person who willfully commits, attempts to commit,
conspires to commit, or aids or abets in the commission of a
sanctions violation. Secondary sanctions violations can result in a
long list of possible adverse consequences, including restrictions
on imports, denial of licenses, prohibitions on acquiring or
holding property in the U.S., use of credit from financial
institutions, or ability to conduct transactions in foreign
exchange.

Complications

As if the welter of existing and evolving sanctions programs was
not complicated enough, businesses need to be aware of additional
risk elements that are entering the mix. The Russian government
is considering a new law that could punish
executives in Russian companies with a prison term of up to ten
years and fines for complying with U.S. and other sanctions against
Russian individuals and entities. This can create risks for
personnel in Russia if U.S. or other companies terminate contracts
with sanctioned businesses. Russia has also threatened to impose
countermeasures against U.S. and Western businesses, including
nationalizing businesses that have stopped operating in Russia and
refusal to honor intellectual property rights.

Conclusion

The events set in motion by the Russian invasion of Ukraine are
creating a fast-moving, challenging set of legal and business risks
for U.S. and international companies. Lewis Brisbois’ attorneys
are advising clients on the many dimensions of this issue and are
available to assist businesses in navigating the current,
exceptionally turbulent waters.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.