Menu Search through site content What are you looking for?

Impending Sanctions related to Russia, what should you do?

  • Legal Development 01 February 2022 01 February 2022
  • Global

  • Crisis-Ukraine-Russia

In recent days there has been increasing rhetoric around the imposition of sanctions in response to the activities of Russia on the border with Ukraine. By way of example, on 31 January 2022, the UK Government announced new legislation to permit the Government to sanction individuals ‘due to their significance to the Kremlin.’ This is a broadening of existing powers ‘enabling the UK to more readily designate a greater number of individuals and businesses associated with the Kremlin.’ It is noteworthy that the UK government has identified that designation of individuals or imposition of new sanctions will only incur ‘in the event of any further Russian incursion into Ukraine.’

On 20th January, the US designated as SDN’s four Ukrainian individuals, said to be acting ‘at the direction of the Russian Federal Security Service’.  Moreover, reports in the US press on 31 January, suggest that the US is also preparing to sanction ‘individuals …in or near the inner circles of the Kremlin and [who] play a role in government decision making or are at a minimum complicit in the Kremlin’s destabilizing behavior.’  It is reported that some of those sanctions may be imposed irrespective of whether Russia takes any further action in relation to Ukraine.

The EU position is less clear, with diverging views apparent, and it remains to be seen if the EU will follow the US and UK positions, in due course.

The focus on individuals is important, because it can be much more difficult to assess whether or not a particular piece of business or an investment is impacted by sanctions on individuals as opposed to sanctions on corporates.  But it is clear, at least from the UK, that businesses are in the firing line as well.

At this time, it is in the realm of speculation as to whether new sanctions will be imposed and if so, on whom, but there are steps prudent businesses can take in advance, to reduce the disruption caused by new sanctions.  This is particularly important because, as of today, whilst there seems to be a clear move towards increased sanctions in the event of further escalation, the scope of those sanctions is uncertain.

We would suggest the following prudent steps:-

  1. Identifying business that might be affected by sanctions.  With Russia and Ukraine being major commodities exporters, that is obviously an area that could be targeted or adversely impacted.
  2. Review client due diligence, particularly in relation to repeat or more important business, to make sure you have done what you can to identify beneficial ownership and control (which are difficult to ascertain) which will help you or your advisors to establish whether that business is impacted, in the event of new sanctions.
  3. In relation to existing business, review your contracts to see if they contain any provisions which might kick in in the event of the imposition of sanctions, and consider what the impact on your business may be.
  4. For new business that might be higher risk, consider whether you ought to include sanctions provisions in your contract, and what the impact of such provisions might be.
  5. Check what insurance cover is in place, by whom it is issued and whether insurance is likely to be impacted by the requirement for insurers to follow applicable sanctions.  Insurers may be subject to more stringent sanctions obligations than their assureds.

In terms of your contingency planning, it is also worth having the following in mind:-

  • Tolerance of sanction risk varies from company to company.  You may find that certain entities have a lower risk threshold than others.  This can be particularly relevant in the case of banks, who may put in place internal risk control measures that are stricter than that required by sanctions legislation or regulations.
  • Where individuals are sanctioned, it is much more difficult to ascertain whether or not a particular piece of business is thereby prohibited or requires a licence.  This is particularly problematic where the sanctions prohibit or restrict business with entities controlled by an individual.  This has been the case with the sanctions imposed on the Belarus President Lukashenko.
  • Sanctions almost always have unintended consequences.  By way of example, where there are long contractual chains, it may be that the chain collapses because one of the links in the chain is impacted by sanctions, even if those at either end of the chain are not.
  • Where licences are required to carry out business, have in mind that the process for obtaining licences may be long and drawn out, taking months or in our experience even longer.
  • Particularly for those with investments in Russia, you will need to watch out for mooted anti sanctions activity taken by the Russian authorities.  By way of example, on 28 January 2022 Russia announced travel bans on a number of representatives of EU states, as yet unidentified.  This might indicate that Russia will go further, if additional Western sanctions are imposed.




Stay up to date with Clyde & Co

Sign up to receive email updates straight to your inbox!