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The US, EU and UK have imposed an increasingly complex regime of sanctions on Russia as the war in Ukraine has evolved. Breakdown by Katherine J Stoller, Thomas Donegan, Jacob Fields, Alicia Rose and Chloe Barrowman of international law firm Shearman & Sterling.

Since the war in Ukraine began in February, the US, EU, UK and others have imposed successive rounds of economic sanctions on Russia.

Each new sanctions package adds further complexity to a multijurisdictional web of cross-border laws and regulations. Moreover, these new measures build on sanctions already in place since Russia’s invasion of Crimea in 2014 and have prompted Russia to issue countersanctions in return.

So far, no country has instituted a blanket ban on business with Russia. Instead, the sanctions restrict transactions with an increasing number of specific individuals, companies, territories, goods, or sectors of the Russian economy. The US, for example, has banned imports of Russian-origin oil and gas, while the EU and UK have announced plans to substantially reduce their own imports.

Sanctions have also been lodged against Belarus in connection with its role in supporting the conflict. In particular, asset freezes and investment bans have become a key pillar of the sanctions regimes imposed by the US, EU and UK.

Given their breadth, these multilateral sanctions affect virtually any business that operates in the global economy – even those with no immediate or direct ties to Russia, Belarus or Ukraine. Understanding their nuances and limitations are key, so that companies can identify whether they may need to take necessary action.

Who is bound by sanctions?

Each jurisdiction has its own approach to imposing liability for sanctions violations. Given the size and scale of their financial systems, the sanctions regimes of the US, UK, and EU and its member states are particularly important to keep in mind.

Generally, the US sanctions regime binds “US persons”, i.e. US citizens and permanent residents, all persons and entities within the US, and all US-incorporated entities and their foreign branches. However, non-US persons may also be deemed liable for violating US sanctions for “causing” a violation of US sanctions by introducing a US nexus to the prohibited transaction (e.g. US dollar payments, participation by US employees, use of US service providers, etc.). Additionally, even without a US nexus, non-US persons may themselves become sanctions targets if they provide “material support” to sanctioned individuals or entities.

EU sanctions typically apply within the territory of the EU, on board any aircraft or vessel under the jurisdiction of an EU member state, to EU nationals, wherever they are located, to any legal entity incorporated under the law of an EU member state, and to any legal entity in respect of business done in whole or in part within the EU. UK sanctions have a similar geographical reach. 

All three jurisdictions have intentionally carved out certain exceptions to the new sanctions regimes – for example, to prevent harm to agricultural or medical exports or humanitarian aid. As such, a number of licences authorise transactions that would otherwise be prohibited.

Understanding US sanctions on Russia

Since February, the US has designated an increasing number of Russian banks, corporates and individuals as ‘specially designated nationals’ (SDNs). US persons, including financial institutions, are prohibited from all direct and indirect dealings with SDNs and must freeze any property in their possession majority-owned by SDNs. Major targets include Russian financial institutions, defence and war-related enterprises, Russian officials and politicians, and business and political elites.

More broadly, US sanctions prohibit all “new investment” in Russia by US persons, which notably extends to the proscription of any secondary trading in pre-existing Russian-issued securities, regardless of whether the issuer is sanctioned. US persons are further prohibited from providing certain services to individuals and entities located in Russia, including any “accounting, trust and corporate formation and management consulting” services, and any “quantum computing” services. 

The US has also taken action to freeze Russia’s foreign US dollar reserves by prohibiting US persons from engaging in any transactions involving Russia’s central bank, the Russian National Wealth Fund and Finance Ministry. Additionally, US persons are prohibited from transactions in, provisions of financing for, and other dealings in new debt of longer than 14 days maturity and new equity issued after March 26, 2022 of specified Russian corporates.

Finally, the US has prohibited virtually all trade with the self-proclaimed Donetsk and Luhansk People’s Republics in eastern Ukraine, along with imports and exports of certain commodities from and to Russia.

Understanding EU and UK sanctions on Russia

Asset freezes are the EU and UK equivalent of the US SDN list. Similar categories of entities have been targeted in the EU and UK. Where an entity or individual has been listed as subject to an asset freeze, the transfer of funds or economic resources to or from them is prohibited. 

Financial services restrictions and investment bans limit the access that Russian entities and individuals have to financial markets. For example, capital markets transactions have been curtailed. This includes a ban on EU or UK persons purchasing, or providing investment services in respect of, securities issued by specified Russian corporates and key Russian state institutions. 

Additionally, the EU and UK have imposed limits and prohibitions on the provision of various financial services for Russian-owned assets, such as the acceptance of deposits exceeding certain values from specified Russian nationals and legal entities. Several Russian banks have been removed from Swift and the ban is being sequentially extended to cover others.

Finally, the EU and UK have imposed prohibitions on making funds or economic resources available to sanctioned persons, including a ban on participation in projects co-financed by the Russian Direct Investment Fund, or transactions related to managing the assets and reserves of the Russian Central Bank.

Risk assessments and compliance 

As the conflict in Ukraine evolves, the US, EU and UK will likely continue to impose new sanctions in the months ahead. Companies and financial institutions should conduct periodic risk assessments to determine if and how sanctions may impact their operations or business relationships. 

Similarly, businesses and individuals with any links to Russia, Belarus or Ukraine should understand their connections and be vigilant as new sanctions are introduced, ensuring they take any action needed and keep track of any applicable deadlines. Companies should also plan to review and update their compliance policies and procedures to effectively mitigate against new sanctions, anti-money laundering and anti-corruption risks.

Companies – and financial institutions, in particular – should remain cognisant of the changing landscape and, as always, legal advice should be sought in complex cases to avoid unwanted penalties.

Katherine J Stoller, Thomas Donegan, Jacob Fields, Alicia Rose and Chloe Barrowman are attorneys based in Shearman & Sterling’s New York, London and Austin offices.


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