U.S. Sanctions on Russia Keep Coming, and the Legal Issues and Risks Keep Growing

Washington D.C. (April 13, 2022) - 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.

Please contact the authors of this alert or other members of the firm’s Ukraine Conflict Response team for assistance.

Authors:

Jane C. Luxton, Managing Partner - Washington, D.C.

Sean P. Shecter, Partner

David Michael Robbins, Associate

George Leahy, Law Clerk