The UK Government this week introduced sanctions which can target businesses believed to be benefitting or supporting the Russian government and their owners, directors and trustees.
The new criteria will allow sanctions to be imposed against Russia’s largest and most strategically important businesses, including those in the chemicals, construction, defence, electronics, energy, financial services, transport and digital technologies sectors. There is considerable speculation about the wider package of sanctions that could potentially be introduced to target exports, trade and Russian financial institutions.
Businesses can take steps in advance of any escalation in sanctions, starting with a review of the business’ contractual arrangements in place with Russian counterparties. Termination, choice of law and jurisdiction clauses in any contracts linked to Russia should be reviewed to identify the contractual remedies available should those relationships be impacted by any new sanctions.
For new contracts, consideration should be given to adding a sanctions clause which enables the contract to be suspended should sanctions be escalated, and the contract should ideally have a choice of law and jurisdiction clause that is outside of Russia.
Although the UK, EU and US will seek to co-ordinate the sanctions to be introduced, any sanctions imposed will not be identical and corporate groups with entities registered and active in different countries may be subject to different restrictions.
Companies may be able to put governance and structuring arrangements in place in advance of sanctions being imposed which enables business to continue, so long as the business is properly ring-fenced in a country where the business in question remains lawful. Structuring arrangements put in place after sanctions are imposed is considerably more difficult because of anti-circumvention provisions.
There may be a need to engage quickly with licensing authorities, banks and insurers and being able to show that the business holds up-to-date Customer Due Diligence records, sanctions screening records and end-use declarations for Russian-based customers will be helpful.
There will be exceptions for goods and services exported under a licence, so businesses should identify the goods, technology and/or software and services being exported into Russia or for use in Russia for which they may need a licence in future. Licence applications can take time to process and the licensing authorities may be overwhelmed by licensing applications so there will be a need to get in early.
UK and EU sanctions often restrict categories of items by reference to their commodity code. Businesses should check whether they have records of the commodity codes for their products or materials and if not should engage experts to carry out a classification exercise to quickly identify whether or not their products or materials are caught by any further sanctions imposed.
US-origin items and foreign-made products incorporating US-origin items should also be identified as these may be caught by US trade sanctions and wider export controls, even if the export takes place outside of the US.
Stacy Keen, Senior Associate and regulatory and compliance specialist at Pinsent Masons