Russia related Sanctions - How To Comply and Stay Compliant
The world watched the Russian-Ukrainian conflict unfold in early 2022. While Russian claimed that occupation was not their intention, the Ukrainian government has labeled the attack an invasion. Several countries around the globe have condemned their actions and implemented harsh sanctions against Russia. Failure to comply with sanctions can have serious consequences, including the risk of penalties and even criminal charges.
What are the current Sanctions against Russia?
Several G7 nations have introduced harsh sanctions targeting individuals, banks, exports, businesses and state-owned enterprises, including:
Financial Measures
This included freezing the assets of Russia’s central bank, leaving them unable to access the £470bn of foreign currency reserves in their possession. The rouble has already dropped 22% in value, leading to a 14% increase in inflation. The country has taken some measures to help the currency recover.
The US has barred Russia from making international debt payments using the $600m the country holds in US banks and major Russian banks have been removed from the Swift financial messaging system, leading to delayed payments, particularly for its energy sector. The UK has excluded several Russian banks from the UK financial system, frozen their assets, barred Russian companies from borrowing, and put deposit limits in place.
Sberbank, the holder of a third of banking assets in Russia, was also hard hit. OFAC has required all US financial institutions to close any Sberbank correspondent or payable-through accounts and to reject future transactions involving Sberbank or any of its subsidiaries, which was later extended to full blocking sanctions. Blocking sanctions were also imposed against three major financial institutions, Otkritie, Novikom, and Sovcom (collectively worth $80bn).
Commodities
The US has also banned all Russian oil and gas imports. The UK will also phase out Russian oil imports by the end of 2022, while Germany has frozen the opening of the Nord Stream 2 gas pipeline. The EU also intends to halt Russian coal imports by August 2022.
Targeted Individuals
Several “elites close to Putin” have been targeted with sanctions OFAC believes that many of the targeted individuals participate in or otherwise benefit from the “Russian regime’s kleptocracy” or have beneficial ownership stakes in designated companies. These individuals include:
- Sergei Borisovich Ivanov and his son (designated so per Executive Order 14024)
- Secretary of the Russian Federation Security Council, Nikolai Platonovich Patrushev
- Igor Ivanovich Sechin, CEO of Rosneft and former Deputy Prime Minister of Russia
- Executives at state-owned banks, like VTB Banks
- President Putin’s press secretary, Dmitry Peskov
- Founder of Metalloinvest, Alisher Usmanov
- Chief Executive of Transneft, Nikolay Tokarev
- Boris and Arkady Rotenberg
- Chelsea FC owner Roman Abramovich
- The daughters of President Putin, Katerina Tikhonova and Mariya Putina
- Former president Dmitry Medvedev
- Russian Prime Minister Mikhail Mishustin
More than 1000 Russian individuals and businesses, including many “oligarchs” have been sanctioned. The UK has also halted its sale of “golden visas” which have allowed wealthy Russians to obtain British residency rights. The US, EU and UK have imposed sanctions on the 328 members that make up the Duma, the legislative arm of the Russian government.
Dual-Use Goods
The UK, EU and US have banned the export of dual-use goods, like vehicle parts, as these items have both civilian and military purposes. The UK has plans to further impose sanctions on Russia’s Wagner Group, a private military firm.
Further Proposed Sanctions
The EU has proposed several sanctions which have yet to be approved including:
- Phasing out all EU imports of Russian crude oil and refined products by the end of 2022
- Removing the access of three state-owned broadcasters to cable, satellite and the Internet
- Sanctioning 58 Russians including individuals involved in war crimes during the siege of Mariupol
How to Comply With Sanctions Requirements
Russia has extensive business interests around the globe in important industries that include energy, mining and defense. They are also one of the largest markets for crypto transacting in the world. While this poses significant challenges, businesses must take every precaution necessary to avoid non-compliance with the sanctions imposed. This will not only avoid harsh penalties and even criminal prosecution but will assist companies with effectively managing the many inherent business risks associated with Russia at the moment.
Steps should include:
- Effectively and thoroughly screening customers, suppliers and trade chain partners against relevant sanctions lists from multiple jurisdictions. Screening should occur during onboarding and continue over time as sanctions and individuals are continually being added to lists.
- Screen also all Ultimate Beneficial Owners (UBOs) of an entity. Due diligence must include screening against companies with denied party shareholding, per local regulations. In the US, companies may not transact with entities with 50% and higher restricted ownership, and it’s even stricter in the EU.
- IP address screening is the best way to confirm that customers are not located within a country under sanction.
- Exports must be accurately classified, and companies must apply for export licenses wherever required.
- Companies in the export trade should request end-user certificates to prevent controlled goods from being redirected to sanctioned countries.
Conclusion
Sanctions have been implemented at an alarming rate. To remain on top of these constantly shifting and critically important regulations, businesses should adopt intelligent Sanctions Screening software solutions that can help them remain compliant, even against the backdrop of rapid regulatory change.
