The Russian invasion of Ukraine exposes companies with business in the region to new and heightened compliance and financial risks. Beginning February 21, 2022, the United States, other countries, and the European Union imposed sanctions on Russia for its recognition of the Donetsk and Luhansk regions. Today, the United States imposed “unprecedented and expansive” sanctions on Russia. Collectively, the new U.S. sanctions:
- Effectively create an economic embargo on the Donetsk and Luhansk regions of Ukraine.
- Add many new parties to the OFAC Specially Designated Nationals (SDN) List.
- Impose measures against some of Russia’s largest financial institutions, including Sberbank and VTB Bank and their majority-owned affiliates and subsidiaries.
- Impose sweeping restrictions on exports to Russia, including new license requirements (with a policy of denial) for all Export Control Classification Numbers (ECCNs) in Categories 3-9 of the Commerce Control List and new foreign direct product rules.
- Add the Nord Stream 2 pipeline to the OFAC SDN List and issued General License 4 to authorize the wind down of transactions involving the pipeline.
- Sanction twenty-four (24) Belarusian individuals and entities.
Companies with operations, distributors, suppliers, third-party agents, intermediaries, or employees in the region need to understand their risk exposure so that they may respond accordingly to these and future government measures and implement processes to prevent unintended violations. We encourage clients to review existing compliance programs, confirm their efficacy, and revise them as necessary to address the new and developing sanctions. These efforts should include:
- Reviewing the efficacy of transaction-based, restricted party, and Russian Sectoral Sanctions screening processes, including traditional list-based screening and customized screening to address the risks of the 50% Rule (i.e., a party owned 50% or more by one or more parties on the SDN List or by one or more parties on the Sectoral Sanctions Identifications (SSI) List is subject to the SDN or SSI prohibitions).
- Reviewing logistics arrangements and determining whether any changes require additional screening or result in the application of other country export controls, licensing requirements, and sanctions.
- Reviewing all commercial contracts with exposure to the region to understand termination provisions, including force majeure provisions, notice requirements, and governing law provisions.
- Reviewing contracts with distributors and third-party agents to ensure their sales or services do not create sanctions or export control violation risks.
- Confirming the products and technology being sold into the region and understanding licensing requirements.
- Considering potential supply chain disruptions based on regional sourcing and potential alternative sources.
- Determining existing accounts receivable in the region and consider collecting immediately.
- Confirming commercial banking relationships do not involve restricted entities.