To date, two rounds of direct sanctions have been imposed against those individuals whom the US and Europe believe are responsible for the actions which led to the declaration of sovereignty by Crimea, and its subsequent joining to the Russian Federation. Currently, the US has sanctioned 31 individuals and one bank, whilst the EU has imposed similar restrictions on 33 individuals.
Although the media has highlighted the impact that these are beginning to have on the Russian economy, the current restrictive measures are primarily directed at specified individuals with the intention of disrupting their personal wealth, businesses and ability to travel through the imposition of asset freezes and travel bans.
Sanctions currently imposed
Due to disagreement between Member States on an appropriate and proportionate stance to take, the EU has been arguably less intrusive and more restrained in their measures than the US. Their sanctions list only targets those individuals who are linked directly to the political decisions that resulted in the Crimean action and the European restrictions are not directed at any entities or any prominent businessmen with links to the Kremlin. These restrictions should only directly affect the individuals specified in the sanctions list and to the extent that the have any relevant bank accounts or property abroad.
Even the recent sanctions imposed by the US against Bank Rossiya can be seen to be of personal nature and result from the public perception that the Bank is the favoured financial institution of many prominent senior Russian politicians and the links its main shareholder, Yuri Kovalchuk, has to Vladimir Putin. Whilst Visa and MasterCard may have blocked Bank Rossiya customers from making transactions with their cards, as widely reported in the media, these customers were still able to make cash withdrawals from the bank's ATMs, and the true impact and significance of their sanctioning has yet to be measured.
The current restrictions can be contrasted against those which have been used against countries such as Iran, where, subject to special exemption licences, the intention is to impose an almost wholesale economic embargo on a country in a bid to halt economic growth or access. Currently there have been no such restrictions, targeted or otherwise, imposed against Russia. However, both the US and Europe have made it clear that they are considering and looking at potential options for the implementation of a third wave of sanctions. The individual visa bans and asset freezes which we currently see may be widened to target specific entities or areas of the Russian economy. President Obama has already publicly stated that these would likely be against the financial services, energy, metals and mining, defence and engineering sectors.
The most recent Executive Order from President Obama dated 20 March gives the Secretary of State the delegated power to require US persons, including foreign branches, to block the property and interests in property of persons involved in any sector of the Russian economy. Whilst this authorises the Secretary of State to issue future sanctions, it is important to note that it does not currently impose any further restrictions over and above the lists previously published. The extent to which the US and Europe are willing to resort to further action will depend on the relative risks each side is willing to take in relation to any further destabilisation in the Crimean region and any action that is considered non-diplomatic.
The legal implication of the current US sanctions are that any assets belonging to the designated individuals that are subject to US jurisdiction, or the come under the control of possession of US persons, must be blocked. US persons are prohibited from conducting transactions, dealings, or business with the designated individual. Any blocked property must then be reported to the Office of Foreign Asset Control within ten days and appropriate further action taken.
The EU sanctions are immediately applicable across all EU Member States, but each Member State is given a degree of flexibility in how they are compliant. The general EU asset freeze contains a requirement to freeze all funds and economic resources belonging to, owned, held or controlled by a designated person and a prohibition on making funds or other economic resources available, directly or indirectly, to or for the benefit of the designated person.
The initial direct impact of the current sanctions is likely to be limited. The purpose of financial sanctions is to influence behaviour and so they are generally imposed with an increasing degree of severity. If you take the most recent action by the US as a warning sign, then they are certainly showing the appearance of a willingness to impose wider and potentially more serious sanctions in the near future. These will have the objective of further isolating Russia from the international community with the hope of causing uncertainty in the markets, deterring investment and increasing the cost of borrowing.
As far as the current situation is concerned, active and regular screening of clients is essential to ensuring that business is not carried out with any designated person. Furthermore, investigations will need to check whether there are any business dealings with entities which may be owned or controlled by a designated person. From a regulatory and risk perspective, your primary obligation is ensure that you do not have any exposure or dealings with those targeted by the sanctions regimes or with any entities owned or controlled by them.