As tensions continue between the Russian Federation and western nations both the United States and the European Union have imposed sanctions against Russian individuals and the Russian Federation has responded by imposing its own sanctions against US persons. This article examines the impact of the sanctions imposed by the USA and the EU upon individuals accused of interfering with the sovereignty of Ukraine, as of 24 March 2014, and the potential impact of those sanctions upon Finnish businesses.
Currently, the sanctions imposed by the USA and those imposed by the EU are limited in their application to the named individuals and one Russian bank accused of supporting the Russian Federation’s recent annexation of the Crimea region in Ukraine . However, both the United States and the European Union continue to threaten the possibility of additional broad-reaching economic sanctions, if the current tensions between the Russian Federation and western nations continue.
What Finnish Businesses Need to Know
The United States Sanctions
To date, the USA has imposed sanctions upon 20 specifically-named individuals and upon a Russian bank, the Bank Rossiya. The list of those named by the US sanctions is different from those listed in the EU sanctions.
The US sanctions have frozen all assets of the specified individuals and bank which are located within the USA. They also freeze all assets of the sanctioned individuals and bank which are under the control of or in the possession of US persons (including US organised companies, US citizens and US permanent residents) who are living abroad. Importantly, even assets which are merely passing through the USA are subject to being frozen. For example, any transfer of funds which is routed through a US bank (even the foreign branch of a US bank) could be frozen by that bank.
The USA sanctions also do not allow US persons, whether located inside or outside of the United States, to transact any business with the named individuals, at least most of whom have also been listed in the US Specially Designated Nationals List.
Additionally, the sanctions forbid the named individuals from traveling into the United States and also prohibit the making of any donations to or for the benefit of the named individuals. They also prohibit any attempt to evade complying with the sanctions and any conspiracy to avoid the sanctions.
Importantly, the United States sanctions only apply to US persons and to property located within the USA. For example, a company which is organised in Finland, which is not owned or controlled by a US person and which has no US persons as employees, does not have any obligations with regard to the current USA sanctions.
However, if a Finnish company is owned or controlled by a US person, or has a US person as an employee, that company should carefully evaluate any plans to do business with the sanctioned individuals or bank. The penalties for US persons who participate in business with the named individuals are severe and may include time in prison and large fines. The risks of this may be reduced by ensuring that US person employees do not participate in any business connected to the sanctioned individuals or bank and by carefully documenting the fact that the US person employees have not been involved in that business.
Critically, under the US sanctions law US persons are subject to strict liability. This means that even if a US person does not know that business in which they are involved also involves one of the sanctioned individuals or bank, that US person can still suffer the penalties for violating the USA sanctions and the Specially Designated Persons List. The situation is different for the EU sanctions, which state that persons who did not know and had no reason to suspect that they were engaging in prohibited business with the sanctioned individuals will not be subject to liability for their actions. As a result, it is essential that US persons and their employers take careful precautions to ensure that US persons are not involved in any business with sanctioned individuals or entities.
The Executive Orders which establish the USA sanctions can be found on the website of the US Department of the Treasury.
The list of persons and the Russian bank subject to the USA sanctions have been published on the website of the US Department of the Treasury.
The European Union Sanctions
The current EU sanctions are targeted to 33 specifically-named individuals, and the European Union’s list of sanctioned individuals differs from the list of persons and bank sanctioned by the United States.
Like the USA sanctions, the EU sanctions have frozen the assets (including funds and any other economic resources) of the named individuals. Additionally, under the EU sanctions it is prohibited to make available any funds and economic resources to the sanctioned persons or for the benefit of the sanctioned persons. However, with the prior approval of the competent authorities, an exception may be made to release funds e.g. for the limited purpose of enabling the sanctioned individuals and their dependents to obtain certain necessities and services.
Additionally, the EU sanctions prohibit satisfying any contractual claim made by or for the benefit of the named individuals and also require the reporting of information pertaining to the assets of the sanctioned individuals, although ordinary rules regarding confidentiality remain in effect. The broad focus of the EU sanctions means that, in effect, it is prohibited for any EU organised business or EU person to transact business with the listed individuals and importantly, the prohibitions of the EU regulations also apply to non-EU companies and non-EU persons as regards any business which those non-EU companies conduct within the EU.
The EU sanctions have an important difference to the USA sanctions. Specifically, the EU sanctions state that persons who did not know and had no reason to suspect that they were engaging in prohibited business with the sanctioned individuals will not be subject to liability for their actions. By contrast, the US sanctions do not excuse US persons who unknowingly violate the US sanctions law and impose strict liability upon all US persons who transact business with the named individuals.
Council Regulation (EU) 269/214 of 17 March 2014 and also Council Regulation (EU) No 284/2014 of 21 March 2014 contain the EU sanctions and the lists of EU sanctioned individuals. Additionally, the Ministry for Foreign Affairs of Finland is monitoring the EU sanctions development on their website.
For the Future—Impact on Economy
As the current sanctions are limited in application to the assets, business operations and international travel rights of certain individuals and to the operations of one Russian bank, the economic impact of the current sanctions can be expected to be correspondingly limited in scope, although it will certainly be significant for the named individuals and those who have being engaged in business with them. Finnish companies may find themselves economically affected by the current sanctions if they conduct business with the sanctioned individuals or bank, as the economic loss suffered by those individuals and bank may be passed on to their Finnish business counterparties.
With an eye on the future, if either the USA or the EU imposes additional sanctions, as they have threatened, targeted at broad-reaching sectors of the Russian Federation’s economy, the economic impact for Finnish businesses could be even more significant.