The EU and the U.S. responded to Russia's annexation of Crimea from Ukraine in March 2014 with a series of sanctions. Below is a summary of sanctions issued by the U.S. and EU, as well as recommendations for American and EU companies doing business in Russia or with Russian entities:
In the wake of Russia's annexation of Crimea, U.S. President Obama in mid-March issued three executive orders sanctioning Russia, which were supplemented by the blocking of several Russian and Ukrainian officials and one Russian bank by the U.S. Treasury Department's Office of Foreign Assets Control (OFAC). The U.S. Departments of Commerce and State subsequently moved to increase pressure on the Russian economy by restricting exports. Whether Russian or U.S. companies feel the brunt of these new measures has yet to be determined.
On 25 March 2014, the U.S. Department of Commerce's Bureau of Industry and Security (BIS) placed a hold on the issuance of licenses that would authorize the export or re-export of items to Russia. BIS regulates the export and re-export of "dual use" items subject to U.S. jurisdiction that are intended for civilian use but could be used or modified for a military application. In its announcement, BIS stated that this ban had been in place since 1 March 2014 and would remain in effect until further notice.
The U.S. Department of State's Directorate of Defense Trade Controls (DDTC) followed the BIS lead and issued a similar statement on its website on 26 March. DDTC is responsible for regulating the export and re-export of defense articles and defense services from the U.S.
Although the executive orders issued by Obama lay the groundwork for imposing future economic sanctions on Russia, they do not currently have a tangible impact on the private sector. By contrast, the BIS and DDTC actions took immediate effect and have a direct impact on U.S. businesses that export goods to Russia. The DDTC freeze on license approvals equates to a complete ban on the export of military products and services to Russia, as the exports of any such products, services or related technical data require DDTC approval. The actions by BIS will be felt by U.S. companies on a product-by-product basis. BIS's hold on license approvals only applies to products, software and technologies that are specifically controlled for export and re-export to Russia and require a license. U.S. companies may still export and re-export to Russia products, software and technology that do not require a license from BIS.
EU and UK Sanctions
On 6 March 2014, the EU passed Regulation 208/2014, freezing assets of 18 Ukrainian former government officials, including Viktor Yanukovich, the former President of Ukraine, and Vitalii Zakharchenko, Ukraine's former Minister of Internal Affairs, as well as some of their close family members. The EU followed that with EU Regulation 269/2014 on 17 March 2014, in which it announced an asset freeze and travel ban for 21 Russian individuals. All funds and economic resources belonging to, owned, held or controlled by any of the listed individuals (or legal entities associated with them) are frozen and no funds or economic resources will be made available, directly or indirectly, to them or for their benefit. The list was further extended on 21 March 2014 to cover 12 additional individuals.
The EU regulations' lists of officials largely correspond to the full list released by OFAC in the U.S., but further extend to cover commanders of Russian forces in Crimea and those administering the Crimean referendum. The EU sanctions apply within the territory of the EU, to all nationals of EU member states and legal entities incorporated in the EU member states or under the law of any member state.
On 18 March 2014 the UK passed a statutory instrument in relation to the EU sanctions with the effect that any breach of EU sanctions could lead to criminal sanctions in the UK. In addition, the UK Export Control Organization (ECO) issued Notice to Exporters 2014/06 on 18 March 2014, suspending all licenses and license applications for exports to military end-users in Russia. Specifically, exports of both military and "dual use" items are prohibited to the Russian armed forces, other Russian state agencies which could deploy them against Ukraine, and third countries for incorporation into equipment for export to Russia where there is a clear risk that the end product will be used against Ukraine.
Most recently, the Federal Council of Switzerland on 2 April 2014 adopted an order preventing financial intermediaries established in Switzerland from entering into new business relationships with the 33 individuals designated in the EU sanctions. Switzerland made this move to eliminate the perception that its financial center would benefit from the EU sanctions against Russia. While existing business relationships involving the 33 blocked individuals are not covered by the ban, they must be reported immediately to State Secretariat for Economic Affairs (SECO) of Switzerland immediately, with details of the beneficiary and the nature and the value of the business. SECO is monitoring developments in these relationships so the Federal Council can decide if any further measures are necessary.
The Russian Response
In response to recently announced U.S. sanctions, Russia imposed retaliatory sanctions on certain U.S. individuals. On 20 March the Ministry of Foreign Affairs of the Russian Federation published a list of 9 government officials of the U.S. who are prohibited from entering Russia. To date, Russia has not imposed any travel sanctions on EU officials.
Recommendations for Companies Doing Business in Russia
The situation continues to develop as Russia masses troops along Ukraine's eastern border. The U.S. and EU are waiting to gauge Russia's intentions for further incursions into Ukraine before imposing additional sanctions. Those sanctions are expected to come swiftly if diplomatic efforts break down and Russia takes further military action in Ukraine.
As for now, U.S. companies should review the export classifications of their products, services, software and technology before making any exports to Russia. While neither BIS nor DDTC will block exports that have already been licensed, all new license applications will be denied. Exporting or re-exporting items to Russia without a license when required can result in both civil and criminal liability. Further sanctions that could be imposed on Russia may target the financial services, energy, metals and mining, engineering, and defense and related materiel sectors.
Similarly, EU and British companies doing business in Ukraine and Russia should assess their activities to estimate their exposure under EU and UK sanctions. Companies operating in the financial services, energy and defense industries are at particular risk and must consider their options in the event of escalation of the political situation.