Following President Putin’s recognition of the independence of the Russian rebel-held regions in eastern Ukraine, the Donetsk People’s Republic and the Luhansk People’s Republic (the “Disputed Regions”), the imposition of sanctions by western governments has been swift.
Head of Financial Crime David Savage sets out the newly implemented sanctions regimes and provides some immediate steps for international business with a Russian presence to take.
On 22 February 2022, the UK announced it was imposing asset freezes on:
- Five Russian banks:
- Bank Rossiya (Group ID: 14177)
- IS Bank (Group ID: 14178)
- JSC GenBank (Group ID: 14179)
- PJSC Promsvyazbank (Group ID: 14180)
- Black Sea Bank for Development and Reconstruction (Group ID: 14181)
- Three prominent Russian individuals:
- Gennady Timchenko (Group ID: 14181)
- Boris Rotenberg (Group ID: 14182)
- Igor Rotenberg (Group ID: 14183)
As a result, any assets these individuals hold in the UK will be frozen. UK persons and entities will be now prohibited from making funds available, directly or indirectly, to or for the benefit of these individuals, and all UK individuals and entities will be prohibited from providing funds and/or economic resources to the sanctioned banks.
On 22 February 2022, the Office of Financial Sanctions Implementation (“OFSI”) published a “Financial Sanctions Notice” in which it mandates that UK individuals and entities must:
- check whether they maintain any accounts or hold any funds or economic resources for the sanctioned banks and individuals
- freeze such accounts, and other funds or economic resources and any funds which are owned or controlled by these individuals and banks
- refrain from dealing with the funds or assets or making them available, directly or indirectly, to such individuals and banks unless licensed by OFSI
- report any findings to OFSI, together with any additional information that would facilitate compliance with UK sanctions regulations, and
- provide any information concerning the frozen assets of designated persons that OFSI may request, with such information potentially being passed on to other regulatory authorities or law enforcement.
Interestingly, all the individuals and Bank Rossiya and Black Sea Bank for Development and Reconstruction are already subject to US sanctions. This has led to initial criticism by UK MPs about the lack of severity of the first tranche of new sanctions. In addition, the bigger Russian lenders, including VEB, Sberbank, VTB Bank, Gazprombank and Alfa-Bank, were all notable by their absence.
On 22 February 2022, President von der Leyen announced that the 27 EU member states had agreed a new set of sanctions against Russia, stating: “The sanctions directly target individuals and companies involved in these actions. They target banks that finance the Russian military apparatus and contribute to the destabilisation of Ukraine. We are also banning trade between the two breakaway regions and the EU – as we have done after the illegal annexation of Crimea in 2014. And finally, we are limiting the Russian government´s ability to raise capital on the EU’s financial markets.”
The new sanctions will only be imposed upon formal agreement by the 27 member states.
On 22 February 2022, Germany announced it would freeze the certification of the Nord Stream 2 Baltic Sea gas pipeline project, which is designed to double the flow of Russian gas direct to Germany. The chancellor, Olaf Scholz, has commissioned a new assessment into Germany’s energy security in light of Russia’s activity.
For detailed coverage of US sanctions developments, please see updates from Buckley LLP.
Japan has announced asset freezes and visa bans on certain individuals connected to the Disputed Regions, a ban on goods from the Disputed Regions and a ban on the issuance of Russian sovereign debt in Japan.
On 23 February 2022, Australia launched economic sanctions against Russian individuals and the Disputed Regions, including banks located there.
On 22 February 2022, Canada imposed a ban on all financial dealing with the Disputed Regions and targeted members of the Russian parliament who voted for the decision to recognise them, and banned Canadians from engaging in purchases of Russian sovereign debt.
Consequences of the new regimes
The immediate steps businesses should take are:
- Consider the banks that have now been designated and consider exiting any relationships.
- The individuals identified by the various new regimes are known to own or control significant entities in Russia, many of which also have a global presence. All international businesses with a Russian nexus must now take extra steps to understand ownership and control of Russian entities with whom they do business.
- The Disputed Regions and the Covered Regions are not, for obvious reasons, recognised as countries by the United Nations, but rather as territories or jurisdictions. This means that transaction monitoring software and sanctions screening systems will need to be reprogrammed to include local geographic indicators, including city names, regions or addresses.
- Screen the new individuals and entities to ensure that any relationships are identified, assets frozen, and reports made where required.
For more information on how to deal with rapidly changing sanctions requirements, please see our previous article, which may be found here.
More sanctions articles in the ‘Horizon scanning’ series:
- Afghanistan, Belarus and China.
- Russia, North Korea and India.
- How to prepare for change in sanctions compliance
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