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This article was first published on LexisPSL Corporate Crime on 25 March 2014. Click here for a free 24h trial of LexisPSL.

Russian sanctions explained

25/03/2014 Corporate Crime analysis: What effect will the EU and US sanctions have on the individuals concerned? Philip Roche, partner, and Jason Hungerford, senior associate, at Norton Rose Fulbright, explain how the sanctions work in practice and consider the wider implications for those with business ties to Russia.

Original news
US/Russia: Crimea annexation leads to sanctions, LNB News 21/03/2014 36 The US government has introduced sanctions against allies of Russian President Vladimir Putin. Those targeted include the country's Bank Rossiya as well as 20 individuals, many of whom are Putin's aides.

What are the key features of the sanctions put in place?

The key feature of the sanctions is a freeze on the assets of individuals and entities designated by the EU or the US. The EU sanctions also include a travel ban on the named individuals. In the US, any entity at least 50% owned by a designated person--whether directly or indirectly--is also sanctioned, significantly expanding the breadth of the sanctions' impact. The most recent US sanctions also empower the Treasury Department to impose sanctions on key sectors of the Russian economy. Whether and how that authority will be used remains to be seen.

What does it mean for individuals who have been sanctioned?

Sanctioned individuals will find themselves effectively cut off from the US and EU financial systems. Financial institutions' increasingly effective screening and compliance programmes mean that sanctions targets are largely unable to transact business in the European and American economies, or to deal freely in euros or dollars. Assets held by European and American banks for sanctioned individuals are also frozen. It is also worth noting that one bank--Rossiya Bank, used by more than a dozen leading Russian government officials and businessmen--has also been sanctioned.

Can an individual challenge being placed on a sanction list?

Yes, but it is important to remember that designation of an individual under sanctions provisions is first and foremost a consequence of foreign policy, and the power of states to effect such policy is largely unfettered. Some individuals and entities (particularly Iranian entities) have recently challenged designation under EU sanctions with success--there is less precedent for this in the US.

How might this impact EU states/businesses with strong ties to Russia?

It is hard not to imagine that EU states with ties to Russia will undergo strain, at least for a time. Angela Merkel's recent statement that the 'G8 no longer exists', reflects the severity of the political tension

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surrounding the situation in Crimea--not only in Europe, but also internationally and was a warning to Russia to expect further EU sanctions to be implemented. There is some limited ability for member states to authorise certain dealings with sanctioned parties, but the EU moves more or less as a single body with respect to sanctions. This is not the case, however, when it comes to enforcement, which is left to member states. Some states enforce sanctions with more vigour than others, and clearly financial centres, such as London, are more likely to have the opportunity to enforce--indeed, London is being urged to do so by some parties. For businesses, the effect will be felt far beyond the EU, given the need to access European and American capital markets. Western financiers routinely impose sanctions provisions on companies with little or no exposure to those markets, and non-US/non-EU exchanges and other players often raise concerns about sanctions-based risk exposure.

Could this have any wider indirect impacts?

The key impact for businesses right now is the burden of assessing current risk and preparing for the future. Politics and foreign policy are difficult to predict, but exposed companies will be watching for signs that the sanctions will be broadened, particularly to sector-based provisions targeting Russia or the designation of additional financial institutions.

What are the penalties for breach of sanctions?

Civil penalties for violating the US sanctions are the greater of $250,000 or twice the value of the transaction at issue, per violation. Most enforcement actions involve multiple violations per transaction, which therefore multiplies the potential fines. Criminal penalties can reach up to $1,000,000 and, for individuals, 20 years' imprisonment. Penalties in the EU vary by member state--in the UK, potential fines are unlimited, and individuals can face a prison sentence of two years. In addition to regulatory penalties, companies need to consider the negative impact to their reputations that a sanctions violation--or even an association with certain state actors--can bring. Interviewed by Jenny Rayner The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.