Companies Should Expect Increasing Russia Compliance Requirements, Sanctions, Law Firms Say
New U.S. sanctions and export controls against Russia could present significant additional compliance and due diligence requirements for companies operating in the region and more trade restrictions are likely on the way, law firms said.
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Although the sanctions so far don’t amount to a comprehensive embargo against Russia, Ropes & Gray lawyers said they will still "significantly restrict” transactions with Russia and will force companies to take additional due diligence steps. The U.S., along with the E.U. and others, imposed a wide range of sanctions that target major Russian financial institutions, impose prohibitions related to new debt and equity for various state-owned enterprises, block transactions with government officials and entities, and place new export controls to restrict certain U.S. and foreign technology shipments (see 2202280043 and 2202240069).
Businesses will need to conduct added due diligence over any Russia-related transactions, Ropes & Gray said Feb. 28, especially those that involve any Russian financial institution or items subject to U.S. export controls.
The firm also said non-U.S. companies should thoroughly review the U.S. restrictions, some of which have extraterritorial applications. The Commerce Department recently expanded its foreign direct product rule, which sets licensing restrictions on foreign-produced goods made with certain U.S.-origin content. Companies can “continue conducting business in or with Russia,” Ropes & Gray said, but should conduct “thorough due diligence.”
McGuire Woods and Freshfields Bruckhaus Deringer said companies should be prepared for even more trade restrictions as Russia continues to invade Ukraine. Companies also should be prepared for potential retaliation from Russia, Freshfields said Feb. 28, especially as the “increasingly severe sanctions and export controls against Russia appear likely to continue.” Companies should take steps to “ensure compliance with these sanctions, including revising sanctions screening and due diligence processes and updating compliance policies,” the firm said.
Screening lists should be monitored daily to determine whether new parties have been added, McGuire Woods said. If screening is handled by a third-party vendor, companies should regularly confirm those lists are being updated so “transactions do not slip through,” the firm said. Businesses may also seek to “accelerate” their sanctions compliance training this year so “employees are refreshed on these issues sooner rather than later.”
The firm also warned that pending transactions with Russia “may need to be suspended on short notice,” especially if they are impacted by SWIFT, the global financial messaging network used by banks, as it will soon exclude certain Russian banks (see 2203010038).
But McGuire Woods also said business in Russia, although difficult, is still possible. “To the extent transactions with those commercial counterparties will not otherwise violate the sanctions and export controls, and remain commercially viable, they can proceed -- albeit with care,” the firm said.