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Continuing to Do Business in Russia Carries Risks, but So Does Decoupling, Lawyers Say

Keeping pace with the multinational sanctions targeting Russia remains a difficult task for lawyers and businesses, even some two months after its invasion of Ukraine, lawyers at Crowell & Moring said during an April 21 webinar hosted by the firm.

Lawyers and their clients are faced with a near-constant pace of new sanctions and guidance, the lawyers said. The sanctions come in three flavors, said Caroline Brown, a lawyer with the firm's D.C. office. Some are geographic sanctions that "essentially function as embargoes against the separatist regions in Ukraine," she said. Others are "list-based sanctions on individuals, companies, and financial institutions," and others yet are "sectoral sanctions" on specific items or sectors of the Russian economy. The biggest issue for clients has been individual sanctions, said Michelle Linderman, an attorney in Crowell's London office. "Who is sanctioned and if what they own is sanctioned ... can [a client] deal with somebody? Can they provide assets or services to a specific entity?"

Although guidance out of the Treasury Department and other agencies has been coming at a steady pace, there are still places where that guidance is unclear or unavailable, Brown said. For instance, "we are still waiting on additional guidance from the April 6 Executive Order on the Russia investment ban," Brown said. Partly because of the lag in guidance, companies are scaling back operations. "The pace of change is really difficult for compliance teams," Linderman said. That has led to companies interpreting sanctions guidance as widely as possibly to be on the safe side, Vassilis Akritidis of Crowell's Brussels office said.

However, moving away from Russian business partners carries its own risks. Many companies have complex business contracts with Russian suppliers, purchasers or subsidiaries and risk breach of contract. "It feels like there is an oligarch convention each evening where they prepare their collective responses and we get a consistent set of breach notices the next morning," David Wolff, a trade lawyer with Crowell, said.

There are a number of potential ways out of contracts with Russian partners, said Scott Winkelman of the firm's D.C. office. Sanctions, and the war itself, are often good cause for "unforeseen consequence" clauses to be invoked. Companies are forced to make business decisions about how to deal with existing contracts, which could put them at risk of violating sanctions. “There is broad conservatism in favor of the law when in doubt, and we recommend that," Winkelman said. "One strategy is to run out the clock” on existing contracts, especially while various wind-down periods are in effect, while other companies are trying to renegotiate or claim that the contracts are no longer enforceable.