Ukraine conflict: European Union and USA impose sanctions against Russia

Over the past few days the situation in Ukraine has come to a head. The USA and the EU have imposed new sanctions. We explain which sanctions have been imposed and what companies that do business in Russia or Ukraine should now bear in mind.

On 23 February 2022, the EU issued the following regulations, in particular:

• Regulation 2022/259 amending Regulation (EU) No. 269/2014
• Regulation 2022/262 amending Regulation (EU) No. 833/2014
• Regulation 2022/263 on restrictive measures in response to the recognition of non-government-controlled areas of the Donetsk and Luhansk regions of Ukraine and the deployment of Russian forces to these areas.

The EU also adopted amendments to the corresponding implementing regulations and CFSP decisions. These can be found in the Official Journal of the EU.

The USA has also imposed new sanctions, particularly against Nord Stream 2.

European focus so far on separatist areas

The new EU regulations include:

• sanctions against the 351 members of the Russian State Duma (lower house of parliament) who voted on 15 February to appeal to President Putin to recognise the independence of the self-proclaimed "republics" of Donetsk and Luhansk
• sanctions against an additional 27 individuals and entities that have contributed to undermining or threatening the territorial integrity, sovereignty, and independence of Ukraine
• restrictions on economic relations with the non-government-controlled areas of the Donetsk and Luhansk oblasts
• restrictions on access by the Russian state and government to EU capital and financial markets and services

Overall, the regulations focus on the so-called separatist areas. They contain import and export bans of certain goods of the transport, telecommunication, energy, mineral oil and gas sectors to these territories (in Annex II of Regulation 2022/263).

To avoid misunderstandings: they do not extend the licensing requirement for sales or exports of goods and technology listed in Annex II of Regulation 833/2014 to natural or legal persons, organisations or entities in Russia or if such equipment or technology is intended for use in Russia.

The sanctions of 23 February are therefore only relevant for a small group of German companies.

However, new EU sanctions with much more far-reaching consequences for the German and European economy are imminent. What form these sanctions will take is not yet known. Commission President von der Leyen said this morning: "With this package, we are targeting strategic sectors of the Russian economy by blocking their access to key technologies and markets," and "we will weaken Russia's economic base and its ability to modernise." The EU also plans to freeze Russian assets in the EU and "end" Russian banks' access to the European financial market. “These sanctions are designed to impose high costs on the Kremlin's interests and its ability to finance the war."

US sanctions against Nord Stream 2 not clear regarding non-US persons

The US has also responded with sanctions.

As a result of the US sanctions issued yesterday, Nord Stream 2, among others, is now on the Specially Designated Persons List (SDN List). Thus, US persons are definitely prohibited from doing business directly or indirectly with this company - or subsidiaries owned by it (primary sanctions). Whether this ban also applies to persons outside the USA (secondary sanctions) is not clear from the sanctions.  However, the available material suggests that these are not currently sanctions that also apply directly to non-US persons.

Following the events of last night, the USA is also working on further, more intense sanctions, which can be expected to be enacted at any time.

What needs to be done now?

Monitoring

Any company with business in Russia or Ukraine, especially in the so-called separatist regions, should now establish a close monitoring of legal developments. The legal basis for doing business with this region will change dramatically in the near future - as far as can be predicted - and response times are likely to be short. (According to the US regulations, the wind-down period for Nord Stream 2 business already ends on 2 March 2022.)

Sanctions screening

Special attention now needs to be paid to sanctions screening - i.e. checking business partners against the sanctions lists. The legislative expansion of the sanctions list is easily possible and therefore often happens without generating much attention. The fundamentals of screening and the need for up-to-date screening are therefore more important than ever. This means that screening needs to be given extra attention these days.

Task force

In particular, companies with substantial Russian business should establish a task force that certainly needs to cover the areas law, compliance, key account management and public relations. Close contact with the company management is strongly recommended. Some companies have divided these teams into responsibilities - for the USA and for the EU.

The possibility of having to make tough decisions now or in the near future cannot be ruled out.

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