Russian Trade and Economic Sanctions Draw Even Closer
Trade and economic sanctions against Russia now look unavoidable unless diplomatic efforts can be revived. As such, it is now an important opportunity for companies to assess, and to start thinking about possible plans to manage, their exposure to any measures that may ultimately be implemented by the European Union or United States.
While the U.S. administration has, up until now, appeared more decisive on its intention to introduce trade and economic sanctions in response to rising tensions between Russia and Ukraine, the EU has until recently been more cautious due to the political and economic implications for its Member States, including the region’s reliance on Russian gas. However, the EU is now moving past its initial reluctance and comprehensive measures, implemented on both sides of the Atlantic, seem likely.
The European Union
On 6 March 2014, the EU made its boldest statement to date when the European Council agreed a phased approach to sanctions against Russia.
Phase I effectively entered into force when Heads of Government and State agreed to suspend preparations for the G8 Sochi Summit as well as ongoing trade and visa liberalisation negotiations with Russia.
Phase II will involve asset freezing measures targeting Ukrainian and Russian individuals and entities accused of having attempted to harm the territorial integrity and sovereignty of Ukraine. These measures will most likely be adopted by the Foreign Affairs Council on 17 March 2014. While the details are not fully finalised at this stage it is anticipated that a fairly large list of individuals and entities will see their assets frozen as a result of their involvement in the escalating tensions between Russia and Ukraine. In addition to the asset freeze, a travel ban will be imposed on a number of Russian and Ukrainian officials.
In preparation for Phase III, which still appears some way off at this stage, the EU is considering the pros and cons of the different options available for introducing trade and economic sanctions targeting strategic Russian goods and sectors. In particular, the EU is considering how best to implement Phase III in a way that increases pressure on Russia without unnecessarily harming EU economic and business interests.
Similar to the EU, current U.S. measures focus primarily on asset freezes of individuals and entities to be identified in the future (in addition to certain visa bans). On 6 March 2014, President Obama issued an Executive Order entitled “Blocking Property of Certain Persons Contributing to the Situation in Ukraine”. The Order would require that U.S. persons freeze all assets of certain designated individuals and entities which the U.S. government considers to be responsible for undermining the democratic process in Ukraine or for misappropriating State assets.
While the U.S. Government has not yet released a formal list, it is anticipated that it may include both current and former Ukrainian government officials, companies affiliated with such persons, and potentially individuals and groups who are pushing for secession of Ukraine’s Crimean region. The Order is unlikely to cover the property of Russian officials and entities unless Russia’s involvement in the crisis escalates.
The property which would be blocked under the Order would only be that which is located in the United States or which is under the control of U.S. persons abroad (such as financial institutions), and the Order therefore will not affect non-U.S. persons who deal with the property of sanctioned individuals or entities. It is likely, however, that the U.S. and the EU will work together to ensure that any unilateral sanctions are matched by similar multilateral measures, to ensure the greatest impact.
In addition to the asset freezing measures, the U.S. State Department has also imposed visa bans on certain Ukrainian and Russian individuals who are considered to be responsible for threatening the territorial integrity and the sovereignty of Ukraine, preventing such individuals from travelling to the United States.
The U.S. Congress is considering additional measures, including a bill that would freeze the assets of Russian officials responsible for military intervention in Ukraine or who were complicit in gross corruption in the country. No current legislation under consideration would target Russian banks, energy companies or state-owned enterprises, though the situation should be monitored as some congressional members are calling for such measures if the situation deteriorates further.
It would also seem appropriate to note that the Russian Duma is loudly contemplating retaliatory sanctions should the U.S. or EU freeze assets of Russians. This has led the business comunity to make its concerns heard and together with the EU energy concerns may cause a delay or watering down of any sanctions to be imposed.
How can Dechert help?
- Provide up to the minute alerts on the evolving situation both in the EU and the U.S.
- Assist companies to assess their exposure to current and wider sanctions risk.
- Assist with securing licenses to ensure business continuity in line with any derogations or exemptions provided in the legislation (once published).
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