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In light of the crisis in Crimea and Eastern Ukraine, the European Union (EU) has decided to implement a series of sanctions on both the Ukraine and Russia in an attempt to alleviate unrest in the region and dissuade Russia from interference in the internal affairs of Ukraine.
The EU has taken these steps in common with the USA and Australia as well as other jurisdictions which have imposed punitive sanctions against Russia. Though now cast as an international pariah, Russia has become an important trading partner in recent years and UK based businesses need to be aware of the sanctions regime.
The sanctions came into effect on 17 March 2014, following publication in the Official Journal of the EU of Regulation 269/2014 (the Regulation). Since then, however, the regulatory situation has remained as fluid as political events in the Ukraine.
On 28 May, the EU decided not to extend the Regulation further in recognition of Russia refraining to take steps to influence the Ukrainian Presidential Election earlier in the month.
It is not only those targeted by the sanctions who need to be aware of these regulations. These create obligations for EU based businesses, who must also ensure they do not deal with the sanctioned Russian businesses.
Businesses should be aware of these further restrictions and obligations to ensure they are meeting their compliance requirements. Failure to comply and flouting the law could result in serious penalties.
The EU has implemented two regimes:
The second regime has recently been expanded to include a wider range of entities and individuals, including legal persons, entities or bodies in Crimea or Sevastopol whose ownership has been transferred contrary to Ukrainian law.
Both regimes impose an asset freeze on the listed individuals, whilst the second regime also imposes a travel ban.
When an individual is caught by one of the regimes they are subject to an asset freeze. As such, EU persons, whether or not they situated in a member state, are prohibited from:
Furthermore, member states must prevent a listed individual from entering, or transiting through, their territory.
The UK has implemented the EU regulations. In addition, it has also revised some of its trade restrictions so that:
In the UK, the penalties regime is set out in The Ukraine (European Union Financial Sanctions) (No.2) Regulations 2014, are:
In light of this new sanctions legislation, companies should check whether customers, vendors or other counterparties are listed as blocked entities and ensure that any screening software has been updated accordingly.
Compliance departments should also regularly check the sanctions list every time the lists are updated if they are involved in, or considering entering into, transactions with Russian or Ukrainian individuals. This is particularly so as the EU may extend sanctions to cover new individuals or organisations.
The sanctions are likely to affect an extensive number of commercial transactions. By way of example, affected businesses may want to seek advice on:
Crimea is currently under Russian control but still claimed by Ukraine, bringing uncertainty and potential for disputes to commercial activities in the region. Compliance departments should ensure that they are up to date with the sanctioned schemes and seek advice accordingly.
Finally, it is important to note that Russia has itself taken countermeasures. Whilst these do not generally affect trade with the EU at the current time, there is a risk that additional retaliatory measures will be taken by the Russian Federation which hinder trade with the EU.
For companies doing business in Russia, it is important to keep the regulatory environment under review in both the East and the West.
This article was written by Paul Henty and Aziz Abdul.
For more information please contact Paul on +44 (0)20 7427 6506 or email@example.com