Sanctions: What do I need to know?

Background

The world has been watching the devastating events in Ukraine over recent weeks and how governments in the UK, EU, Switzerland and USA have responded with sanctions on individuals and businesses designed to put economic pressure on Russia and those benefitting from or supporting the Russian government. 

If they have not already, businesses need to consider how sanctions might affect their business. From our work with businesses across the world in managing the risks and challenges sanctions bring, we have seen how the list of sanctions is complex, frequently updated and how the measures differ between countries.

Risk factors

A breach of sanctions rules risks:

• Criminal prosecution resulting in heavy fines and/or imprisonment.
• Civil penalties – the UK has introduced no fault penalties where the company did not know it was in breach.
• Reputational damage – the UK government will be able to 'name and shame' those in breach of sanctions even where no criminal or civil penalties are imposed.

So, what questions does your business need to be asking?

1. Which sanctions apply?

• Where do you carry out business – e.g. UK, EU, US?
• Even of you do not operate in the US, do you employ US citizens or transact in US$?

2. Sanctioned individuals

Financial sanctions have been applied to named individuals to freeze their assets and prevent activity with them or their business interests.

• Do your customers and suppliers/business partners have Russian (or Belarusian) connections?
• Might any of these be named on the growing list of sanctioned individuals?

3. Sanctioned trades, transportation and immigration

Sanctions prohibit the export of certain goods for use in Russia. Since the sanctions apply even if Russia is not the first destination, you need to understand the ultimate destination. Certain imports are also covered depending on jurisdiction as is transportation and immigration.

• Where does your business operate?
• Do you trade in goods and services that are subject to trade sanctions? The current lists includes non-military equipment that could have a dual use in military equipment, electronic goods, energy and infrastructure related goods and services and luxury goods via the EU.
• What are the specific terms of your contracts - and how might a 'force majeure' clause work in practice?
• What is your bank saying about facilitating payments to businesses with connections to Russia and Belarus?
• Does this position change if the monies are to be paid into a bank account not in Russia or Belarus?
• How will you manage your commercial relationship with your suppliers if the answer to any of the above means it is not likely your suppliers will be paid?
• What steps can you take to tighten up wording in new contracts, so you can terminate in the future, on your terms, should you wish?

4. Property

New legislation has created a Register of Overseas Entities. This requires details of beneficial ownership of freehold and leasehold (<21 years) interests to be recorded at Land Registry. This includes all property acquired in England and Wales since 1999. Failure to do so may prevent the sale, leasing, or mortgaging of an interest in land. So, the questions to ask are:

• Who really owns the property connected with your business?
• Could you show authorities how you have carried out your checks and undertaken "due diligence'?

Next steps

The nature and extent of sanctions will continue to evolve, given the extent to which the global community has come together in recent weeks.  This means developments must be monitored closely and your risks constantly assessed.

Every business is different, and the myriad of potential sanctions cannot be stated in a single note that applies to all. Foot Anstey's specialist lawyers work collaboratively across our practice groups and with international partners to make sure you receive the responsive and expert support your business needs in a fast-moving and volatile world. If you would like to discuss how your business may be impacted please get in touch.