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Will Your Business be Affected by Potential Russia Sanctions?

Updated: Jun 9, 2022

Is war imminent? Russia appears to be on the cusp of expanding its 7 year occupation of the Crimean Peninsula to something resembling a full-scale invasion of Ukraine – or, Russia is bluffing. Only Vladimir Putin knows what happens next. For those doing business in, through, or with Russia and Russian entities, even tangentially, this is a situation worth watching closely. Russia’s threatened incursion deeper into Ukraine, which is likely to resemble (or actually become) a war, presents the West with difficult choices. Whatever Putin’s motivations, any provocative military action within Ukraine’s borders will have major implications in international law, including a predictable human rights fallout of potentially significant magnitude.

Significantly, depending upon what Putin does tomorrow, or next week, or next month – virtually all U.S. businesses who maintain links, trade, or even tertiary relationships with Russia or Russian entities will likely need to do a thorough enterprise risk assessment to ensure that they do not violate any new sanctions regimes which may roll off the press at any moment.

It is clear that the U.S. and Europe cannot risk a direct military confrontation with Russia, therefore, the U.S. is threatening Russia with what are likely to be unprecedented sanctions to dissuade, or alternatively to punish, any invasion. For his part, Secretary of State Anthony Blinken has made clear in recent days that if “a single additional Russian force” aggressively enters Ukraine, it will trigger a “swift, a severe, and a unified response” by the United States.

Those in the United States whose business activities bring them into regular contact with Russia or Russian entities know that the U.S. already maintains a myriad of sanctions against our Cold War rival. As a result of the existing sanctions regime, and the risks posed by Russian aggression in Ukraine, military action is likely to be met with a slew of new and damaging sanctions. Virtually nothing appears off the table – rumors have even circulated of blocking Russian banks from utilizing the SWIFT (Society for Worldwide Interbank Financial Telecommunications) global electronic payment system. Unprecedented indeed - this possibility has been referred to as the “nuclear option.”

Among less secretive proposals, a bill has recently been introduced into the U.S. Senate containing what have been termed “sweeping” sanctions against Russia. The bill sponsor (Senator Robert Menendez) has said of the legislation: “[It] makes absolutely clear that the U.S. Senate will not stand idly by as the Kremlin threatens a re-invasion of Ukraine.” Pile-ons appear to be rolling out of Washington almost hourly, with the Biden administration threatening just this Sunday (January 23) to impose unique export controls on technology and implements used to create strategically vital semiconductors. Unique – as in, only been done once before (this type of export control was put into action previously only against the Chinese behemoth Huawei, and it did significant financial damage). Such an export control would be handled under something called the Foreign Direct Product Rule (15 CFR § 736.2(b)(3)), and it carries the potential of significant impact across a range of Russian sectors. This rule is armed with lengthy tentacles which are capable of compelling companies and service providers across the globe to cease providing the covered technologies and components to Russia.

Does your business maintain links, trade, or have even tertiary relationships with Russia or Russian entities? If so, you will likely need to do a thorough enterprise risk assessment to ensure that your company is not violating any new sanctions regimes which may roll off the press at any moment.

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