Your company isn’t necessarily off the hook for violating U.S. sanctions if it doesn’t do business with Russian companies because the goods or services you provide might be indirectly making their way into the country, Blank Rome Partner Anthony Rapa says.
Any business your company does in Crimea and the two eastern break-away regions, Donetsk and Luhansk, is subject to a comprehensive U.S. embargo, Rapa says in a piece he contributed to Law360 with Blank Rome Partner Matthew Thomas.
Sanctions get more complicated when you’re dealing with entities in Russia because sanctions are targeted, so general counsel must do careful diligence to see if their Russian business partners are engaging in prohibited commerce or, equally relevant, if any third-party companies are doing business with sanctioned Russian entities.
“Companies that sell their products to third-party distributors face the risk that the distributor could onward sell those products to restricted Russian parties or embargoed regions,” said Rapa. Blank Rome Partner George Boggs also contributed to the analysis.
In the same way, if your company supplies components to manufacturers, you need to know whether your products are being included in products sold to prohibited Russian companies.
Not all Russian business is prohibited. In general, if it involves energy imports, imports or exports of luxury goods or exports of certain professional services like auditing, trust and corporate formation and management consulting services, the business is prohibited. No new investment can go into the country, either.
In connection with these prohibited businesses, to ensure you’re not indirectly getting involved, Rapa recommends you take risk-based compliance steps, such as adding contractual terms or side letters to restrict the provision of your company's goods and services to Russia and informing the third party of any export controls that apply to your company's products.
You can also use end-user certificates to identify who the users of the products will be.
Even in cases where it’s okay to do business with a Russian entity, you want to be sure the flow of payments back and forth doesn’t get snagged by sanctions imposed on Russian banks.
Rapa recommends you first identify banks subject to blocking sanctions to ensure no transactions flow through them, then determine whether you want transactions to flow through banks that aren’t subject to comprehensive sanctions.
“While not necessarily off-limits,” he said, working with these banks could “complicate any transaction.”
What’s more, they could be subject to future risk if they’re later designated for comprehensive sanctions.
Banks on the U.S. side could pose problems, too, if they’re concerned about the compliance implications and reject the funds transfer or freeze it in transit, he said.
Given that risk, prior to making a payment to a Russian party, he said, “confirm that its bank (and relevant correspondent banks) will process the payment.”
Problems can also arise in connection with M&A deals and export of products that are prohibited under the U.S. Department of Commerce's Export Administration Regulations (EAR).
Despite the hurdles, Rapa says, you should be well positioned to navigate the landscape if you’re diligent about assessing your level of exposure – to indirect as well as direct risk.