EU und US will impose severe Sanctions targeting Russia – German and EU based enterprises need to prepare immediately

In the light of the political crisis related to the Russia/Ukraine conflict, the European Union and the United States will impose severe sanctions targeting Russia, its economy, in particular main Russian (state-owned) enterprises and high-ranking Russian individuals.

Against this background, every company engaged in Russia (be it only by selling goods or services to Russian customers)  may be forced in the near future to take immediate critical business decisions to ensure sanctions compliance. In order to prepare for these and to identify potential risks as well as risk mitigation strategies, we have below listed some of the main issues that may cause problems for enterprises based in the European Union or Germany once sanctions are imposed:

EU sanctions

• Any transactions such as payments, the supply of goods, works, or services with an EU nexus to Russian entities/individuals that are being sanctioned (either directly sanctioned or affiliates of such entities/individuals (collectively “Sanctioned Russian Persons”)) may be prohibited;
  
  
• the continuation of long term agreements (e.g. licence agreements leasing/lease agreements) with Sanctioned Russian Persons may be prohibited;
  
  
• financial transactions with Sanctioned Russian Persons, including merely using the services of banks designated as Sanctioned Russian Persons, may be prohibited;
  
  
• supplying to Russia, potentially also Russian-owned companies within the EU, certain items subject to an embargo list (“Embargoed Items”) in the emerging technologies area and beyond may be prohibited;
  
  
• German/EU-based enterprises will likely need to ensure that their Russian subsidiaries (“Subsidiary”) observe any prohibitions mentioned in the bullets above as well;
  
  
• any EU individual working in a management position at a Russian entity (e.g. in a Subsidiary) must refrain from any actions that would result in a breach of any prohibition mentioned in the first four bullets above.
  
  

US sanctions

The US and the EU are currently aligning their sanctions policies, however, it is possible that US sanctions will exceed EU sanctions or have a somewhat different scope. Even though US Sanctions– as the ones President Biden imposed last night on the Donetsk (“DNR”) and Luhansk (“LNR”) regions of Ukraine – do generally not apply directly to Germany or EU-based enterprises, it is likely that the US will also impose secondary sanctions. As a consequence, from a US perspective the relevant US sanction will apply to companies worldwide, irrespective of whether a potential US nexus exists or not. Thus, European companies are well advised to carry out a risk assessment also with regard to US sanctions. 

Sanctions compliance and its conflict with contractual obligations / Sanctions risk profile determination

Since compliance with sanctions may conflict with the contractual obligations to be fulfilled towards Sanctioned Russian Persons and since Russian courts generally do not recognise foreign sanctions as contractual rights or force majeure circumstances suspending the need to perform contractual obligations, it is strongly advisable for each company engaged in Russia – be it only by selling goods or services to Russian customers – to analyse and determine its sanction risks. In a first step, the following measures should be taken:

• Review customer/contractual partner and product base for potential sanctions applicability in particular for Sanctioned Russian Persons and Embargoed Items
  
  
• Analysis of corporate set-up, e.g.:
  
  
  • Holding of shares in Russian Subsidiaries that may have contractual partners who are Sanctioned Russian Persons
    
    
  • Non-Russian persons seconded/appointed to management boards or senior management positions in Russian legal entities
    
    
• Analysis of contractual status quo, e.g.:
  
  
  • Direct contracts and indirect business relationships with Sanctioned Russian Persons and outstanding obligations thereunder
    
    
    • Suspension or termination rights under such agreements, force majeure provisions, applicable law and dispute resolution clauses, limitation of liability, etc.
      
      
    • Outstanding (in particular due to be performed) short term and long term obligations
      
      
  • Contracts relating to Embargoed Items
    
    
  • Possibilities to substitute the relevant agreements with agreements with non Sanctioned Russian or non-Russian Persons
    
    
• Analysis of litigation and arbitration risks
  
  

Our team, combining our high-end and highly regarded Export Control and Russian Law practices (lead by Bärbel Sachs and Björn Paulsen) is ready to support you in the analysis and determination of your sanctions risks and in particular in putting suitable and appropriate risk mitigation measures (short term, mid term, long term) in place.