In June of this year Russia adopted a law giving the Russian President broad authorization to retaliate for foreign sanctions. The Russian parliament is also currently considering a bill that would criminalize compliance with U.S. and other foreign sanctions against Russian parties. While the practical impact of the additional authorization for the President is unclear, criminalization of compliance with foreign sanctions may have serious negative repercussions for U.S. and European businesses operating in Russia or having other Russian exposure.
Retaliatory Measures: The Federal “On Retaliation Measures (Countermeasures) for Unfriendly Actions by the United States of America and/or Other Foreign States” Law (the “Counter-Sanctions Law”) was fast-tracked by the Russian parliament and signed by President Putin on June 4, 2018. The law was adopted as an apparent response to the latest U.S. economic sanctions imposed by the U.S. Department of the Treasury’s Office of Foreign Assets Control in April 2018.
Following the introduction of the draft law in the Russian State Duma (the lower chamber of the Russian parliament) on May 17, 2018, it underwent substantial modifications. The initial draft law purported to implement rather specific retaliatory measures, many of which attracted the active criticism of the Russian public and certain lobbying groups. These unpopular measures included prohibition of or restrictions on the import of pharmaceutical products, a travel or employment ban on U.S. citizens and citizens of other “unamicable foreign states,” restrictions on the provision of legal and consulting services by foreign-owned advisors, termination or suspension of international cooperation in the nuclear, aviation and rocket-propulsion industries, etc.
As the draft law progressed through the Russian parliament it was revised to omit the unpopular specific measures, and in its final version the law became a blanket authorization for the President to undertake “any measures” that he may consider necessary in response to “unamicable actions” of foreign powers, including, for example, termination of international cooperation, restriction of import/export of products or raw materials, restriction on access to public procurement in Russia, and prohibition of participation in privatization.
Criminal Liability for Compliance with or Facilitation of Sanctions: On May 14, 2018, a draft law “On Amendments to the Russian Federation Criminal Code” (the “Amendment”) was introduced in the State Duma. The Amendment seeks to impose criminal liability for compliance with U.S. and other foreign sanctions against Russian parties. The Amendment passed the first reading on May 15, 2018.
The current draft of the Amendment would make it very difficult for U.S. and EU companies to operate in Russia since their compliance with the U.S./EU sanctions would expose their managers in Russia to criminal liability. Many Russian companies and financial institutions also broadly comply with the Western sanctions, which under the current draft of the Amendment could also be characterized as a criminal activity.
Due to the wide criticism of the bill by the Russian and foreign business community, the second reading of the Amendment in the State Duma, which was initially scheduled for May 17, 2018, has been postponed.
The Amendment introduces criminal liability for two types of crimes: (1) Compliance with Sanctions: Any action or inaction aimed at compliance with foreign restrictive measures resulting in restrictions on, or refusal to engage in, the customary business activities or transactions with Russian nationals, entities, governmental or municipal bodies, and their controlled persons; and (2) Facilitation of Sanctions: Intentional actions by a Russian national facilitating foreign restrictive measures, including by providing recommendations or information that may result in the imposition of restrictive measures on Russian private or public persons or their controlled persons.
Arguably, application of the first type is not limited to Russian parties and may also apply to foreign companies and/or individuals doing business in Russia or with Russian counterparties.
If the Amendment is enacted in its current form, this may have serious negative repercussions for U.S. and European businesses operating in Russia or having other Russian exposure. In particular, managers and employees of Russian and foreign companies, banks, and other entities operating in Russia may be prosecuted for terminating or suspending contractual obligations with Russian counterparties, refusing to enter into a new contract with a Russian counterparty, or other similar actions.
By Konstantin Kroll, Partner, Head of Russia & CIS Desk, Orrick, Herrington & Sutcliffe
This Article was originally published in Issue 5.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
