23 July 2018

Russia Sanctions and Russian Countermeasures

Articles
Compliance
Trade / Logistics

Russia is discussing drafted regulations on criminal liability for compliance with western sanctions.

The Russian bill on countersanctions is soon to become a law. Its ambiguity may cause difficulties in assessing possible risks for the market operators. Two other bills on administrative and criminal liability for compliance with western sanctions are still in discussion. Companies with ties to Russia are well advised to consider a risk assessment to understand possible consequences of. Below a brief overview of possible risks and implications:

1. Russian Bill on Counter-Sanctions against the US and other Unfriendly States: Possible Implications

The President of Russian Federation has signed the bill into law on the 4th of June. (1) It gives the authority to the Council of Ministers of Russia to terminate or put on hold any international cooperation with unfriendly states, as well as with organisations, which are under the jurisdiction of such states, or which are directly or indirectly controlled by them, or affiliated with them. The Russian government will have the authority to ban or limit the importation or exportation of goods and commodities from the USA and other unfriendly states. All the countermeasures, however, can be adopted and overturned on the orders of the President only. He can determine on his own authority upon the subject matter and the affected persons of each countermeasure. The measures will not concern the goods imported by naturals for personal usage and essential goods which, or similar to them, are not produced in Russia. (2)

According to the article 1 paragraph 4 of the bill the countermeasures are binding for Russian state bodies, Russian citizens, and corporate entities under Russian jurisdiction. Nevertheless, no no extraterritorial application is mentioned in its text. As its’ main purpose is the protection of the territorial integrity of Russia (article 1 paragraph 1 of the bill), we assume that these countermeasures would probably not go beyond the country borders. (3)

Russian experts consider the bill to represent a framework law and have a mere declarative character bringing nothing new from a legal point of view. According to it the Russian Government can independently choose the subjects to impose the sanctions on. But this possibility was already envisaged by the Federal Law on special economic measures, in force since 2007, which says that the president can decide upon sanctions based on the recommendations of the Security Council of Russia. The vagueness of the text however may cause an uncertainty and thus a chilling effect on potential investors. (4)

The list of possible measures presented in the bill is not exhaustive but leaves certain ambiguitywhen mentioning “other measures”. . Also the term “essential goods” leaves certain room for interpretation as there is no legal definition of what essential goods are and what goods may be similar to them. (5)

The measures can be implemented against any specific naturals and corporate entities. The latter ones are at risk of encountering measures if they are directly or indirectly controlled by “unfriendly countries.” (6)

The enforcement of the bill may lead to higher prices in retail sector as retailers would have additional costs of making sure that they do not get banned goods from suppliers. The fines are other possible consequences. (7) Russian analysts fear that the future law would do more harm to Russian economy than to other countries pointing out the increasing inflation, widening of sanctions and even Russia possible leaving the WTO. (8)

Besides the counter sanction bill the Russian Duma is also considering to implementation of criminal liability for compliance with western sanction regimes which may have a broader impact also for foreign companies and compliance officers dealing with and in Russia.

2. Draft Bill on Criminal Liability for Compliance with Sanctions: Administrative Liability for Compliance and Criminal Liability for Intention

The second reading of the bill by the State Duma was planned for the 17th of May 2018. Due to the great opposition from the Russian business representatives it was postponed. The bill states that if legal entities, registered in Russia, naturals or entities of Russia or municipal bodies, as well as naturals and entities under their control, deny a citizen of Russia a performance of a usual business operations and transactions in the context of compliance with anti-Russian sanctions, they can face the fine till 600’000 Russian Rubles, limitation, or deprivation of freedom up to four years. There is also a possibility of a forced labour up to four years. (9)

There has been a great opposition to the bill from the Russian business representatives. In the end they achieved not much on the 23rd of May: administrative liability for compliance with the sanctions and a criminal one for incitement to sanctions and intentional support in its implementation. (10) It is planned that the administrative liability would encompass fines only but of a great amount. The amendments to the Russian administrative law will be lodged by the State Duma in June but approved by it presumably not until the autumn 2018. (11) The amendments to the Russian criminal law are expected to be discussed in the second half of June 2018. Until now, the both draft bills, the administrative and the criminal one, concern the compliance with the sanctions and the intentional support to implementation of new sanctions on the territory of the Russian Federation only. (12)

The CEO of Russian bank Sberbank said that many foreign investors would choose to pull out of Russian market if the bill is to become a law. (13) The participants of the SPIEF (St. Petersburg International Economic Forum) strongly opposed the implementation of criminal liability by calling it excessive. They noted that the law should not put the foreign investors into an unbearable situation where they are forced to choose between several liabilities. (14)

Now there is a discussion to follow the proposition to exclude the administrative liability if the non-compliance would cause damages to the naturals, organisations, or the Russian Federation itself. The State Duma is going to continue discussions with business representatives and the Government. (15) As of actual state of affairs, it signals the willingness to compromise with the opponents and to consider more carefully the possible risks of the bill. (16) The second reading has been postponed for an undefined period of time in order to find a compromise and to exclude great damages to national- as well as to foreign business. The understanding among Russian lawmakers is growing that a criminal liability for business in this context seems to be out of place. (17)

As of now is unclear when the second reading will take place and if it has good chances of passing through the Russian parliament.

3. Things to Consider

keep an eye on the Russian law-making process and the reactions of the chief market players,
think of a business strategy to encounter the outcome of possible future application of the bills
Develop a scenario for dealing with conflicting compliance regimes

Source:
(1) https://www.rbc.ru/politics/04/06/2018/5b15288b9a794723315a526e

(2) http://tass.ru/politika/5248425

(3) http://sozd.parliament.gov.ru/bill/441399-7

(4) https://www.novayagazeta.ru/articles/2018/05/24/76580-dozapretit-ameriku

(5) http://www.mk.ru/politics/2018/05/22/zakon-o-kontrsankciyakh-okazalsya-plagiatom.html

(6) http://www.dw.com/ru/a-43876300

(7) https://pravo.ru/news/202795/

(8) https://ria.ru/sanctions/20180522/1521102299.html

(9) http://www.interfax.ru/russia/613923

(10) https://www.novayagazeta.ru/articles/2018/05/24/76580-dozapretit-ameriku

(11) https://www.rbc.ru/rbcfreenews/5b0e82339a794704c03856ec

(12) https://www.kommersant.ru/doc/3644603