Russian Federation Imposes New Sanctions on Ukrainian Individuals and Entities
15 November 2018
On November 1, 2018, the Russian government adopted a resolution establishing a new framework for sanctions against Ukraine, which took effect immediately upon publication (the Ukrainian Sanctions Resolution).
The Ukrainian Sanctions Resolution implements a Russian presidential order published on October 22, 2018 that had called on the Russian Government to formulate measures to be applied against individuals and companies as well as compiling a list of individuals and companies to be targeted in response to perceived hostile actions by Ukraine.
The new sanctions framework is the first use of the increased sanctions powers of the Russian President and the Russian Government, created by Russian Federal Law № 127- ФЗ of June 4, 2018, “On measures for affecting (opposing) the hostile actions of the United States of America and other foreign states.” (the Counter-Sanctions Law). The Counter Sanctions Law expanded upon the sanctions powers created by Federal Law № 281-ФЗ of Dec. 30, 2006 “On special economic measures.” The Counter Sanctions Law singled out sanctions powers as the proper means of response to sanctions from the U.S., EU and other states, allowing the Russian President to impose sanctions by presidential order and expanding the list of potential measures from the 2006 law.
Potential special economic measures under the 2006 law consisted of:
- Cessation of programs for economic, technical or military aid or cooperation, in whole or in part;
- Prohibition of financial transactions or the imposition of restrictions on transactions;
- Prohibition of overseas transactions or the imposition of restrictions on transactions;
- Termination or cessation of participation in international trade agreements and other international agreements of the Russian Federation in the sphere of foreign economic interactions.
- Change of export and import tariffs;
- Prohibition or restriction of entry into Russian ports by ships and the use of Russian airspace or specific regions;
- Restrictions on tourist activities; and
- Prohibition or restriction on participation in international scientific and technical programs and projects, scientific programs and projects of foreign governments.
Special economic measures authorized under the Counter Sanctions Law consist of the following (without limitation):
- The termination or cessation of the international cooperation of the Russian Federation and Russian legal persons with hostile foreign governments, as well as organizations under the jurisdiction of, directly or indirectly controlled by, or affiliated with, hostile foreign governments (Hostile Foreign Governments), in sectors as directed by the President of the Russian Federation;
- Prohibition or restriction of the import of products and/or raw materials into Russian Federation territory that are produced by or on behalf of Hostile Foreign Governments or their citizens. The list of such products and/or materials will be determined by the Government of the Russian Federation;
- Prohibition or restriction of the export from Russian Federation territory of products and/or raw materials by or on behalf of Hostile Foreign Governments or their citizens. The list of such products and/or raw materials will be determined by the Government of the Russian Federation;
- Prohibition or restriction on service contracts with the Russian Government or Russian SOEs being awarded to entities owned or controlled by Hostile Foreign Governments.. The list of types of contracts subject to restrictions will be determined by the Russian Government;
- Prohibition or restriction of the participation of Hostile Foreign Governments or their citizens in the privatization of state and municipal property, and provision of certain services to Russian Federation-owned entities in the sale of federal property.
It should be noted that the lists of measures in the Counter-Sanctions Law and Ukrainian Sanctions resolution are not exhaustive, and other measures may be introduced if deemed appropriate by the Russian president. The new Russian sanctions imposed by the Ukrainian Sanctions Resolution consist solely of a limited form of asset blocking, leaving the possibility of significant expansion in the future.
What do the new sanctions consist of?
The Ukrainian Sanctions Resolution specifies that sanctioned persons will be subject to blocking of non-cash monetary funds, registered uncertificated securities, and property within the territory of the Russian Federation, and prohibits the transfer of funds out of Russian Federation territory. The Ukrainian Sanctions Resolution requires Russian executive agencies to take necessary actions to implement the new sanctions, but it still remains to be seen what these will involve.
Who is affected by the new sanctions?
The Ukrainian Sanctions Resolution includes annexes listing 322 individuals and 68 entities that are subject to the new sanctions. The listed persons include primarily Ukrainian political and business figures as well as Ukrainian companies.
In addition to the persons specifically named in the list, entities owned or controlled by persons on the list should also anticipate being subject to the sanctions — while the decree itself does not define “control,” the general definition for the term found in Russian competition law refers to the ability of a person to determine the actions of a controlled entity through the votes accorded to it by the shares/participatory interest of the controlled entity or otherwise.
Finally, pursuant to Russian law the implementation of sanctions is mandatory for all Russian authorities, Russian citizens and legal entities under their control. It remains to be seen how this requirement shall be applied in the context with the sanctions introduced by the Ukrainian Sanctions Resolution but arguably this means, among other things, that above mentioned persons shall be prohibited from dealing with the relevant property of the persons targeted by the Ukrainian Sanctions Resolution.
For more information, please contact any of the listed contacts or your usual contact at Allen & Overy LLP.