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In Focus
Home In Focus Update on EU’s sanctions against Russia

Legal Updates04.03.2022

Update on EU’s sanctions against Russia

The EU, the US and the UK have imposed unprecedented sanctions against the Russian state and a number of Russian undertakings and individuals as a result of Russia’s invasion of Ukraine. The Western countries’ ability to react collectively against the military attack by means of economic sanctions has been striking. The sanctions include export controls, freezing of assets and financial sanctions, that are bound to have a profound impact on the Russian economy in the short term and economic development in the long run.

As the trade with Russia deteriorates, it is obvious that also other than Russian undertakings will suffer losses. Many Finnish undertakings are at the forefront of the economic sabre-rattling. Most undertakings dealing with Russia and Russian undertakings will face difficulties in the export and import of goods and services, or related financial transactions.

However, even if the sanctions are severe, not all transactions with Russian entities are prohibited. The measures are targeted to hit hardest the individuals and entities responsible for the condemned invasion of Ukraine as well as individuals and entities providing essential financial and material support to the Russian government and military forces.

From undertakings’ point of view, it is now essential to understand whether their products or services are under export control and whether their trading partners or banks have been added to the sanction lists. Equally important is to know, on which lists their counterparties appear, as there are various types of sanctions making the business and underlying transactions difficult or even practically impossible.

The sanctions can be roughly divided into the following categories. The examples are from the EU legislation, but the same kind of structure is found in the US regime, which also has to be taken into account since the lists are not necessarily identical and export licences may be needed from both jurisdictions.

1. Export ban

In addition to “traditional” dual-use goods, several new items in the following categories have been added to the EU’s export control: electronics, computers, telecommunications, sensors and lasers, navigation and avionics, marine (including vessels, marine systems or equipment, and specially designed components therefor) and aerospace and propulsion. It is also prohibited to sell goods and technology suited for use in oil refining, aviation or the space industry.

The restrictions are subject to certain exceptions and, as a rule, a transitional period applies to contracts concluded before 26 February 2022. However, even in these cases, an authorisation by the Ministry of Foreign Affairs is needed for exporting the goods or services. The Ministry has a broad margin of discretion, and the authorisation is not automatically granted. The authorisation must be applied for before 1 May 2022.

2. Asset freeze

The EU has listed numerous individuals and undertakings whose assets within the EU and in any legal person incorporated under the laws of an EU Member State are frozen. This is a broad measure and, in general, prohibits all transactions with the listed persons or undertakings concerned. The persons whose assets have been frozen are typically also prohibited to enter into and transit through the EU.

3. Denied access to (re)financing and payment transactions

The broadest sectoral sanction regime concerning Russian banks and governmental institutions consists of restricting or denying access to finance including loans, credits, transferable securities and money-market instruments. Also in this regard, several new entities and bodies have been added to the sanction lists in the EU.

The exclusion of seven Russian banks from the SWIFT system as of 12 March 2022 is a significant measure, since SWIFT is the world’s dominant global interbank payment system. Removing banks from the SWIFT system means that the conducting of financial cross-border transactions becomes burdensome manual work. The largest Russian bank, Sberbank group is not hit by this exclusion, but its transactions have already been rendered difficult by the US sanctions, according to which the opening or maintaining of a correspondent account or payable-through account for Sberbank and the processing of transactions involving Sberbank have been prohibited.

4. Indirect effects

The imposed sanctions also have several indirect effects. As the value of the rouble plunges, half of the Russian central bank’s assets in foreign currencies are frozen and access to finance is strongly limited, undertakings may not be able to fulfil their payment obligations even if the sanctions would not directly concern them or the banks they use.

Moreover, some operators refrain also from permitted transactions merely to be on the safe side. This has to do with the perceived uncertainty of the exact scope of the sanctions, unpredictability of their application and combined effect as well as the large number of different sanction schemes and detailed rules.

Many undertakings are also unwilling to export to or import from Russia as an act of solidarity to Ukraine, by which they seek to strengthen the effect of the sanctions imposed by the governments. However, stopping all trade with Russia may not be a feasible solution to all undertakings.

***

We at Waselius & Wist monitor the situation closely and follow the daily development of the sanction regimes. Every company’s situation is different and should be assessed based on the details of the contracts or transactions concerned.

We are happy to explain the content of the sanctions in further detail, help you to analyse how your company is affected and provide support in the difficult decisions to be made.

 

 

For more information, please contact:

Sami Hartikainen

Counsel

Lotta Pohjanpalo

Partner

Åsa Krook

Partner

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