RUSSIA/UKRAINE RELATED SANCTIONS

In addition to the immense humanitarian crisis, the current war between Russia and Ukraine is also having far-reaching legal consequences in the conduct of business for Western European companies operating in these countries.

On this page you find all relevant information and developments regarding economy and law, updated on a regular basis. The lawyers of our alliance as well as our local cooperation partner in Moscow Thomas Brand (Brand & Partner) report on sanctions and the latest developments. We are also available to personally answer your questions and concerns on this complex legal topic.

09.09.2022 - 10:30 am: Restrictions on sale of Russian shares for shareholders from "unfriendly states"

The Russian President signed a decree on 8 September that makes the sale of shares in Russian companies subject to approval (Decree No. 618 of 8 September "On the Special Procedure for Conducting Certain Transactions Between Certain Persons"). The decree has already been published and thus entered into force.

The decree concerns transactions of shares in Russian limited liability companies whose shareholders come from "unfriendly states". These include, among others, all Western states. The reservation of approval also applies to sales to Russian natural persons or legal entities. As of now, such transactions are only allowed with the approval of the Government Commission for the Control of Foreign Investments in the Russian Federation. The procedure is to be defined in more detail by 19 September.

It is currently unclear whether and, if so, under what conditions approval by the government commission will be possible. Taking into account the political goals of excluding negative effects on the Russian economy, the granting of approval seems conceivable as long as the respective target company continues to operate.

The decree concerns not only purchase transactions, but all legal transactions that directly or indirectly lead to the establishment, modification or termination of ownership, usage or disposal rights over shares, as well as other rights that allow control over Russian limited liability companies to be gained.

Author: Thomas Brand

09.08.2022 - 15:30 pm: Russian legal restrictions on transactions in strategic joint-stock companies and manufacturers of equipment for fuel and energy companies

On 05.08.2022, Presidential Decree No. 520 "On the Application of Special Economic Measures in the Financial and Fuel and Energy Sectors in Connection with Unfriendly Acts of Certain Foreign States and International Organisations" was adopted. And it came into force immediately.

Until 30.12.2022 (but this deadline can be repeatedly extended), a ban applies to transactions with securities, shares (contributions), rights and obligations belonging to parties to agreements on the joint use of production capacities, agreements on joint activities and agreements on the implementation of investment projects in Russia, if the securities, shares (contributions), rights and obligations belong to foreign persons affiliated with non- friendly countries or persons controlled by these countries.

The prohibition applies in particular to transactions with

  • shares forming the charter capital of joint-stock companies included in the list of strategic enterprises and strategic joint-stock companies approved by Decree of the President of the Russian Federation No. 1009 of 4 August 2004;
  • shares, rights and obligations belonging to the parties to the Production Sharing Agreement for the Sakhalin-1 Project and the Agreement on the Development and Production of the Kharyaga Oilfield on the Basis of Production Sharing;
  • shares, shares in the charter capital of business entities that are manufacturers of equipment for fuel and energy enterprises, oil refineries, producers and suppliers of heat and electricity (the list of such enterprises is approved by the President, as of 09.08.2022 not yet adopted), etc.

Transactions made in violation of these provisions are null and void. Transactions prohibited by the document may be carried out on the basis of special permission from the President.

Author: Thomas Brand

25.07.2022 - 09:00 am: New package of measures by the European Union

The Council adopts new measures aimed at strengthening existing economic sanctions against Russia, optimising their implementation and increasing their effectiveness.

The "maintenance and adjustment" package introduces

  • a new ban on the purchase, import or transfer of gold originating in Russia, including jewellery;
  • strengthened export controls on dual-use goods;
  • the existing ban on access to ports extended to locks;
  • clarified existing measures, for example in the area of public procurement, air transport and the judiciary;
  • imposed sanctions on a further 54 individuals and 10 organisations, including the Mayor of Moscow and Sberbank, a major financial institution, as well as members of the "Night Wolves" motorbike club.

The new measures - like the previous sanctions - are not directed against Russia's food, grain or fertiliser exports.

Author: Christian Reichmann

03.06.2022 - 06:00 pm: New sanctions package - regulations on services

Council Decision (CFSP) 2022/884 of 03.06.2022 states that "the provision of auditing services, including statutory auditing, accounting and tax consultancy services, and business and public relations consultancy services, to Russia

  • the Government of Russia or
  • legal persons, entities or bodies established in Russia should be

should be prohibited. This excludes official services:

  • which are strictly necessary to terminate contracts concluded before 4 June 2022 which are incompatible with this Article.
  • which are strictly necessary for the exercise of the right of defence in legal proceedings and the right to an effective remedy.
  • intended for the exclusive use of legal persons, entities or bodies established in Russia which are owned or controlled, solely or jointly, by a legal person, entity or body incorporated or constituted under the law of a Member State.

Author: Lukas Leitner

26.05.2022 - 09:00 am: Tightening of EU rules on asset recovery and confiscation

The Commission presents a proposal for a Directive on asset recovery and confiscation. The proposed rules also apply to infringements of restrictive measures. The revision of the EU rules on asset recovery includes the following points:

  • Expanding the mandate of Asset Recovery Offices: Enabling them to rapidly trace and identify assets of persons and entities subject to EU restrictive measures.
  • Extending the possibilities to confiscate assets from a wider range of offences, including from the breach of EU restrictive measures, once the Commission's proposal to extend the list of offences with a European dimension has been adopted.
  • Establish asset management units in all EU Member States to ensure that seized assets do not lose value and that seized assets that rapidly lose value or are costly to maintain can be disposed of.

Author: Lukas Leitner

25.05.2022 - 03:00 am: New EU rules relating to the breach of restrictive measures

The Commission proposes to add the violation of restrictive measures to the list of offences with a European dimension. This is intended to enable the establishment of a common minimum standard for offences and penalties in order to prosecute violations of restrictive measures equally in all Member States. In addition, the Commission publishes in a Communication how a future directive on criminal sanctions could be designed.

Among other things, the proposals presented are intended to ensure that assets of persons and organisations that violate the restrictive measures can be effectively confiscated in the future. The possible offences could include, for example, engaging in acts or activities that directly or indirectly seek to circumvent the restrictive measures, including by concealing assets.

Author: Lukas Leitner

 

11.04.2022 - 10:00 am: Ukraine: EU adopts fifth sanctions package against Russia

The 27 EU member states have launched the fifth major package of Russia sanctions. This is to include an import ban on coal, wood and vodka as well as numerous other punitive measures. However, a transition period of four months is to apply to the import ban on Russian coal.

Also part of the sanctions package is to be a complete ban on transactions at the expense of four important Russian banks, including the second-largest Russian bank VTB. Russian ships and ships operated by Russia are also to be banned from entering EU ports. Exceptions are to be made only for the delivery of food, humanitarian aid and energy.

To further weaken the Russian economy, there are to be further restrictions on trade with Russia with a volume of around 10 billion euros. According to the Commission, these include quantum computers and means of transport. Products such as wood, cement and seafood worth 5.5 billion euros will also no longer be imported into the EU. Russian companies will also no longer be allowed to participate in public tenders in EU states.

In addition, further individuals close to Russian President Vladimir Putin are to be added to the sanctions list. Among those affected are his two daughters.

 

Author: Christian Reichmann

05.04.2022 - 09:00 am: Legislation draft: Criminal liability for compliance with Western sanctions

On 4 April 2022, a legislative draft that had already been announced in advance was introduced in the Russian parliament (http://duma.gov.ru/news/53947/), which provides for criminal liability for complying with Western sanctions against Russia. This is intended to prevent managing directors and other executives of Russian companies in particular from complying with sanctions directed against Russia and, among other things, from not cooperating with sanctioned Russian banks.

The draft provides for a prison sentence of up to 10 years and fines of up to RUB 1 million (approx. EUR 10,000), as well as the deprivation of the right to hold certain positions or perform certain activities for up to three years. In particular, managers of Russian subsidiaries may be caught in the middle, as they may be required by the parent company to comply with Western sanctions, which they are prohibited from doing under Russian law.

The draft law would add a new element to Article 201, namely the "execution of a decision by a foreign state or international organisation to impose restrictive measures against the Russian Federation". The draft is expected to be adopted and into force in the coming weeks.

Author: Thomas Brand

28.03.2022 - 09:00 am: Expropriation of foreign companies in Russia? External administration planned for companies with foreign shareholding.

The Russian government plans to introduce a draft law "On External Administration for the Administration of Organisations" to the Russian parliament soon, which, among other things, will regulate the procedure for appointing an external administration for Russian companies with foreign shareholders from so-called "unfriendly states".

The draft law has already been approved by the "Government Commission on Legislative Activities". On 16 March, the tax authority and the Central Bank expressed their comments. Whether and when the draft law will be introduced into parliament, the Duma, is not yet certain.

The aim of the law is to prevent subsidiaries of foreign companies from ceasing their activities in Russia for no reason or for political motives, thus endangering jobs and the Russian economy as a whole.

 

Author: Thomas Brand

23.03.2022 - 11:00 am: Risk of Russian cyber attacks against state agencies and companies

The military operations in Ukraine are continuing. Russia's military action continues to be accompanied by cyberattacks and attempts to exert influence.

Given the support of European countries for Ukraine, the risk of Russian cyberattacks against state agencies and companies is high. The recommendations for action of the German Federal Office for the Protection of the Constitution should be heeded urgently. Above all, the domain dienste-email.eu should be blocked.

Companies should continue to follow developments closely and adapt their IT security measures as necessary. The Federal Office for the Protection of the Constitution continuously updates its overview of the "Indicators of Compromises (IoCs)" at its disposal.

Author: Axel Berninger

22.03.2022 - 08:00 am: More control of capital movements

The Russian President signed a decree on 18 March 2022 on further temporary measures in the area of foreign exchange regulation to ensure financial stability. The decree establishes a new procedure for settling obligations to certain foreign creditors. According to this decree, certain transactions require the approval of the Russian Central Bank. Normal commercial transactions are generally not affected. The granting of loans to subsidiaries and the distribution of dividends from Russian limited liability companies to their foreign shareholders are not affected by the decree.

In addition, the Central Bank is authorised to restrict the scope for remittances to foreign companies and individuals. The Central Bank may grant a resident person conducting foreign trade business permission to fulfil the requirements for compulsory exchange of foreign currency under Decree No. 79 of 28 February 2022 within a period other than that provided for, or to exempt it from compulsory exchange altogether. It regulates, for example, advance payments by residents in favour of non-resident legal entities and natural persons under contracts, transfers of funds from accounts opened with Russian credit institutions and the purchase of foreign currency on the Russian foreign exchange market.

Author: Thomas Brand

15.03.2022 - 03:00 pm: Restrictive measures by the EU

As a result of Russia's invasion of Ukraine, restrictive measures have been imposed on individuals and entities worldwide: The aim of these sanctions is to hold accountable those who support or benefit from the Russian invasion and thus undermine or threaten the territorial integrity, sovereignty and independence of Ukraine.
As of 15 March 2022, the European Union's sanctions lists, some of which were issued in response to the annexation of Crimea in 2014, include a total of 862 individuals, many of them Russian oligarchs, and 53 organisations (see also https://www.consilium.europa.eu/de/press/press-releases/2022/03/09/eu-imposes-restrictive-measures-on-160-individuals-as-a-consequence-of-russia-s-military-aggression-against-ukraine/). EU citizens and companies are prohibited from providing financial resources to these individuals and organisations. The assets of the sanctioned persons have been frozen and there is a travel ban on the named natural persons. Thus, if a individual or legal entity appears on a sanctions list, business dealings with them are prohibited. The relevant legal acts, including the names of the individuals and entities concerned, have been published in the Official Journal of the EU. Russian citizens who do not appear on a sanctions list are not affected by the measures.
Other sanctions include a ban on trade with Russia in so-called "dual-use goods", i.e. goods that can serve both civilian and military purposes. Similar sanctions lists exist in the USA, Great Britain and Australia.

Author: Lukas Leitner

15.03.2022 - 10:00 am: The German Association of Small and Medium-Sized Enterprises expresses concern and advises companies to "urgently consult law firms operating in Russia".

Russia is now openly threatening to nationalise foreign companies. According to plans known so far, nationalisation is to occur when the management of a company has "effectively stopped" doing its job. Or if the withdrawal leads to "an unfounded cessation of activity, liquidation or bankruptcy" of a group, even though it is actually doing well economically. Companies are to be given a maximum of six months to reconsider their move. Important to know: These "nationalisation rules" only apply to companies with more than 100 employees or a turnover of 1 billion roubles (currently about EUR 7.5 million).

According to Bayrischer Rundfunk, the German Association of Small and Medium-Sized Enterprises is concerned about this. Federal Managing Director Markus Jerger is quoted as saying:

"Announcements by the Russian government to nationalise the property of foreign companies that suspend their business in the country due to a sham insolvency within the framework of abbreviated insolvency proceedings worry us as a business association very much." Initially, he said, it is expected that companies that do not withdraw from the country will be allowed to continue doing business. "Nevertheless, we strongly recommend that all German companies consult law firms active in Russia in order to prepare for all eventualities. The German government is called upon to strongly represent the interests of German companies operating in Russia vis-à-vis the Russian government."

We would be happy to help affected companies.

Authors: Thomas Brand and Christian Reichmann

11.03.2022 - 02:00 pm: What Western companies currently have to be aware of in Russia

The sanctions between the EU and Russia are hurting even uninvolved businesses. While the sanctions imposed by the EU (exclusion of several Russian banks from the SWIFT system, embargoes on certain groups of goods and the sanctioning of certain individuals) are well known, there is often no precise knowledge about the restrictions imposed by the Russian side, which also and especially affect Western businesses with activities in Russia. In this article >> we shed light on these regulations and answer the following frequently asked questions, among others:

  • Do I have to exchange foreign currency received from abroad into rubles?
  • Is it a punishable offense to stop doing business in Russia?
  • How much cash may I export from Russia?
  • May dividends and other payments from securities be made to foreign persons?
  • Are transactions with real estate and securities in Russia subject to approval?

Authors: Thomas Brand and Christian Reichmann

10.03.2022 - 09:00 am: EU agrees new measures against Belarusian financial sector

In response to Belarus' involvement in Russia's unjustified and unprovoked military aggression against Ukraine, the Council adopts further targeted measures against the Belarusian financial sector.

The agreed measures have the following effects:

  • Restriction on the provision of specialised messaging services for payments (SWIFT) to three Belarusian banks.
  • Prohibition of transactions with the Belarusian Central Bank
  • Ban on listing shares of Belarusian state-owned companies on EU trading venues and the provision of related services
  • Significant restriction of capital inflows from Belarus to the EU
  • Ban on the supply of euro-denominated banknotes to Belarus

In addition, the Council imposes further restrictive measures on the export of maritime goods and radio communication technologies to Russia.

Author: Lukas Leitner

08.03.2022 - 03:30 pm: EU excludes certain Russian banks from SWIFT system

The EU excludes seven Russian banks from the SWIFT system. This ensures that these banks are disconnected from the international financial system and affects their ability to operate globally. The seven banks are as follows: Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank, Vnesheconombank (VEB) and VTB Bank.

In addition, the EU prohibits

  • investing in, participating in, or otherwise contributing to projects co-financed by the Russian Direct Investment Fund;
  • sell, supply, transfer or export euro-denominated banknotes to Russia or to natural or legal persons or entities in Russia.

Author: Christian Reichmann

Source: Website Council of the European Union

02.03.2022 - 04:30 pm: Forced conversion of foreign currency received from abroad

Russian companies are now required to exchange 80% of foreign currency received from foreign companies under foreign trade contracts into rubles. This requirement applies to foreign currency received in Russian accounts on or after January 1, 2022. The mandatory exchange must be made within three working days from the date of receipt of the foreign currency, or now for the first time for all amounts received since January 1, 2022. In addition, as of March 1, foreign exchange transactions related to the provision of foreign currency by residents in favor of non-residents under credit agreements are prohibited.

Author: Thomas Brand

Source: Presidential Decree No. 79 from 28.02.2022

02.03.2022 - 08:40 am: As of March 2, 2022, additional approval requirement for individual transactions with foreigners

A special procedure has been introduced for transactions with foreigners from unfriendly states (approval requirement by special government commission). The approval requirement applies to the granting of credits, loans, as well as for securities and real estate transactions (acquisition). In addition, a ban on export of foreign currency in cash equivalent to more than 10 thousand US dollars from Russia was introduced as of 02 March 2022.

Author: Thomas Brand

Source: http://publication.pravo.gov.ru/Document/View/0001202203010083

Dr. Bernhard Heringhaus
attorney at law, partner

Your contact at Schindhelm (Osnabrück)

T +49 541 3245-119
bernhard.heringhaus@schindhelm.com

Viola Rust-Sorge
attorney at law, partner

Your contact at Schindhelm (Hanover)

T +49 511 53460-255
viola.rust-sorge@schindhelm.com

Dr. Johannes Thoma
attorney at law, partner

Your contact at Schindhelm (Düsseldorf)

T +49 211 601013-35
johannes.thoma@schindhelm.com

Thomas Brand
attorney at law, partner

Your contact at Brand & Partner

T +7 965 106 56 11
thomas.brand@bbpartners.de