U.S. and EU Sanctions: What You Should Know

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MOSCOW – Recently, we at RUSSIA CONSULTING have been repeatedly asked by our clients what the consequences of the U.S. and EU sanctions, introduced due to the conflict situation in Crimea, would mean for their business with Russian counterparts. RUSSIA CONSULTING gladly offers this overview on the sanctions and their possible consequences.

The sanctions introduced by the U.S. and the EU adversely affect specific Russian and Ukrainian citizens (both the U.S. and EU lists) and some legal entities (only the U.S. list). The sanction lists of the U.S. and the EU are not identical, but similar (see below “Overview of persons affected by the U.S. and the EU sanctions due to the Crimea crisis”). Apart from this, there is also a separate EU sanctions list affecting 22 Ukrainians who are accused of the violence during the mass protests on the “Maidan” in Kiev. Please contact us, if you want to learn more about this list as well.

Both the U.S. and the EU sanctions forbid any economic interactions (for example, buying or selling goods, offering financial services, etc.) with listed persons as well as with all companies in which a listed person is in possession of 50 percent or more of the proprietary rights or has the power or right to exercise dominant influence (EU wording) or owns, directly or indirectly, a 50 percet or greater interest (U.S. wording). In any case, caution is needed and any business partner should be thoroughly checked for his or her connections with the listed persons.

In the following table, you can find out how the sanctions are implemented based on the origin of the individual or company.

The EU sanctions allow the receipt of payments from listed persons due to contracts that were concluded before the persons or entities were placed on the sanction lists. However, payments to listed persons for goods or services are prohibited regardless of when the contract was concluded.

The U.S. sanctions go further and prohibit any activity even when the contracts were concluded before the persons or entities were placed on the sanction lists. In this case, special licenses are required for fulfilling such contracts.

An interesting situation could occur if an EU or U.S. citizen runs a company in Russia which is not a subsidiary or a branch or a representative office of an EU or U.S. company. Such a company is legally a Russian company and does not need to comply with the EU or U.S. regulations while acting in Russia. But if the owner or the General Director of the Russian company is an EU or U.S. citizen, the company has to comply with the sanctions. Therefore, it should be considered that all deals that require a signed contract must conform to the EU or US regulations, respectively, even if were made by a Russian employee.

In general, selling goods or services that do not foresee a customer’s identity check could obviously be an exception as long as the owner or General Director (EU or U.S. national) does not willingly and knowingly violate the sanctions.

In addition to the legal consequences for companies obviously dealing with persons or entities appearing on the EU and U.S. sanctions lists, there might also be reputational risks for those companies that are publicly named as sanction violators by EU or U.S. authorities or by the mass media, regardless of whether such allegations are even legitimate.

RUSSIA CONSULTING has been consulting and supporting foreign clients in St. Petersburg since 2004. The company has been instrumental in helping foreign investors to set up businesses in the city and handle local economic conditions. On-the-ground presence and years of business experience in the given city are essential to giving sound advice on foreign investment. RUSSIA CONSULTING can provide you and your organization with an in-depth understanding of business set-up, business consulting, taxation, accounting, recruiting, basic legal matters, IT services, set-up of internal control systems, adapted to the local environment. Furthermore, we can provide you with office space, a local general director, or finance and tax due diligence.