Economic Sanctions Impact on the Pharmaceutical and Medical Device Sectors in Russia: Enforcement Landscape and Compliance Risks

 

August 16, 2026

BRACE Law Firm©

 

Industry professionals traditionally consider the Life Sciences sector (encompassing pharmaceutical and medical device industries) insulated from sanctions: the legal frameworks of the US, the EU, and the UK expressly enshrine humanitarian exemptions for medicines and medical goods. Furthermore, regulators have repeatedly and publicly confirmed that humanitarian trade is not the target of sanctions pressure. For many executives, this creates a false sense of security, leading to the misconception that the industry is entirely exempt from risk and does not require sanctions compliance.

Nevertheless, the practice of recent years demonstrates that this formal "immunity" offers significantly weaker protection than commonly assumed. Companies encounter bank refusals to process payments, blocked equipment deliveries, an inability to obtain servicing for already installed technology, the market exit of foreign partners, and the suspension of clinical studies. Moreover, this occurs not in violation of the law, but in strict compliance with it: the sanctions regulatory framework operates such that it strikes the industry indirectly, through related institutions.

This article examines key trends, analyzes typical errors made by companies in this economic sector, and provides actionable recommendations for mitigating risks. The analysis is structured by jurisdiction (the US, the EU, the UK) and incorporates Russian counter-sanctions regulations, which hold equal practical significance for Life Sciences companies as foreign restrictions.

Before delving into the subject, we note that regulatory authorities continuously revise sanctions lists and general licenses. The provided information reflects the status of open official sources as of July 31, 2026, encompassing the regimes of the US, the European Union, the UK, and the Russian Federation; we address other jurisdictions (Switzerland, Japan, Canada, Australia, the Republic of Korea, etc.) selectively.

This article serves informational purposes, does not constitute a legal opinion, and does not substitute legal counsel for specific situations. Conclusions regarding a specific transaction require verification against the current versions of applicable acts and lists on the execution date.

Why Are Medicinal Products and Medical Devices Exempt from Sanctions?

Comprehensive trade embargoes primarily impact civilian populations. International legal doctrine has gradually developed a general principle: even under severe economic pressure, states must not obstruct civilian access to vital goods.

Jurisdictions implemented this principle differently across the three key frameworks relevant to Russian business, and these distinctions carry direct practical implications.

The US Framework: General Licenses as a Presumption of Authorization

The Office of Foreign Assets Control of the US Department of the Treasury ("OFAC") employs the mechanism of general licenses – pre-issued regulatory authorizations that legalize entire categories of transactions without а requiring individual applications.

The key act for the relevant sector is General License No. 6 (currently effective as General License 6D dated June 12, 2024, which superseded GL 6C dated January 17, 2023) [1]. This license authorizes transactions related to the production, manufacturing, sale, transport, or provision of agricultural commodities, agricultural equipment, medicines, medical devices, replacement parts and components for medical devices, software updates for medical devices, as well as transactions related to the prevention, diagnosis, and treatment of COVID-19, and transactions related to clinical studies and other medical research activities.

GL 6D defines the terms "medicine" and "medical device" through a cross-reference to Section 201 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 321) – meaning it relies on the US classification system rather than the Russian one; discrepancies in product qualification between Russian and US law constitute an independent source of risk.

In such regulations, the exact phrasing is fundamentally important, and it has evolved. The versions GL 6 (February 24, 2022), 6A (March 24, 2022), and 6B (July 14, 2022) applied the narrow standard of "ordinarily incident and necessary to". Beginning with GL 6C and continuing in the current GL 6D, OFAC applies the broader formula "related to", and the authorization is no longer limited to export/re-export, now covering the production and provision of the respective goods. Regarding clinical studies, OFAC removed the previous restriction that limited the exemption solely to "ongoing" studies initiated before March 24, 2022. This formula signifies that the authorization covers not only the purchase and sale transaction itself but also the entire supporting infrastructure: transportation, cargo insurance, customs clearance, payments, and storage. This significantly reduces the risk of a lawful supply chain failing due to prohibitions or restrictions in one of the ancillary links. At the same time, GL 6D solely waives the prohibitions established by the Russian Harmful Foreign Activities Sanctions Regulations (31 CFR part 587) and, as explicitly stated in Note 2 to the license, does not exempt parties from complying with other US federal requirements – primarily, the export controls enforced by the Bureau of Industry and Security of the US Department of Commerce ("BIS").

OFAC solidified its position in Guidance (FAQ) No. 1198, issued in connection with the designation of the Indian pharmaceutical company Shreya Life Sciences Private Limited to the SDN List [2]. This guidance clarifies that humanitarian trade is not the target of US sanctions; that US persons may continue engaging in transactions authorized by GL 6D involving this company; and that non-US persons generally do not face sanctions risk for engaging in transactions that are authorized for US persons under general licenses within the RuHSR program. The example is illustrative in reverse as well: designating a pharmaceutical company to the SDN List is possible per se (the basis, according to the regulator, was facilitating sanctions evasion). The humanitarian exemption protects the transaction and the product but does not shield the designated person from inclusion in the list.

In practice, this means for a company that if a product qualifies as a medicinal product or medical device, and the transaction is ordinarily incident to its civil circulation, a general license highly likely covers it. However, companies must consider that the license is not limitless; specifically, paragraph (c) of GL 6D outlines exceptions to the authorization.

Pursuant to paragraph (c) of GL 6D, the following are not authorized:

• The opening or maintaining of a correspondent account or payable-through account for any entity subject to Directive 2 under Executive Order 14024.
• Any debit to an account on the books of a US financial institution of the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, or the Ministry of Finance of the Russian Federation.
• Transactions prohibited by Executive Orders 14066, 14068, and 14071 (including new investments in the Russian Federation and the importation into the US of certain goods of Russian origin), except for transactions prohibited by the Determination of the Secretary of the Treasury dated May 8, 2022 (accounting, trust and corporate formation, and management consulting services) and the Determination dated June 12, 2024 (information technology and software services).

The latter exception holds direct practical significance for the industry and, as our practice demonstrates, companies routinely overlook it: GL 6D effectively lifts the prohibition on US persons providing accounting, management consulting, IT, and software services, provided such services are related to the circulation of medicinal products and medical devices. Additionally, OFAC clarified in Guidance (FAQ) No. 1193 that a US company may provide services prohibited by the IT and software services determination to employees and contractors of its Russian subsidiary – but exclusively within the scope of their activities on behalf of or for the benefit of that subsidiary. Consequently, the US framework for intra-group services is notably more lenient than the European one (see below).

Therefore, companies must document that a specific transaction falls under GL 6D: detail the product (specifying the EEU TN VED / HS code and, if applicable, the ECCN classification), its intended use, and its position in the licensed supply chain, while also recording the conclusion that none of the grounds listed in paragraph (c) apply. Companies must compile this dossier prior to executing the transaction. We draw attention to the fact that OFAC increased the recordkeeping period for transactions subject to its sanctions programs from 5 to 10 years.

US Export Controls: OFAC General Licenses Do Not Substitute BIS Authorization

The most frequent error in analyzing the US sanctions framework is conflating the OFAC sanctions regime and the export controls of the Bureau of Industry and Security of the US Department of Commerce ("BIS"). These constitute two independent regimes with distinct legal foundations, separate designated lists, and different authorization mechanisms. An OFAC general license lifts the financial-sanctions prohibition but does not grant the right to export the product.

Section 746.8 of the Export Administration Regulations (EAR, 15 CFR parts 730–774) establishes the baseline prohibition: exporting, re-exporting, and transferring (in-country) to Russia and Belarus virtually all items on the Commerce Control List (i.e., items possessing an ECCN classification), as well as various items identified by HTS codes, require a BIS license, and the agency reviews these license applications under a policy of denial. Additionally, the Foreign Direct Product Rules apply, extending US jurisdiction to items manufactured outside the US utilizing US technology, software, or equipment.

Effective April 29, 2024, the EAR introduced License Exception MED (License Exception Medical Devices, § 740.23 EAR; final rule published April 29, 2024, 89 FR 33224) [3]. This exception authorizes, without prior license acquisition, the export, re-export, and transfer (in-country) to Russia, Belarus, and certain territories of Ukraine of medical devices, as well as parts, components, accessories, and attachments intended exclusively for use in or with such devices. Nonetheless, substantial exclusions exist, including:

• The exception exclusively covers EAR99 category items, meaning those not listed on the Commerce Control List; any item with an ECCN falls outside the MED exception, regardless of its medical purpose.
• The exception does not override the licensing requirements of § 746.8 EAR and Part 744 EAR (end-user and end-use controls).
• The exception is unavailable when the restrictions of § 740.2 EAR apply – specifically, if a transaction party is on the Entity List, the Military End-User (MEU) List, or the Denied Persons List.
• The exporter must implement and maintain a verification system confirming the medical purpose of the shipment and must retain the corresponding documentation.

The discrepancy in ownership tests warrants separate attention. On September 29, 2025, BIS extended export controls to entities in which 50% or more is owned (directly or indirectly, individually or in the aggregate) by persons on the Entity List or the MEU List – the so-called "Affiliates Rule", introducing the new red flag No. 29 in Supplement No. 3 to Part 732 of the EAR. However, on November 12, 2025, BIS suspended the application of this rule until November 9, 2026. Concurrently, the OFAC 50% rule remains in effect without alteration [4]. The practical takeaway: as of July 31, 2026, the ownership tests within the US sanctions and export-control spheres do not align, and transferring a conclusion from one sphere to the other is unacceptable. The suspension is temporary; therefore, for transactions with performance dates after November 9, 2026, companies must proactively assess the risk of the rule's reinstatement.

The European Union Framework: Targeted Exemptions Without General Licenses

The EU approach is substantially more complex and, in our view, notably less convenient for business. The foundational act – Council Regulation (EU) No 833/2014 of 31 July 2014 in its current consolidated version incorporating subsequent packages (as of July 31, 2026, including the 21st package adopted on July 23, 2026) [5][6] – lacks a unified "medical" general license akin to the OFAC model. Instead, exemptions for medical and pharmaceutical purposes are distributed across specific articles and strictly tied to distinct prohibitions. Specifically, the framework provides exemptions for medical and pharmaceutical goods via:

• Articles 2 and 2a: authorising supply for medical/pharmaceutical purposes provided there is non-military use and a non-military end-user.
• Article 3k: establishing an exemption for goods intended for medical or pharmaceutical purposes regarding items in Annex XXIII (industrial goods).
• Article 3l: establishing an exemption for the transport of pharmaceutical and medical products.
• Article 5aa: establishing an exemption from the prohibition on transactions with certain state-owned enterprises regarding the purchase and transport of pharmaceutical and medical products.
• Article 5n: incorporating limited exceptions and derogations, including those related to public health and emergencies, within the prohibitions on providing specific professional and business services. However, technical, physical, and chemical testing and analysis – critical for pharmaceutical laboratories, manufacturing quality control, and contract research organizations – are expressly captured by the prohibition rather than exempted based on their medical purpose.

It is vital to note that the numbering of articles and annexes in Regulation 833/2014 changes with nearly every package; therefore, practitioners must verify citations against the consolidated version on the transaction date.

Furthermore, distinguishing between two mechanisms is fundamentally important: (i) an exemption, which applies automatically and does not require application to a competent authority, and (ii) a derogation, under which the transaction is permissible only upon authorization from a Member State competent authority and, in certain instances, upon fulfilling notification requirements. The legal consequences differ fundamentally: executing a transaction without the requisite authorization constitutes a violation irrespective of the product's medical purpose or the parties' good faith.

Equally critical is the fact that the application of derogations varies across Member States, creating an independent risk factor. Parties should codify the jurisdiction issuing the authorization as a material condition in the contract, and expressly allocate the risk of refusal or revocation of authorization between the parties (e.g., establishing it as grounds for suspension, extension of deadlines, or termination without liability).

The European Commission detailed the scope of protected nomenclature in its Guidance (FAQ) "Medicines and Medical Devices" (as amended on February 1, 2023):

• Medical devices;
• In vitro diagnostic medical devices;
• Medicinal products and Active Pharmaceutical Ingredients (APIs);
• Products for scientific research and clinical trials;
• Manufacturing equipment [7].

Concurrently, the Commission specified that the following generally do not qualify as pharmaceutical and medical products: cosmetics, biocidal products, herbal medicinal products, food supplements and other "borderline" products, as well as chemicals – except for ingredients and compounds subject to further processing into medicinal products. This applies even when healthcare organizations use such items: the mere fact of applying a product in a medical facility does not transfer it to a protected category. We emphasize that Commission guidelines lack binding legal force, do not bind Member State competent authorities or courts, and do not substitute an analysis of the Regulation text; however, in practice, they dictate the approach of supervisory authorities and therefore require mandatory consideration.

The practical implications of this framework mean that in the European regime, merely declaring "these are medical and pharmaceutical goods" is insufficient. Companies must map the specific product to a specific exemption article and, in a number of cases, secure an individual authorization from the national competent authority of the Member State. Therefore, for deliveries to Russia through EU companies, one must determine the specific applicable provision in advance (citing the article and, if necessary, the annex of the consolidated version), assess whether it constitutes an exemption or a derogation, prepare a justification, and, at the slightest doubt, default to the stricter scenario. Separately, we recommend addressing Article 12g of Regulation 833/2014 (the "no-Russia clause"), which mandates EU operators to incorporate a contractual prohibition on re-exporting certain categories of goods to Russia into contracts with third-country counterparties: the absence of such a clause constitutes a violation per se, regardless of the product's actual routing.

The UK Framework: Exemptions and Licenses

The UK legal regime is established by The Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855) in its current version (the act has undergone multiple amendments; practitioners must consult the current text on legislation.gov.uk) [8] and structurally aligns closer to the European model. It integrates direct exemptions codified in the text of the act with individual and general licensing mechanisms.

A fundamental distinction from the US model is that the UK framework lacks a sectoral general license covering the overall circulation of medicines and medical devices. UK general licenses are predominantly targeted: they tie to specific persons, projects, or narrow categories of transactions. Humanitarian and medical grounds may serve as a basis for issuing a license, but they do not automatically establish an effective exemption.

Furthermore, the UK distributes licensing and enforcement across multiple authorities depending on the restriction type:

• OFSI issues licenses for payments, transactions with frozen assets, and financial services.
• DBT (Department for Business and Trade) via the ECJU (Export Control Joint Unit) issues export licenses and general trade licenses.
• OTSI (Office of Trade Sanctions Implementation) within DBT – effective October 10, 2024, oversees civil enforcement of most trade sanctions: providing prohibited services, and transferring, supplying, and acquiring sanctioned goods and technology outside the UK, along with ancillary services. The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 codify these powers [9]
• HMRC handles criminal enforcement and export controls for goods departing directly from the UK; the Department for Transport (DfT) oversees aviation and maritime sanctions.

Practical consequence: an OFSI license does not legalize a product delivery, and an ECJU trade license does not legalize a payment. In a complex transaction (e.g., supplying medical equipment to a designated or designated-linked counterparty with settlement through a UK bank), a company may require two separate licenses from two distinct agencies, and their issuance timelines are not synchronized. Parties must submit applications prior to executing the transaction. Notably, the law does not establish a maximum statutory review period, and in practice, the review cycle consumes significant time; OFSI publishes target (non-statutory) processing times, which applicants should verify upon submission.

With the establishment of OTSI, the enforcement risk profile also shifted substantially. Authorities assess trade sanctions violations under a strict liability model: pleading ignorance or good-faith error does not constitute a defense. OTSI is authorized to impose civil monetary penalties of up to GBP 1,000,000 per violation or up to 50% of the estimated value of the breach – whichever is greater – and to publish details of the breach. The framework imposes reporting obligations on specific categories of persons regarding suspected violations; failure to comply with this duty triggers liability independently.

A valuable practical tool is the guidance published on September 25, 2025 – a navigator for exemptions from UK trade and transport sanctions. Exemptions apply automatically and do not require a license; however, some entail reporting obligations, the failure of which, as OFSI practice demonstrates (see the Colorcon matter below), authorities qualify as an aggravating factor when calculating penalties.

A company operating with a UK nexus must proactively evaluate the necessity of securing OFSI and ECJU licenses and allocate sufficient time for their procurement.

Thus, all three regimes indeed carve out medicinal products and medical devices from the primary sanctions impact, but deploy technically diverse mechanisms:

• The US utilizes a broad general license;
• The EU and the UK utilize narrower exemptions, derogations, and licenses directly attached to specific prohibitions.

Consequently, when structuring supply terms, practitioners must navigate each jurisdiction independently without conflating the regimes. Moreover, the humanitarian nature of a product per se does not lift restrictions. We will explore their boundaries below.

Exceptions to Exemptions: Gray Areas and Limitations

A humanitarian exemption is not a blanket industry immunity; it represents a narrow corridor. A significant portion of the materials modern medicine and pharmaceuticals actively utilize remains outside its boundaries.

1. Dual-Use Goods.

Many products utilized in medicine have dual-use applications. The EU regime is governed by Regulation (EU) 2021/821 of 20 May 2021, which established a unified dual-use item list; the US relies on the Commerce Control List (Supplement No. 1 to Part 774 of the EAR); the UK maintains lists administered by the ECJU. Subject to specific technical specifications, controlled items generally encompass:

• Laboratory and analytical equipment: chromatographs, mass spectrometers, sequencers, high-performance centrifuges;
• Select reagents and precursors, including those used in synthesizing Active Pharmaceutical Ingredients (APIs);
• Computing systems utilized in bioinformatics and medical imaging processing;
• Electronic components embedded within medical technology (processors, microchips, sensors);
• Cryogenic equipment, MRI systems;
• Biotechnological equipment: fermenters, bioreactors, purification systems.

Regarding dual-use goods, the "for medical purposes" exemption does not operate automatically but serves as a condition for obtaining authorization. In other words, an item does not escape the control regime merely because it is intended for medicine. It remains controlled, but its supply may become feasible upon satisfying additional criteria:

• Confirmation of non-military end-use;
• Confirmation of a non-military end-user;
• Absence of the end-user on restricted lists (in the EU regime, Annex IV to Regulation 833/2014, which targets entities affiliated with the defense sector);
• In certain cases, procuring an authorization from a competent authority.

Furthermore, a general license does not substitute an export license: authorization within the financial sanctions perimeter (OFAC, OFSI) and authorization within the export control perimeter (BIS, ECJU, EU Member State competent authority) are issued by different agencies on distinct grounds and do not substitute one another. Additionally, operators must account for the Common High Priority Items List coordinated by the US, the EU, the UK, and Japan: in the EU, the respective items are codified in Annex XL to Regulation 833/2014, and Article 12gb imposes heightened due diligence obligations on EU operators transacting in them. A substantial proportion of these items (microelectronics, sensors, certain measuring and computing devices) physically reside within modern medical technology.

In practice, this means an exporter is obligated to exercise due diligence regarding the end-user, and reliably verifying this in an environment of restricted information access is exceptionally difficult. Moreover, even a diligently prepared dossier does not guarantee authorization. We recommend embedding a direct allocation of this risk within the contract: conditioning the supply obligation upon securing all requisite authorizations, stipulating the right to suspend or terminate without liability in the event of denial or revocation, and expressly excluding the application of statutory compensation or contractual penalties to such scenarios.

2. Services Prohibition and Best Efforts.

As practice illustrates, sanctions increasingly target ancillary services and corporate infrastructure rather than the product itself. Prohibitions on rendering professional and business services are concentrated in Article 5n of Regulation 833/2014 and were deployed in phases rather than a single package [10]: accounting, auditing (including statutory audit), bookkeeping, tax consulting, business and management consulting, and public relations services emerged in the 6th package (Council Regulation (EU) 2022/879 of 03 June 2022, Article 5n(1)); architectural and engineering services, legal advisory services, and IT consultancy services followed in the 8th package (Council Regulation (EU) 2022/1904 of 06 October 2022, Article 5n(2)); market research and public opinion polling services, technical, physical and chemical testing and analysis, and advertising services appeared in the 9th package (Council Regulation (EU) 2022/2474 of 16 December 2022, Article 5n(2a)); enterprise management software and software for industrial design and manufacture (Annex XXXIX) were added in the 12th package (Council Regulation (EU) 2023/2878 of 18 December 2023, Article 5n(2b)).

For multinational pharmaceutical groups with Russian subsidiaries, this dictates that even when the civil circulation of medicines is wholly permitted, providing management, IT, and consulting support to their own subsidiary falls under the restriction.

A distinctive innovation of the 14th package (Council Regulation (EU) 2024/1745 of 24 June 2024) introduced a different mechanism – Article 8a of Regulation 833/2014: an obligation on EU operators to undertake their best efforts to ensure that entities established outside the Union that they own or control do not participate in activities that undermine restrictive measures. The preamble (Recital 28) to Regulation 2024/1745 clarifies that ownership entails possessing 50% or more of the proprietary rights or a majority interest; best efforts are defined as comprising all actions that are suitable and necessary to achieve the result, considering the operator's nature, size, and relevant factual circumstances.

For Russian companies, this precipitates a practical consequence of the inverse nature: their European counterparties and parent structures are legally mandated to request an increasingly voluminous compliance package (end-user data, non-re-export certifications, contractual clauses), and refusing to provide such information independently constitutes grounds for terminating relationships.

For the healthcare sector, the ramifications are profoundly tangible. Local drug manufacturing in Russia may be formally permitted, but simultaneously:

• A European parent company cannot provide IT support to its Russian facility;
• Centralized bookkeeping and auditing are prohibited;
• Transferring technological and managerial expertise is obstructed;
• Data transmission and participation in global corporate quality systems are severely complicated.

Practically, this means the highest vulnerability does not lie with deliveries of medicinal products and pure medical devices, but rather with borderline nomenclature: laboratory and manufacturing technology, reagents, IT, and servicing support. For such items, asserting a medical purpose is insufficient – companies require validation of the product code, the end-user, and the applicable exemption across every jurisdiction in the supply chain.

Consequently, the further a product strays from a core medical item and the closer it aligns with technology, services, and corporate support, the weaker the humanitarian exemption's protection.

Despite humanitarian exemptions, certain companies and individuals affiliated with pharmaceuticals and medicine nonetheless found themselves sanctioned.

3. Sanctions via Owners and Beneficiaries.

The paramount legal mechanism transforming sanctions against an individual into a corporate liability is the application of ownership and control rules. OFAC practice enforces the so-called "50 Percent Rule": the property and interests in property of an entity that is directly or indirectly owned 50 percent or more in the aggregate by one or more blocked persons are considered blocked even if the entity itself is not designated on the sanctions list. Notably, the stakes of multiple blocked persons are aggregated, and ownership across corporate tiers is calculated indirectly. Furthermore, OFAC advises exercising caution even when ownership falls below 50% if indicia of control exist.

Similar in intent but procedurally distinct rules operate in the EU and the UK. There are three material differences.

First, the EU and UK tests are dual-pronged: evaluating both ownership and control, where control is assessed based on factual indicators – the ability to dictate corporate decisions regardless of equity share size.

Second, in the European and UK frameworks, the prohibition is formulated not as the automatic blocking of the subsidiary entity, but rather as a prohibition on directly or indirectly making funds and economic resources available to or for the benefit of a designated person, mandating a distinct, more substantive analysis of a payment and its beneficiary.

Third, the ownership threshold in the EU is set at "more than 50%".

Cumulatively, the "European-UK" test is broader and less predictable.

Finally, practitioners must delineate ownership tests within the sanctions perimeter from those in the export-control perimeter, even within a single jurisdiction: the BIS "50% rule" concerning the Entity List and MEU List is suspended until November 9, 2026, whereas the OFAC "50% rule" remains active. A blanket conclusion stating "the ownership structure is cleared" without specifying the precise test and jurisdiction applied is unviable for protecting a company's position.

The practical consequence for companies is that merely screening a counterparty's name against sanctions lists is fundamentally inadequate. A comprehensive look-through analysis of the ownership structure down to the ultimate beneficial owners is mandatory, and must be conducted separately for each applicable jurisdiction, given that a single individual may be designated in the UK yet absent from US lists (and vice versa). Companies must document the screening results, citing the source, version, and date of list consultation, and for long-term contracts, they must repeat this process on the date of every material transaction. If a blocked person holds a controlling interest in a company, transacting with that company carries the identical risk as transacting with a directly designated person.

4. The Influence of Financial and State Infrastructure.

A scenario warranting separate examination arises when sanctions impact an entity not through its ownership or product, but through its funding source. For instance, if a sanctioned person finances the development, manufacturing, or commercialization of a medical or pharmaceutical product.

The risk here operates bilaterally. On one hand, securing funds from a blocked person constitutes receiving economic resources from them, which in the EU and UK frameworks inherently violates the prohibition on making funds and resources available to designated persons, while in the US framework, it entails the risk of blocking the received assets themselves. On the other hand, the designation criteria are drafted broadly enough to encompass the reverse scenario. US Executive Order 14024 of April 15, 2021, authorizes the designation of a person, including non-US persons, for materially assisting, sponsoring, or providing financial, material, or technological support for a blocked person – meaning both the financier and the financed entity fall within the risk perimeter.

We also highlight the corollary currency control aspect: settlements with persons from "unfriendly" states and operations involving their assets in Russia are subject to a specialized regime (notably, "Type C" accounts introduced by Presidential Decree No. 95 of March 5, 2022), under which repatriating investments to a foreign investor may prove impossible even in the complete absence of foreign sanctions hurdles.

Therefore, when securing capital for pharmaceutical and biotechnological ventures, conducting sanctions screening on the funding source bears the same criticality as screening a commercial partner.

5. The Military Component of the Business.

Since late 2023, the US framework (Executive Order 14114 of December 22, 2023, amending Executive Order 14024; OFAC guidance and the Advisory to Foreign Financial Institutions dated June 12, 2024, elaborate on the scope of "Russia's military-industrial base") solidified an expansive doctrine: regulators may categorize a company that identifies itself as exclusively medical as one servicing the military-industrial complex.

In practice, this is enforced in the following scenarios:

5.1. If the products, equipment, or supply chains are adaptable for utilization within military-industrial applications.

A medical device distributor may be designated on a sanctions list if the regulator concludes it procures products to support Russia's military-industrial base and facilitates sanctions evasion. The previously cited example is illustrative: the Indian pharmaceutical company Shreya Life Sciences Private Limited was added to the SDN List, yet OFAC confirmed via standalone guidance (FAQ No. 1198) that transactions with the entity authorized by GL 6D remain permissible for US persons, and non-US persons generally do not face sanctions risk for such transactions. Thus, designating a pharmaceutical company and preserving a humanitarian exemption for its transactions are not mutually exclusive phenomena, and companies must independently verify both elements.

5.2. If medical manufacturing facilities are integrated into the corporate structures of defense conglomerates.

A medical division embedded within a military-industrial holding does not acquire immunity simply because it manufactures civilian technology. Accordingly, manufacturers affiliated with groups containing a defense nexus must recognize that a specific legal entity's civilian profile does not shield it from the imposition of sanctions. Conversely, counterparties must scrutinize not merely the product itself, but the supplier's status and its integration within holding structures.

In practice, this dictates that when structuring a transaction, parties must conduct a comprehensive look-through screening of the counterparty, reaching ultimate beneficial owners, funding sources, and potential integration into military-industrial complex structures.

Secondary Sanctions and Banking Compliance

Even when a product is authorized and the counterparty is unblemished, the perimeter of secondary sanctions remains – measures directed at persons outside the sanctioning state's jurisdiction for facilitating targeted activities. Primarily, this concerns the banks processing the settlements. Terminological caveat: the term "secondary sanctions" is not a statutory definition. Legally, it refers to the regulator's authority to designate a non-US person on a list or restrict their access to the US financial system for specific conduct, rather than a direct prohibition addressed to that person.

1. Over-Compliance.

US Executive Order 14114 of December 22, 2023 (amending EO 14024) [11] expanded OFAC's authority to impose sanctions against foreign financial institutions for conducting or facilitating "significant transactions" for the benefit of Russia's military-industrial base. The scope of "significant transactions" and the contours of the military-industrial base defy precise ex ante definition: the regulator assesses them retrospectively based on a totality of factors (including the size, number, and frequency of transactions, the nature of the conduct, management awareness, and nexus to sanctions evasion). Further, on November 21, 2024, OFAC issued an alert regarding risks for foreign financial institutions joining Russia's System for Transfer of Financial Messages (SPFS), directly impacting the viability of alternative settlement channels.

The sanction may manifest in one of two forms:

• Imposing prohibitions or strict conditions regarding the opening and maintaining of correspondent accounts or payable-through accounts in the US (the CAPTA mechanism) – effectively severing the bank from US dollar clearing;
• Comprehensive blocking – designating the bank to the SDN List.

It is critical to underscore that the regulator's stance is favorable to the Life Sciences sector. OFAC's Guidance on Humanitarian Transactions and Payment Routing [12] affirms that lawful humanitarian activities, as well as trade in agricultural and medical products, do not constitute targets of US sanctions. Guidance (FAQ) No. 1182 expressly confirmed that foreign financial institutions may continue to rely on existing authorizations. Quoting this provision directly is advisable when corresponding with an intermediary bank to justify a payment.

However, banks weigh elevated risk factors: servicing blocked persons, settling payments for products on the Common High Priority Items List, and indicia of facilitating sanctions and export control evasion (the BIS Guidance for Financial Institutions of October 9, 2024, and FinCEN's red flag typologies serve as benchmarks here). This generates a potent incentive for non-US banks to over-insure via "over-compliance". To evade secondary sanctions, banks frequently reject entire categories of Russia-linked transactions, including lawful payments for pharmaceutical and medical products. Consequently, the formally authorized supply of a life-saving medication or medical device halts at the settlement phase due to the intermediary bank's risk aversion.

An adjacent phenomenon is "de-risking", whereby a bank unilaterally closes accounts for companies it categorizes as high-risk. For a company, this signifies the risk of losing banking services entirely, restoring which is considerably more complex and protracted than clearing an isolated payment.

A blocked or returned payment halts the supply chain. Moreover, such delays can be commercially critical, potentially resulting in contract breaches, supply disruptions for clinics and pharmacies, disqualification from public procurement tenders, and other financial and reputational damages.

Under the constraints of sanctions pressure, we consider it prudent to implement several measures concurrently:

• Pre-establishing redundant payment channels;
• Building stockpiles for critical nomenclature items;
• Incorporating contingencies for compliance and potential settlement delays into project budgets;
• Proactively structuring alternative routing, currencies, and settlement jurisdictions for strategic supply chains;
• Drafting contractual clauses that allocate the risk of bank refusals: securing the right to substitute payment routes and banks without prior consent, extending payment deadlines during route approvals, excluding expectation damages for delays caused by banks or regulators, and defining disclosure protocols for banks (including the scope of trade secrets subject to disclosure);
• Pre-compiling a standard payment justification dossier for the bank: product descriptions with HS/ECCN codes, citations to the specific exemption or license, end-user verification, the counterparty's ownership structure, and screening results referencing the clearance date.

2. The Problem of Payment Routing.

A fundamental limitation exists that market participants frequently overlook: authorizing the substance of a transaction does not equate to authorizing any arbitrary payment route.

OFAC clarifies [13] that general licenses authorizing humanitarian transactions do not authorize the maintaining or servicing of correspondent accounts at blocked banks. The regulator provides schematics illustrating permissible indirect routing and impermissible direct routing through sanctioned credit institutions. In other words, while the product is permitted and the transaction's substance is authorized, the payment channel must bypass blocked banks. Legally, the violation triggers not from the "route" per se, but from the act of making funds available to or for the benefit of a blocked person, or engaging in a prohibited transaction involving them – regardless of the payment's lawful purpose or whether the ultimate beneficiary is a designated person.

We illustrate this via the Colorcon Limited matter – a UK-registered subsidiary of the multinational Colorcon Inc., a supplier of excipients and coatings for the pharmaceutical industry [14]. On September 10, 2025, OFSI issued, and on September 30, 2025, published a penalty notice imposing a monetary fine of 152,750 pounds sterling on the company for breaching Regulation 12 of The Russia (Sanctions) (EU Exit) Regulations 2019 – the prohibition on making funds available to or for the benefit of a designated person. Between March 23 and December 2, 2022, the company's Moscow representative office executed 123 payments totaling 191,290.57 pounds sterling to employees and service providers holding accounts at designated Russian banks. OFSI determined 79 payments totaling 128,277.72 pounds sterling constituted violations; the wind-down General License INT/2022/2055384 covered the remainder. Notably, the payments did not involve pharmaceutical trading but rather employee salaries and vendor fees, and the recipients themselves were not sanctioned: the violation crystallized because depositing funds into an account at a designated bank equates to making funds available to that bank. OFSI reduced the baseline penalty by 35%, rather than the maximum 50%, because the company reported the breach approximately four months after discovering it, which OFSI declined to qualify as "prompt" disclosure.

The following conclusions flow directly from this matter:

• Routine operational payments (payroll, rent, insurance, utilities) pose risks equivalent to cross-border trade settlements, yet frequently evade compliance oversight because traditional compliance programs focus on clients and remitting banks, rather than internal personnel and vendors;
• Parties must screen every bank in the chain, not just the commercial counterparty – including the bank holding the payment recipient's account;
• Relying on the premise that "the bank will check everything" offers no defense: the liability for screening rests with the person initiating the payment;
• Outdated internal policies and failure to adhere to general license reporting requirements factor as aggravating circumstances;
• The strategy of early voluntary self-disclosure yields direct monetary value.

To preempt these adverse consequences, companies must vet settlements with the same rigor as the supply chain itself. We deem it advisable to proactively clear permissible payment routes with the servicing bank, eschew blocked credit institutions even when dealing with a "clean" recipient, and document the payment's legal basis (citing the applicable exemption or license).

Upon detecting a potential violation, OFSI practice indicates that an early self-disclosure strategy mitigates the penalty amount. We emphasize that the discount mechanics have evolved. On February 9, 2026, OFSI published updated guidance on enforcement and monetary penalties [15], which, among other reforms, introduced a four-tier severity assessment model (Tiers 1–4) carrying indicative consequences ranging from warning letters to monetary fines; an Early Account Scheme offering up to a 20% discount; a settlement scheme with a 20% discount; a consolidated discount of up to 30% for voluntary disclosure and cooperation; fixed penalties of 5,000 and 10,000 pounds sterling for specific offenses; and a framework for evaluating financial hardship claims. Therefore, the legacy discount metrics (35% / 50%) are obsolete for new cases, mandating the updating of internal incident response protocols.

Voluntary Corporate Withdrawal as an Independent Factor

We must also address a phenomenon that is not legally a sanction but yields comparable sectoral consequences: the voluntary self-restriction of multinational corporations.

The landscape of clinical studies is indicative. Regulators imposed no direct sanctions prohibitions on conducting clinical studies in Russia. Furthermore, US General License 6D explicitly enumerates transactions related to clinical studies as authorized. Nevertheless, multinational pharmaceutical companies unilaterally suspended launching new studies in Russia. According to data from the industry association "Inpharma" [16], the volume of multinational clinical studies has contracted substantially. Industry representatives cite broad geopolitical tensions, reputational considerations, and logistical risks as the drivers, rather than statutory prohibitions.

Notably, the association dispatched a letter to the Director of the Center for Drug Evaluation and Research (CDER) at the US Food and Drug Administration (FDA), proposing initiatives to facilitate the resumption of practice: expanding the geographic footprint of multiregional clinical trials, accepting Russian clinical study data during global reviews, and evaluating the feasibility of conducting onsite or remote inspections of Russian clinical investigator sites.

However, formidable hurdles persist, such as:

• Logistical complexities regarding biospecimens that demand stringent temperature controls and handling;
• Frictions in cross-border payments intended to compensate investigative sites and finance patient insurance;
• The threat of reputational blowback from Western regulators and media outlets.

Additionally, the endeavor to reinstate clinical studies in Russia reflects a rational response to eroding market share rather than signaling an improved political climate. Foreign corporations observe Russian manufacturers capitalizing on vacated niches, occasionally leveraging compulsory licensing mechanisms. In this context, clinical studies serve as a lawful vehicle for preserving market presence and sustaining relationships with test facilities and regulatory authorities.

This illustrates a critical paradigm: the de facto impact of a sanctions regime on a sector eclipses its de jure boundaries. It encompasses not only formal statutory prohibitions but also voluntary corporate strategic decisions driven by risk appetite and brand reputation.

In summation, medicinal products and medical devices are indeed carved out from the primary impact of sanctions, albeit through structurally divergent mechanisms: a broad general license in the US, and narrow, prohibition-specific exemptions, derogations, and licenses in the EU and the UK. Even within the US, the exemption operates across dual perimeters: an OFAC general license waives the financial-sanctions prohibition but does not substitute authorizations from the export-control perimeter (BIS), while License Exception MED covers solely EAR99 category items.

Dual-use goods, advanced technological equipment, service support, IT infrastructure, and intra-group services remain subject to sanctions capture. The further an asset sits from a finished medicinal product or medical device, the weaker the shielding.

Life Sciences companies can trigger sanctions exposure on derivative grounds rather than their medical or pharmaceutical profile: via owners and beneficiaries, through financing vehicles, by affiliation with defense-linked conglomerates, or due to their complicity in export control evasion schemes. The linchpin mechanism lies in the rules of ownership and control, which diverge not only across jurisdictions but also between the sanctions and export-control perimeters within a single jurisdiction – most notably the "50 Percent Rule".

Medical products can effectively face the same restrictions as military items when laboratory-analytical equipment and distribution channels are deemed instruments supporting the military-industrial base. A humanitarian exemption protects the physical product and the transaction, but it does not immunize the designated person.

The ultimate bottleneck may prove to be settlements rather than product prohibitions. Secondary sanctions targeting banks induce over-compliance and de-risking, causing delays even for expressly authorized payments. Furthermore, a violation can crystallize purely because funds credit an account held at a designated bank – even if the recipient is unsanctioned and the payment constitutes a routine operational expense.

The de facto footprint of sanctions on the sector transcends their strict legal text: banking conduct and voluntary corporate actions – ranging from suspending clinical studies to total market exit – compound the formal prohibitions.

Practitioners must scrutinize Russian regulations concurrently with foreign frameworks: the domestic regime erects independent authorization mandates (transaction clearances, currency controls), distinct support mechanisms (special regimes for circulating medicinal products and medical devices during shortages, compulsory licensing, parallel imports, national treatment in procurement), and discrete conflict-of-law risks capable of nullifying a contractual architecture engineered exclusively around foreign law. We underscore separately: the Russian perimeter entails direct prohibitions – primarily the ban on exporting medical equipment effective until December 31, 2027 – in addition to authorization and support mechanisms.

Sanctions regimes are volatile: since 2022, the EU alone has enacted twenty-one restrictive measure packages (the latest on July 23, 2026); OFAC revises general licenses and OFSI updates enforcement guidance multiple times annually, while EU Member State competent authorities can alter their postures unilaterally. Any legal conclusion, including those articulated in this article, demands reconciliation against the current official sources and lists prior to executing any material transaction.

This material was prepared as of August 16, 2026, based on open official sources from the US, the European Union, the UK, and the Russian Federation; it is provided for informational purposes only and does not constitute an official document or a legal opinion. It does not account for the circumstances of any specific transaction and cannot serve as the basis for decision-making without prior verification of the status of the participants, the product, and the payment route on the date of the transaction.

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References

1. OFAC General License No. 6D "Transactions Related to Agricultural Commodities, Medicine, Medical Devices...", Russian Harmful Foreign Activities Sanctions program, 31 CFR part 587; published in the Federal Register: 89 FR 65994 (August 14, 2024); replaced and revoked GL 6C of January 17, 2023. https://ofac.treasury.gov/selected-general-licenses-issued-ofac
2. OFAC Guidance (FAQ) No. 1198 – issued in connection with the addition of Shreya Life Sciences Private Limited to the SDN List; the publication date should be verified on the OFAC website, https://ofac.treasury.gov/faqs/1198
3. Amendment to Existing Controls on Russia and Belarus Under the Export Administration Regulations (EAR) Adding New License Exception Medical Devices (MED); Corrections, 89 FR 33224 (April 29, 2024); 15 CFR § 740.23. https://www.federalregister.gov/documents/2024/04/29/2024-09076/
4. Expansion of End-User Controls to Cover Affiliates of Certain Listed Entities (published September 30, 2025); One-Year Suspension of Expansion of End-User Controls for Affiliates of Certain Listed Entities (published November 12, 2025; suspension until November 9, 2026). OFAC. Revised Guidance on Entities Owned by Persons Whose Property and Interests in Property Are Blocked (August 13, 2014).
5. The 21st package of EU restrictive measures was adopted on July 23, 2026; see press releases of the Council of the EU and the European Commission of July 23, 2026, and the texts of the acts in the Official Journal of the EU.
6. Council Regulation (EU) No 833/2014 of July 31, 2014; practitioners must use the current consolidated version (EUR-Lex, Consolidated text section), not the original text, https://eur-lex.europa.eu/legal-content/en/ALL/?uri=CELEX:32014R0833&qid=1699571710020
7. Guidance "Medicines and Medical Devices" (as amended on February 1, 2023); Commission guidance does not have binding legal force, https://finance.ec.europa.eu/system/files/2023-02/faqs-sanctions-russia-medical_en.pdf
8. The Russia (Sanctions) (EU Exit) Regulations 2019, SI 2019/855, as amended, https://www.legislation.gov.uk/uksi/2019/855/contents
9. The Trade, Aircraft and Shipping Sanctions (Civil Enforcement) Regulations 2024 (entered into force on October 10, 2024); DBT statutory guidance. https://www.gov.uk/government/organisations/office-of-trade-sanctions-implementation
10. Council Regulation (EU) 2024/1745 of June 24, 2024, introducing Article 8a into Regulation 833/2014. Prohibitions on the provision of professional and business services (Article 5n) were introduced earlier: Council Regulations (EU) 2022/879 (6th package), 2022/1904 (8th package), 2022/2474 (9th package), 2023/2878 (12th package). See also European Commission press release (14th package of EU sanctions adopted on June 24, 2024), https://ec.europa.eu/commission/presscorner/detail/en/ip_24_3423
11. US Executive Order 14114 of December 22, 2023 (88 FR 89271, December 26, 2023), amending Executive Order 14024 of April 15, 2021. OFAC. Updated Guidance for Foreign Financial Institutions on OFAC Sanctions Authorities Targeting Support to Russia’s Military-Industrial Base https://ofac.treasury.gov/media/932436/download.
12. Guidance on Humanitarian Transactions and Payment Routing (including Guidance (FAQ) No. 1182 on the ability of foreign financial institutions to rely on GL 6D) of June 12, 2024, https://ofac.treasury.gov/faqs/topic/6626
13. Guidance on Humanitarian Transactions and Payment Routing (FAQ thematic section, including schematics of permissible indirect and impermissible direct routing), https://ofac.treasury.gov/faqs/topic/6626
14. Primary source: OFSI. Penalty Notice – Colorcon Limited (decision of September 10, 2025, published September 30, 2025); located in the Enforcement of financial sanctions collection on gov.uk: https://www.gov.uk/government/collections/enforcement-of-financial-sanctions. Review (secondary source): Cooley. OFSI Imposes Financial Penalty on UK Life Sciences Company for Payments to Sanctioned Banks in Russia, https://www.cooley.com/news/insight/2025/2025-10-10-ofsi-imposes-financial-penalty-on-uk-life-sciences-company-for-payments-to-sanctioned-banks-in-russia
15. Financial sanctions enforcement and monetary penalties guidance (as amended on February 9, 2026). https://www.gov.uk/government/publications/financial-sanctions-enforcement-and-monetary-penalties-guidance
16. Kolganova. The Western pharmaceutical industry has recovered // Kommersant, September 2025. https://www.kommersant.ru/doc/8039710