Sanctions against Russia in connection with the conduct of a “special military operation”
April 11, 2022
In the current situation, the sanctions can conditionally be divided into 2 main groups: (1) imposed against Russia and (2) imposed by Russia as a response. These measures have a direct impact on the activities of not only foreign companies, but also directly affect all residents of the Russian Federation, from domestic entrepreneurs to the end consumer. It is important to note that sanctions instruments are quite flexible and constant monitoring of their changes is required. Also, consideration of measures taken to support domestic business during the period of restrictions is worthy of special attention. As examples, we will cite the main sanctions imposed on Russia to date and the Russian Federation's retaliatory sanctions against unfriendly states.
So, from February 24, 2022, the assets of most key Russian banks (VTB, Russia, Otkritie, Novikombank, Promsvyazbank, Sovcombank and VEB.RF, etc.) were blocked, and disconnections were made from the financial messaging system, Apple Pay and Google Pay, also the United States introduced a complete ban on any transactions with the Central Bank of the Russian Federation. Currently, the lists of Russian citizens who are banned from entering the EU and whose assets on the territory of European states are being frozen are constantly being replenished.
Later, Russia imposed a ban on the import of timber, fertilizers, seafood and spirits. Also in April 2022, the fifth package of sanctions was introduced, providing for an embargo on Russian coal supplies from August 2022.
A ban has been introduced for ships under the Russian flag to enter the ports of the EU states, with the exception of ships that transport agricultural products, food, humanitarian aid. Restrictions on the transit of goods across the EU are being supplemented (with the exception of pharmaceutical, medical, agricultural and food products, as well as road transport for humanitarian purposes).
In addition, at present, Russian companies are prohibited from participating in public procurement in the EU countries, and a number of foreign companies have suspended their activities in the Russian market (for example, PepsiCo, Mastercard, etc.) or completely left the market (for example, Apple, Boeing, DHL , Coca Cola, etc.).
Russia is also taking retaliatory measures in connection with the application of sanctions restrictions to the state. In particular, in accordance with Decree of the President of the Russian Federation of December 22, 2018 No. 592 “On the application of special economic measures in connection with the unfriendly actions of Ukraine against citizens and legal entities of the Russian Federation”, as amended in 2021, the lists of individuals and legal entities in respect of which import is allowed to the Russian territory of certain types of goods, the country of origin or the country of departure of which is Ukraine or which are transported through the territory of Ukraine, only if their traceability is ensured using a control system that provides for the use of identification means (seals) based on the GLONASS system.
It should be noted that a fairly large number of counter-sanctions have now been adopted. One of the most significant can be considered the introduction of payments for gas imported by Russia to the EU in Russian currency (in rubles).
Also, by the Decree of the President of the Russian Federation, from February 28, 2022, residents who are participants in foreign economic activity were ordered to carry out the mandatory sale of foreign currency in the amount of 80% of the amount of foreign currency credited to their accounts on the basis of foreign trade contracts concluded with non-residents and providing for the transfer of goods to non-residents, the provision of services to non-residents, performance of works for non-residents, transfer to non-residents of the results of intellectual activity, including exclusive rights to them. The term of such sale is no later than 3 working days from the date of crediting such foreign currency. From March 2, 2022, a decree of the President of the Russian Federation imposed a ban on the export of cash foreign currency and (or) financial instruments in foreign currency from Russia in an amount exceeding the equivalent of 10,000 US dollars and calculated at the official exchange rate of the Central Bank of the Russian Federation on the date of export.
Also, until the end of 2022, restrictions on foreign economic transactions providing for the import into the Russian Federation of certain types of agricultural products, raw materials and food products, the country of origin of which is the state that has decided to impose economic sanctions on Russian legal entities or individuals or acceded to such a decision, have been extended.
Along with counter-sanctions, measures aimed at supporting domestic business are being actively introduced.
As noted in the letter of the Chamber of Commerce and Industry of the Russian Federation dated March 22, 2022 No. PR / 0181: “a significant part of the technical equipment, electronics, machinery and other complex goods supplied by domestic manufacturers to the Russian market is the supply of which the above countries have imposed prohibitions and restrictions. At the same time, foreign suppliers refuse to supply goods subject to sanctions, and these components are not produced in Russia and, as a rule, are of a unique nature. The current situation leads to the fact that many domestic companies are forced to suspend the supply of their intermediate or final products to counterparties within the existing production (technological) chains, since the above components necessary for the production of products become unavailable to them. Unfortunately, paragraph 3 of Article 401 of the Civil Code of the Russian Federation does not classify such circumstances as a breach of obligations by the debtor's counterparties and the lack of goods needed for execution on the market as force majeure circumstances. In connection with this requirement of the law, it becomes difficult to recognize the cases described above as force majeure circumstances”. In this regard, it is proposed to expand the concept of “force majeure event” in order to allow recognition as force majeure circumstances of the actions of persons not participating in the contract, but under the sanctions of the United States, the EU or other states, if the contract cannot be executed without their participation. At present, this draft law has been sent to the first Government of Russia, as well as to the Ministry of Economic Development and the Ministry of Industry and Trade of Russia. For the period of consideration of the bill, it was proposed to suspend consideration by the chambers of commerce and industry of applications for issuing opinions on evidence of force majeure circumstances in connection with sanctions restrictions on foreign components and equipment.
By Order of the Chamber of Commerce and Industry of the Russian Federation No. 24 dated 09.03.2022 “On the suspension of tariffs applied by authorized chambers of commerce and industry in activities to testify to force majeure circumstances under agreements (contracts) concluded as part of domestic economic activity” from March 10 to April 30, 2022, the effect of tariffs applied by the authorized chambers of commerce and industry in the activities of evidence of force majeure circumstances.
Concessions are also being made as part of tax audits. Thus, the Federal Tax Service of Russia is informed that the tax authorities may take into account the actual circumstances associated with activities under the current sanctions regime as mitigating or excluding liability for such violations. To reduce the administrative burden on organizations and citizens, the tax authorities are suspending checks on compliance with currency laws. In addition, due to the complexity of transferring funds from the accounts of foreign banks to the accounts of the Treasury for the purpose of paying VAT in Russia by foreign sellers, the Federal Tax Service of Russia, in a letter dated 30.03.2022 No. form from foreign organizations, independently pay VAT to the budget.
The Bank of Russia, in Information Letter No. IN-02-59/41 dated March 28, 2022, “On Restructuring Loans in Foreign Currency”, recommends that borrowers (individuals) apply to credit institutions before May 31, 2022 for loans concluded before February 22, 2022 in order to not related to the implementation of entrepreneurship, with an application to change the currency of the obligation of the loan agreement into rubles, to satisfy these applications.
As you know, telecom operators have reported risks in communication outages in the coming months. In this regard, on March 29, 2022, the Ministry of Digital Development of Russia recommended that operators limit the sale of unlimited Internet tariffs, which may cause distortions in traffic consumption and uneven load distribution on networks.
In addition, Decree of the Government of the Russian Federation No. 448 dated March 24, 2022 suspended inspections of IT companies conducted in accordance with the Federal Law “On State Control (Supervision) and Municipal Control in the Russian Federation” and the Federal Law “On Protection of the Rights of Legal Entities and Individual Entrepreneurs when exercising state control (supervision) and municipal control”.
A number of procedures have been simplified for participants in foreign economic activity. In accordance with Federal Law No. 74-FZ dated March 26, 2022 “On Amendments to Certain Legislative Acts of the Russian Federation and on the Suspension of Certain Provisions of Legislative Acts of the Russian Federation”, the import of product components is permitted within the framework of several foreign economic transactions. Recall that earlier imports were allowed within the framework of one transaction. These conditions are planned to be introduced before January 1, 2029. Also, the Russian Government was instructed to determine the categories of payers for which the deadlines for the execution of notifications of payment of customs payments differ from the general deadlines.
In accordance with Decree of the Government of the Russian Federation No. 393 dated March 17, 2022, a number of organizations from the pharmaceutical, clothing, furniture, gas, etc. industries can receive preferential loans for 12 months at a rate of 11% per annum, subject to certain conditions in their work and maintaining jobs.
The above and other measures to support entrepreneurs are currently being introduced, and are also subject to change depending on the current situation. In such circumstances, it is extremely important to monitor changes in a timely manner, both in terms of imposed sanctions and counter-sanctions, and in terms of support measures taken, which can significantly reduce possible business costs. Any omissions in the analysis of sanctions risk issues can lead to serious financial and time losses.
- Advising on sanctions imposed on the state, individuals and businesses in connection with the conduct of a “special military operation”
- Legal analysis and development of recommendations on already concluded contracts with contractors from “unfriendly” states
- Advice on the legal regime of doing business in the context of sanctions and counter-sanctions