Developments in Global Sanctions Compliance with a Focus on Russia, Belarus and China
By Jaclyn Jaeger
Sanctions imposed by the United States, the United Kingdom, and the European Union against Russia, China, and other parts of the world are fast-evolving. Such geopolitical shifts are creating new risks and placing further pressure on compliance departments.
In a recent webinar, “The Next Phase of Global Sanctions Compliance: Key Updates on New, Emerging Risks,” sponsored by the C5 Group, Natalie Quest, head of sanctions at Marsh McLennan, and Wilson Sonsini partner Michael Casey discussed the latest global sanctions developments, and what it means for sanctions compliance teams.
Russia sanctions: U.S. developments
The continued use of designations by the United States against Russia has kept many companies on their toes. For example, the Office of Foreign Asset Control (OFAC) on Aug. 23 imposed new blocking sanctions on over 400 individuals and entities in Russia and outside Russia for providing support to Russia’s military-industrial base.
Relevant to the financial services industry, foreign financial institutions are feeling increased pressure from expanded secondary sanctions resulting from OFAC revising its definition of “Russia’s military-industrial base” to include designated Russian banks. Practically speaking, foreign financial institutions that “conduct or facilitate significant transactions or provide any services involving ‘Russia’s military-industrial base’ run the risk of being designated by OFAC,” Quest said.
On Sept. 5, OFAC issued an alert to warn financial institutions about Russia’s attempts to evade sanctions through the use of overseas branches and subsidiaries. “Foreign regulators and financial institutions should be cautious about the establishment of, or any dealings with, new overseas branches or subsidiaries of Russian financial institutions, including any that are not themselves sanctioned,” the alert stated.
In that alert, OFAC stated it continues to authorize “financial relationships that solely facilitate permissible transactions such as those related to food, agriculture, medicine, energy, and telecommunications. However, efforts to open new branches or subsidiaries of Russian financial institutions should be viewed as a red flag for attempted Russian sanctions evasion.”
Russia sanctions: U.K. developments
In a welcome development for the legal and compliance community, the U.K. government on Sept. 6 announced the revocation of a legal advisory services general trade license it had issued in August 2023 that went too far in prohibiting certain legal advisory services.
“It restricted U.K.-based lawyers from providing certain types of compliance advice related to the U.K., EU, and U.S. sanctions,” Casey said. Given that London is a global financial hub, “these prohibitions created real problems and real issues for all of us who were trying to advise multinational companies and banks who were engaging in cross-border licenses,” he added.
The U.K.’s legal advisory services general trade license sparked a lot of back-and-forth debate with the industry about how to keep key prohibitions in place but carve out compliance-related services. In the end, the U.K. government amended regulation 60DB of the Russia Regulations “to make it clear that the provision of legal advisory services, which may otherwise be restricted by regulation 54D of the Russia Regulations, are permitted on or in connection with compliance with global sanctions, Russian counter-sanctions, and global criminal law,” the U.K. government stated.
The U.K. government also clarified that the amendment further permits legal advisory services related to the application of punitive measures, and concerning compliance with U.K. statutory or regulatory obligations. Casey commented that the amendment was a “very good, well-needed change.”
In another development, the U.K. government on May 28 introduced new regulations expanding the criteria for individuals and entities that can be designated under Regulation 6 of the Russian Regulations.
The new criteria permit the designation of people or entities for:
• Providing financial services, or making available funds, economic resources, or technology, to persons involved in obtaining a benefit from or supporting the Russian government; and
• Owning or controlling directly or indirectly, or working as a director, trustee, other manager, or equivalent of a person, other than an individual, involved in destabilizing Ukraine or undermining or threatening the territorial integrity, sovereignty, or independence of Ukraine.
The EU’s 14th Package on the circumvention prohibitions in the Russian sanctions is another area deserving of attention by compliance and legal professionals. Quest explained that Article 12 has been expanded to state that “action can be taken against anyone who might not deliberately seek to evade sanctions but are aware that that’s the outcome that might come from their activities.” That’s different from knowingly evading sanctions and speaks to enhanced enforcement risk.
Quest said that this stresses the need for EU entities to make “best efforts” to ensure they’re not doing anything that would undermine EU sanctions. It brings in extraterritoriality in a backdoor way, which can introduce further compliance complexities.
Companies should consider their holding structures as well, “because there might be connections to overseas offices and EU offices that, perhaps, not everybody is aware of,” Quest said. “You might also have teams that report up to or are managed by an EU entity. So, when you are looking at applicable sanctions, that is something else to take into account.”
Belarus sanctions
Both the EU and the United Kingdom have expanded their sanction regimes against Belarus as well. In the European Union, this includes export restrictions extending to additional dual-use and advanced goods and technologies; maritime navigation goods; oil and LNG equipment; and luxury goods.
In another move, the EU has prohibited imports from Belarus of Belarussian Gold, Diamonds, Helium, Coal, and Oil products, as well as imports into the EU of Belarussian Crude Oil.
In addition to the EU, the United Kingdom has also established export restrictions on additional technology and industry goods, such as electronics, navigation goods, aerospace, and propulsion parts. It also established a prohibition on the importing of Belarussian aluminum and aluminum goods.
Quest noted that the compliance message here is “being very careful now with any type of trade or relationships with companies in Belarus.”
