Companies with business operations or personnel in Eastern Europe are closely watching the unfolding disruption in the region. While still in flux, trade restrictions and sanctions from North America, the European Union, the United Kingdom, and Russia will have a wide-ranging impact on a variety of industries. Reverberations could result in contract disputes and force majeure issues, related litigation and conflict stemming from broken contracts, limitations on interaction with financial institutions and venture capital firms and funds, restrictions on secondary market transactions, business continuity interference, raw materials and technology trade disruptions, and renewed cybersecurity concerns.
Our lawyers have long been trusted advisers to clients navigating the complex and quickly changing global framework of international sanctions. Because companies must closely monitor evolving government guidance to understand what changes need to be made to their global operations to maintain business continuity, we offer this centralized portal to share our insights and analyses.
To receive the latest updates, subscribe to our Ukraine Conflict: How to Maintain Global Business Continuity mailing list.
09/13/2023 - Update: Russia Develops Mechanism to Release Blocked Foreign Investments
02/23/2023 - The Growing Cash Pile in Moscow Foreign Investors Can’t Touch, BNN Bloomberg
12/8/2022 - US Matches EU $60 Price Cap on Russian Crude Oil Delivered by Sea
Governments around the world are issuing and considering further sanctions following Russia’s actions in Ukraine. It is a complicated maze of pure sanctions, applied sanctions, and countersanctions, which can apply to a wide range of companies, including the way financial institutions operate, as well as imports and exports. Many companies are expecting disruptions to commodities trading, the flow of transportation industry raw materials, asset freezes, and technology export control.
The US continues to increase economic sanctions on Russia and Belarus. February 27 saw multiple actions expanding sanctions, including restrictions on exports of a large swath of equipment and consumer goods, Office of Foreign Assets Control designations, and visa restrictions. The Bureau of Industry and Security, in particular, emphasized that its action is focused on “aligning” with controls previously imposed by allies and partners in Europe.
Russian President Vladimir Putin adopted Decree No. 16 on January 17, allowing Russian companies to change their corporate decision-making so that minority shareholders from the so-called “unfriendly states” (or those controlled by persons from such states) and directors nominated by them lose their voting rights at the shareholder meetings in the boards of directors (supervisory boards) and management boards of affected Russian companies.
The United Kingdom’s Office of Financial Sanctions Implementation (OFSI) has granted the London Court of International Arbitration (LCIA) a General Licence allowing it to process payments from designated parties (DPs) who are subject to the United Kingdom’s recent financial sanctions against Russia and Belarus.
The European Union adopted its 8th sanctions package of restrictive measures against Russia on 6 October 2022 in response to the ongoing conflict in Ukraine.
Russian President Vladimir Putin signed Decree No. 322 “On Temporary Regime For Performance of Obligations Towards Certain Rightsholders” on May 27, prohibiting Russian residents from making license payments to foreign bank accounts of rightsholders residing in “unfriendly states” or otherwise supporting sanctions against Russia.
Russian President Vladimir Putin issued a decree listing several retaliatory special economic measures against legal entities and individuals, as well as organizations controlled by them, to be designated by the Russian government.
Morgan Lewis partner Giovanna Cinelli will speak at the American Conference Institute’s 16th Annual Flagship Conference on US Economic Sanctions Enforcement and Compliance. The two-day conference will discuss sanction developments including new Office of Foreign Assets Control guidance on ransomware and digital currency, intellectual property blocking and geofencing, and complex sanction evasion techniques with country-specific guidance on Russia, Iran, Belarus, and Afghanistan.
The United Kingdom has finalized its ban on the delivery, sale, transit, and export of luxury goods to Russia, focusing on items that will impact Russian oligarchs and other members of the Russian elite.
In light of trade restrictions and foreign companies discontinuing business in Russia, the Russian government resolved to remove legal protection of intellectual property (IP) rights embedded in certain goods and trademarks attached thereto, thus enabling parallel import of such goods to Russia without authorization of the relevant IP holder or authorized distributor.
The European Union, United Kingdom, and United States have introduced a number of extensive sanctions against Russia in relation to the delivery, sale, transit, and export of luxury goods, with the intention of focusing on items that will impact Russian oligarchs and other members of the Russian elite.
A draft law submitted for consideration to the State Duma—the lower chamber of the Russian parliament—would amend the Russian Criminal Code to make compliance with sanctions a criminal offense for directors and officers, punishable by severe penalties, including long-term imprisonment. If adopted, the law would significantly impact many individuals and businesses in Russia, and companies would need to adjust their strategies toward Russia accordingly.
Partner Giovanna Cinelli was quoted in an Export Compliance Manager article highlighting key steps for companies complying with rapidly escalating sanctions.
The conflict in Ukraine has resulted in the disruption of innumerable commercial agreements between and among financial, manufacturing, and other entities. The sanctions imposed by nations and international bodies on various Russian and Belarusian persons and entities as a result of the conflict (Ukraine-Related Sanctions) are in many ways exceptional in their coordination, breadth, and speed. Russia has imposed initial countermeasures in response to the Ukraine-Related Sanctions, which could also affect the performance of commercial agreements by parties across the globe. Many US businesses are considering whether (and if so, how) the operations in Ukraine or the Ukraine-Related Sanctions might impact their and their counterparties’ obligations under agreements that require performance by or with sanctioned entities.
President Joseph Biden issued Executive Order 14068 on March 11 expanding prohibitions on trade with Russia and announcing new restrictions on Russian imports, exports, and investments—including luxury goods. This executive order, implemented through regulations issued by the Department of Commerce’s Bureau of Industry and Security, directly impacts many retailers, as it effectively restricts US retailers and businesses from suppling any luxury items, as defined by the regulations and the customs tariff codes to Russia. This edition of Morgan Lewis Retail Did You Know? analyzes the executive order—the latest in a series of regulatory actions targeting Russia as a result of the crisis in Ukraine—the Department of Commerce’s implementing regulations under the executive order, and the practical impact both have for retailers.
In Law360, partners Erin Martin, Carl Valenstein, and Celia Soehner wrote that public companies should consider impacts of Ukraine conflict-related sanctions on Russia and the related supply chain issues when assessing risk factor disclosure.
In connection with recent Russia-related sanctions issued by the US government, organizations face a variety of issues when navigating the questions of who and what transactions may be subject to the reach of these sanctions. Economic sanctions administrated by the US Department of Treasury’s Office of Foreign Asset Control (OFAC) are often intended to have extraterritorial effect, and therefore can impose significant compliance costs and penalties on US subsidiaries as well as their non-US affiliates or parent entities.
Russian authorities are taking measures on several fronts to support financial markets and keep liquid assets in Russia, including a new set of countermeasures introduced by President Vladimir Putin. Russia’s Central Bank is also playing an important role in mitigating the effect of recent economic sanctions against Russia.
The European Union’s 25 February wave of sanctions build on, and significantly expand, its existing sanctions on Russia, imposing wide-ranging restrictions on the Russian economy—including in respect of Russia’s access to financial and capital markets—and the oil refining, aviation, and space sectors. More sanctions from the European Union are expected in the coming days, along with announcements on the disconnection of certain Russian banks from the SWIFT system.
Based on the evolving military operations of the Russian Federation in Ukraine, the United States has imposed additional sanctions on the Russian Federation, Russian leadership, and various financial institutions and companies. These sanctions, imposed in close coordination with American allies and partners, target Russian banks as well as Russian state-owned and private entities thought to be involved in funding Russia’s actions.
President Vladimir Putin issued a decree, “On Special Economic Measures in connection with the Unfriendly Actions of the United States of America and Other Foreign Countries” (Decree), on 28 February. This is the first decree addressing Russian economic measures to respond to the recent sanctions adopted by several countries in connection with the current geopolitical situation.
The United States, in concert with Western allies, has imposed sweeping sanctions on Russia in response to President Vladimir Putin’s action in Ukraine. In addition to a full suite of sanctions administered by the US Department of Treasury/Office of Foreign Assets Controls (OFAC), the US Department of Commerce has issued amendments to the Export Administration Regulations (EAR) that impose new restrictions on exports, re-exports, and retransfers of items subject to the EAR to Russia (and releases in Russia), established policies of denial for license applications, and transferred military end users to the Entity List.
In Beck-Blog, special legal consultant Dr. Axel Spies provides an overview of the Russian sanctions authorized by US President Joseph Biden, noting more sanctions are being considered amid the Russian Federation’s recognition of Ukraine regions as independent states.
Partner Bruce Johnston spoke to The Wall Street Journal about the effects of the UK’s sanctions.
In response to the Russian Federation’s recognition of certain regions of Ukraine as independent states which followed an expansion of nearly 200,000 troops on the Ukrainian border, US President Joseph Biden authorized the imposition of additional sanctions against Russia and indicated that further sanctions were under consideration. This LawFlash summarizes these newly issued sanctions.
Partner Bruce Johnston spoke to Cirium about the how Russian sanctions could impact the aviation sector.
The United Kingdom on 10 February 2022 amended its Russian sanctions law to more easily add persons to its targeted sanctions regime, which enhances the UK’s ability to quickly impose sanctions against most parts of the Russian economy (and their operations worldwide).
The still evolving US sanctions (as well as the EU and now also separate UK sanctions) continue to challenge Russia-related business. The sanctions frameworks are complex, changing, and, at times, inconsistent as well as overlapping. Navigating this complex global framework is made even more difficult by the ongoing unpredictable and reactionary geopolitical environment as the Biden Administration gets underway.
Recent sanctions imposed by the European Union, United Kingdom, and the United States on Turkey and certain Turkish persons will be of interest to European and American investors in Turkey’s defense and energy sectors. The following update contains a summary of each regime.
As was evident during the COVID-19 global crisis, the way force majeure clauses are written into contracts could take center stage when the regular speed of business is disrupted. If commercial parties are unable to fulfill their duties under contracts because of the sanctions, companies will be looking for support on how to unwind contracts and handle resulting disputes when contracts are broken. And given the intricate intertwining of our global economy, contract terminations at a high level could result in the termination of other contracts down the chain.
Russian President Vladimir Putin issued a decree imposing an overall ban on transactions with certain assets, such as securities in certain Russian companies and interests in certain Russian investment projects, if these securities and interests are owned by persons from the so-called "unfriendly states" or persons controlled by such. Assets include shares in certain Russian major entities, energy and subsoil companies and projects, and Russian banks. The new ban restricts the ability of investors to exit from their Russian investments or to restructure their Russian holdings without specific permission of the Russian president.
The Russian government has issued a decree to deny compensation to patentees from “unfriendly states” when their patents are used for Russia’s national security purposes. Additionally, the US Patent and Trademark Office has fully ended its engagement with Russia’s patent office, Rospatent.
The UK Competition and Markets Authority updated its guidance on the merger control regime in the United Kingdom on 4 January 2022—the same day the National Security and Investment Act 2021 came into effect. The updated merger guidance clarifies that the new national security regime is separate to UK merger control and that transactions may be subject to both regimes.
With the recent onslaught of ransomware attacks, it’s time to revisit force majeure clauses (again). Earlier in the pandemic, we reviewed how COVID-19 could impact force majeure provisions. Since then, there has been a flurry of analyzing, renegotiating, and testing contractual language, as parties work through, or anticipate, pandemic-related difficulties. While contracting parties focus on striking a balance of when, and to what extent, a party’s performance will be excused due to pandemic-related circumstances, a different threat could follow a similar trajectory.
The coronavirus (COVID-19) pandemic has had sweeping effects around the world, and in this era of globalization, business transactions that span multiple jurisdictions and markets have fallen prey to new and unexpected risks presented by the pandemic.
Financial services companies are planning ahead to ensure business continuity as evolving sanctions could affect the way they are able to move money. Questions range from how to pay employees, repay existing debts, access capital, deploy new private equity or venture capital investments, and maintain certain parts of a deal or workstream while unravelling others. Companies are looking for guidance on how to navigate the complex web of international sanctions. Examples of some of the challenges financial services companies are facing include what to do in the following scenarios:
The Russian Parliament required in 2022 Russian issuers to terminate their depository receipt programs that entailed the conversion of depository receipts into Russian underlying shares. This LawFlash discusses the current status of depository receipt conversion procedures as well as the regime applicable to Russian underlying shares received as a result of the conversion.
Partner Grigory Marinichev was quoted in a Reuters article about complications global investors and banks have had converting depositary receipts of Russian companies into ordinary shares in compliance with a new Russian law.
Until recently, investors were not generally restricted in selling their (participatory) equity interests in Russian limited liability companies (LLCs). However, Russian President Vladimir Putin issued Decree No. 618, requiring that a prior clearance by the Russian government commission on control over foreign investments is required for direct or indirect transactions with participatory interests in, or resulting in obtaining management rights over, LLCs, if persons connected with the so-called "unfriendly states" or persons controlled by such are involved.
Partners Sergio Oehninger and Peter Sharp and associate Paul Mesquitta authored an article for Law360 detailing insurance policies companies should review in light of the conflict in Ukraine and actions taken by and against Russia that cause supply chain disruptions, operational interruptions, and loss of assets abroad.
Russian President Vladimir Putin issued a decree imposing an overall ban on transactions with certain assets, such as securities in certain Russian companies and interests in certain Russian investment projects, if these securities and interests are owned by persons from the so-called "unfriendly states" or persons controlled by such. Assets include shares in certain Russian major entities, energy and subsoil companies and projects, and Russian banks. The new ban restricts the ability of investors to exit from their Russian investments or to restructure their Russian holdings without specific permission of the Russian president.
The conflict in Ukraine and actions taken by and against Russia continue to wreak havoc on global business operations, causing supply chain disruptions, interruptions in operations, and the loss of assets located abroad. With these losses multiplying at a time of economic uncertainty, now is the time for an insurance checkup.
Russian Decree No. 430 was signed on July 5, establishing a basic framework for the replacement of Eurobonds with Russian bonds. The Decree also confirms that debts owed to Russian participants of international syndicates of banks must be repaid directly—not through facility agents from “unfriendly states”—and in rubles at the lender’s option, but at the same time substantially relaxes the repatriation rule with respect to exempt contracts.
Russian Decree No. 430 was signed on July 5, establishing a basic framework for the replacement of Eurobonds with Russian bonds. The Decree also confirms that debts owed to Russian participants of international syndicates of banks must be repaid directly—not through facility agents from “unfriendly states”—and in rubles at the lender’s option, but at the same time substantially relaxes the repatriation rule with respect to exempt contracts.
The State Duma, Russia’s parliament lower chamber, adopted draft law No. 116264-8 on June 29, 2022, containing rules allowing the conversion of depository receipts into the underlying Russian shares without a need to go through non-Russian depositary banks, custodians, brokers, and other similar institutions.
Russian President Vladimir Putin signed Decree No. 394 on June 22, establishing the new mechanism for settlements under the sovereign bonds of the Russian Federation denominated in foreign currency (Eurobonds).
A new statement from the Russian Ministry of Finance requires Russian borrowers to repay debt owed to Russian lenders participating in international syndicates directly (bypassing mechanisms established by the relevant loan agreements). This requirement may potentially result in large-scale defaults of Russian borrowers.
Partner Grigory Marinichev spoke to Frankfurter Allgemeine about the recent Russian law on mandatory delisting of Russian companies from foreign exchanges.
Following previously adopted restrictions on payments of dividends in joint stock companies, Decree No. 254 requires that any dividend payment from a limited liability company to its foreign participant connected with an “unfriendly state” must be made in Russian rubles and to a special blocked type “C” account, subject to certain exceptions.
A recent Private Equity Law Report article referenced a webinar it hosted in April 2021, looking at lessons learned from the pandemic and how sponsors and investors can apply those to successfully prepare for the next market disruption.
The delisting of Russian issuers’ depositary receipts could potentially lead to a disproportional increase in sales of underlying shares in the Russian stock market and contribute to its volatility. In response to this challenge, Russia’s Central Bank introduced a limit on transactions with shares received upon cancellation of depositary receipts.
A new federal law in Russia prohibits Russian issuers from having their shares traded outside Russia via depositary receipts and requires issuers with existing programs to take delisting measures unless they receive a governmental approval to keep the program.
Russia proposed a draft federal law on April 8 amending article 235 of the Russian Civil Code, which would allow the compulsory seizure of assets in cases stipulated by federal laws, and containing rules about such compulsory seizure from persons from, or connected with, the so-called “unfriendly states.” If adopted, this law would create a framework permitting nationalizing assets of these persons without compensation.
The Central Bank of the Russian Federation has recently been active in adopting secondary legislation clarifying and implementing presidential decrees on cross-border transactions. Such legislation imposes new restrictions which need to be considered in commercial dealings involving Russia.
Russia proposed a draft federal law on April 8 amending article 235 of the Russian Civil Code, which would allow the compulsory seizure of assets in cases stipulated by federal laws, and containing rules about such compulsory seizure from persons from, or connected with, the so-called “unfriendly states.” If adopted, this law would create a framework permitting nationalizing assets of these persons without compensation.
Following Russian President Vladimir Putin's pronouncement that buyers from “unfriendly states” pay for Russian gas in rubles, it has been largely unclear, until recently, what this demand would imply in practice.
An insolvency moratorium first introduced during the COVID-19 pandemic applies to nearly all Russian legal entities, individuals, and sole entrepreneurs, and bans the commencement of insolvency proceedings against Russian obligors.
As another measure to support Russia’s financial market, Presidential Decree No. 126 imposes further limitations on cross-border monetary transfers for both Russian and non-Russian residents. However, Decree No. 126 also gives Russian regulators broad discretion to make exceptions from the previously adopted general bans and specific restrictions.
In response to sanctions adopted by the United States, the European Union, and other countries in relation to Russia’s operations in Ukraine, the Russian government is taking steps to adopt measures affecting foreign investors’ rights, from nationalization of assets to non-protection of intellectual property rights.
Partner Grigory Marinichev spoke to Bloomberg about Type C accounts in relation to Russia’s debt settlement.
Russia is considering introducing legislation that, if adopted, will have a dramatic impact on foreign-owned businesses and their strategies concerning Russia. The goal of the proposed law is to (1) warn foreign owners that they may lose their Russian companies if they abandon them and (2) conserve business and preserve jobs by allowing the sale of affected companies’ assets to a Russian third-party.
President Vladimir Putin issued a decree introducing a special procedure for repayment of debt by the Russian state bodies as well as Russian residents (Russian Debtors) to non-Russian creditors related to foreign states that commit “unfriendly actions towards Russia” or that are controlled by such non-Russian creditors (deemed “Creditors from Unfriendly States”). The new procedure will apply to payments exceeding 10 million rubles ($95,000) per month and effectively prevent the free receipt of repayment amounts by Creditors from Unfriendly States.
In the Boston Business Journal, partner Carl Valenstein provided his insights on how US universities may consider divesting Russian assets and severing partnerships with entities on the Specially Designated Nationals And Blocked Persons List amid the conflict in Ukraine.
Russian authorities are taking measures on several fronts to support financial markets and keep liquid assets in Russia, including a new set of countermeasures introduced by President Vladimir Putin. Russia’s Central Bank is also playing an important role in mitigating the effect of recent economic sanctions against Russia.
The European Union’s 25 February wave of sanctions build on, and significantly expand, its existing sanctions on Russia, imposing wide-ranging restrictions on the Russian economy—including in respect of Russia’s access to financial and capital markets—and the oil refining, aviation, and space sectors. More sanctions from the European Union are expected in the coming days, along with announcements on the disconnection of certain Russian banks from the SWIFT system.
President Vladimir Putin issued a decree, “On Special Economic Measures in connection with the Unfriendly Actions of the United States of America and Other Foreign Countries” (Decree), on 28 February. This is the first decree addressing Russian economic measures to respond to the recent sanctions adopted by several countries in connection with the current geopolitical situation.
While international humanitarian law (ius in bello) also protects personal property, it is only enforceable on a State-to-State level. International investment law, however, provides for direct recourse by the investor against the host State and can therefore be a powerful and effective means of protecting investments during and after armed conflicts.
As much of the European Union relies on energy resources from Russia, proposed diplomatic measures surrounding the conflict in Ukraine could change the flow of natural resources across much of the continent. More than one third of the natural gas used in the European Union originates from Russia, representing billions in oil and gas contracts. Proposed sanctions could have an effect on global gas prices as the flow of oil and gas is disrupted.
Partner Kirstin Gibbs and associate Pamela Wu drafted an article for Reuters on how new natural gas permitting proposals from the US Federal Energy Regulatory Commission (FERC) could affect the development of new pipelines. This proposal is gaining a lot of attention in the energy industry, as President Joseph Biden has pledged more natural gas to supplement the previous supply from Russia.
It’s getting harder to send anything from the US to Russia, including radioactive materials and nuclear-related equipment. Below are some recent examples of actions that the US government has taken to clamp down on nuclear trade with Russia. In this ever-changing geopolitical landscape, exporters must maintain export compliance vigilance for the items and technology they export.
A group of four US senators introduced a bill on March 16 to ban imports of uranium products from the Russian Federation. If enacted, such a ban could complicate the refueling of existing commercial reactors in the United States that rely on Russian uranium products. A ban also could extend the schedule in the United States for deploying some advanced reactors, because Russia is a key source of the high-assay, low enriched uranium (HALEU) they plan to use. In a related development, Russia is considering a ban on uranium exports to the United States in retaliation for the most recent energy sanctions on Russia.
A group of four US senators introduced a bill on March 16 to ban imports of uranium products from the Russian Federation. If enacted, such a ban could complicate the refueling of existing commercial reactors in the United States that rely on Russian uranium products. A ban also could extend the schedule in the United States for deploying some advanced reactors, because Russia is a key source of the high-assay, low enriched uranium (HALEU) they plan to use. In a related development, Russia is considering a ban on uranium exports to the United States in retaliation for the most recent energy sanctions on Russia.
Spark, our quarterly update highlights new and amended Russian legislation of importance to companies operating in the Russian energy and mining sectors.
Many companies are looking to increase their cyberdefenses amid heightened geopolitical tensions as threats of ransomware and data breaches have become increasingly credible. With so much of the world’s daily business operations and commerce relying on a strong digital presence, data privacy and cybersecurity are critical concerns for companies across virtually every aspect of their operations. The risk of data breaches and their adverse impact on businesses—including unwelcome publicity and brand damage—pose some of the greatest risks to modern companies.
Russia President Vladimir Putin signed the federal law, “On Amendments to the Federal Law ‘On Measures of Influence (Counteraction) on Unfriendly Actions of the United States of America and Other Foreign States,’” on May 1, substantially restricting the ability of Russian banks to disclose information to foreign regulators, in particular, under the US National Defense Authorization Act.
The conflict in Ukraine has raised significant cybersecurity concerns for businesses in the United States and across the world, resulting in an increased focus on using cyberinsurance to mitigate any resulting losses. The conflict has also caused insurers to turn their attention to a rarely invoked exclusion in insurance policies: the war exclusion. Certain insurers have recently taken steps toward altering the language of such exclusions. As a result, evaluating the applicability of insurance coverage, including the specific language of any war exclusions contained the policy, is an important first step for businesses as they seek to protect themselves from cyberthreats.
As technology and the use of the internet continue to evolve, lawmakers remain focused on setting a legal framework for businesses operating “online” in Russia. In 2021, the Russian regulatory landscape underwent significant changes, which will no doubt have an impact on how tech and media companies conduct their business in Russia.
Broad awareness has been made about cyberattacks in the form of phishing that typically use email messages to lure victims into divulging sensitive information or opening a link that allows malware to infiltrate their device. Companies have learned how to combat phishing by training employees to recognize such scam attempts and report them as phishing to protect their organizations. “Vishing” is another tactic used by scammers that, while less familiar, is no less invasive and dangerous.
The Federal Trade Commission recently finalized a long-discussed update to its cybersecurity Safeguards Rule that includes more specific criteria for what financial institutions must implement as part of their information security programs. Among other key changes, many companies are likely to be impacted by an expansion of the rule’s scope to include “finders,” which may allow such businesses (including fintech firms) to avoid the current regulatory burden and confusion of state law requirements.
For businesses with personnel located in affected areas, being able to move them out of harm’s way quickly is a top priority. We work with a trusted network of labor, employment, and immigration counsel around the world who can help navigate complicated international visa requirements to ensure employment mobility even during a crisis. When necessary, we draw on our well-established local counsel relationships throughout Asia, Europe, Latin America, and the Middle East on behalf of our clients. This international counsel network allows us to coordinate and manage cross-border conflicts while providing practical and commercial advice.
The UK government has announced a number of changes to the UK immigration rules applicable to Ukrainian nationals in response to the ongoing humanitarian crisis. Ukrainian nationals remain visa nationals, which means that they require a visa in order to travel to the United Kingdom, regardless of their intended length of stay. This LawFlash summarizes the available UK immigration routes to these individuals.