Pavel Antonov, Head of Legal Operations at Accountor Russia, shed light on the legal side of the sanctions issue, covering the following topics: practical meaning of sanctions for foreign companies, restrictions for business deals (legal consequences for businesses & individuals), measures to be taken for legal compliance and avoiding risks, and business in the Crimea – what is allowed and what is not?

1. SANCTIONS & BUSINESS IN RUSSIA:
TODAY AND TOMORROW
BUSINESSBREAKFAST
PAVELANTONOV,ACCOUNTOR
29.10.2015

2. TOPICSTODISCUSS
1. Practical meaning of sanctions for
foreign companies
2. Restrictions for business deals
(legal consequences for businesses
& individuals)
3. Measures to be taken for legal
compliance and avoiding risks
4. Business in the Crimea – what is
allowed and what is not?
29.10.20152

3. PRACTICAL MEANING OF SANCTIONS FOR
FOREIGN COMPANIES – EU RESTRICTIVE
MEASURES
WHO SHOULD COMPLY WITH SANCTION RULES IN
THE TERRITORY OF THE RF?
Legal entities:
If the entity is registered pursuant to the laws of an EU
member or its operations are carried out in the territory of EU
(for example, the branch office of a Chinese company located
in Germany) as well as its foreign branch offices and
representative offices.
Subsidiaries of foreign companies registered pursuant to the
laws of Russia are not covered by restrictive regulations.
29.10.20153

4. PRACTICAL MEANING OF SANCTIONS FOR
FOREIGN COMPANIES – EU RESTRICTIVE
MEASURES
WHO SHOULD COMPLY WITH SANCTION RULES IN
THE TERRITORY OF THE RF?
Natural persons:
Citizens of EU countries (including those who hold passports
of 2 countries, one of which is an EU Member State) and
foreigners who permanently live in EU.
Including: owners and managers of
+ subsidiaries of foreign companies registered pursuant
to the laws of Russia;
+ Branch offices of non-EU companies located in EU.
29.10.20154

5. PRACTICAL MEANING OF SANCTIONS FOR
FOREIGN COMPANIES – EU RESTRICTIVE
MEASURESWHERE DO EU SANCTIONS APPLY?
Sanctions are designed to have effects on third countries.
Nevertheless, EU restrictive measures only apply within the
jurisdiction of the EU, that is:
+ Within EU territory, including its airspace;
+ For EU nationals, whether or not they are in the EU;
+ To companies and organisations incorporated under the law of a
Member State, whether or not they are in the EU. This also includes
branches of EU companies in third countries;
+ To any business done throughout or in part of the European Union;
+ On board aircrafts or vessels under the jurisdiction of a member
state.
29.10.20155

6. PRACTICAL MEANING OF SANCTIONS FOR
FOREIGN COMPANIES – EU RESTRICTIVE
MEASURES
29.10.20156
 COUNCIL REGULATION (EU) No 269/2014 of
17 March 2014
 All funds and economic resources belonging to,
owned, held or controlled by any natural persons
or legal entities or bodies associated with them
as listed in Annex I shall be frozen.
 No funds or economic resources shall be made
available, directly or indirectly, to or for the
benefit of natural persons or legal entities or
bodies associated with them listed in Annex I.

7. PRACTICAL MEANING OF SANCTIONS FOR
FOREIGN COMPANIES – EU RESTRICTIVE
MEASURESDefinitions are wide and general:
 'funds' means financial assets and benefits of
every kind
 'economic resources' means assets of every
kind, whether tangible or intangible, movable or
immovable, which are not funds, but may be used
to obtain funds, goods or services
 'freezing of economic resources' means
preventing the use of economic resources to
obtain funds, goods or services in any way,
including, but not limited to, by selling, hiring or
mortgaging them
29.10.20157

8. PRACTICAL MEANING OF SANCTIONS FOR
FOREIGN COMPANIES – EU RESTRICTIVE
MEASURESAsset freeze
 An asset freeze concerns funds and economic resources owned or
controlled by targeted individuals or entities.
It means that funds, such as cash, cheques, bank deposits, stocks,
shares, etc., may not be accessed, moved or sold. All other tangible or
intangible assets, including real estate, cannot be sold or rented, either.
 An asset freeze also includes a ban on providing resources to the
targeted entities and persons.
This means that EU citizens and companies must not make payments or
supply goods and other assets to them. In effect, business transactions
with designated companies and persons cannot legally be carried out.
 In certain cases, national competent authorities can permit
derogations from the asset freeze under specific exemptions, for
instance to cover basic needs (such as foodstuffs, rent, medicines or
taxes) or reasonable legal fees.
29.10.20158

9. PRACTICAL MEANING OF SANCTIONS FOR
FOREIGN COMPANIES – EU RESTRICTIVE
MEASURES
Natural persons and legal
entities from the List are
excluded from financial
and economic turnover
29.10.20159

10. RESTRICTIONS FOR BUSINESS DEALS
EU nationals and companies may no longer buy or sell new bonds,
equity, or similar financial instruments with a maturity exceeding 30
days, issued by:
+ five major state-owned Russian banks, their subsidiaries outside
the EU, and those acting on their behalf or under their control;
+ three major Russia energy companies;
+ three major Russian defence companies.
Services related to the issuing of such financial instruments, e.g.
brokering, are also prohibited.
EU nationals and companies may not provide loans to five major
Russian state-owned banks.
29.10.201510

11. RESTRICTIONS FOR BUSINESS DEALS
+ Embargo on the import and
export of arms and related
material from/to Russia, covering
all items on the EU military list;
+ Prohibition on exports of dual
use goods and technology for
military use in Russia or to
Russian military end-users,
including all items on the EU list of
dual use goods. Export of dual
use goods to nine mixed defence
companies is also banned.
29.10.201511

12. RESTRICTIONS FOR BUSINESS DEALS
+ Exports of certain energy-related equipment and technology to
Russia are subject to prior authorisation by competent authorities
of Member States. Export licenses will be denied if products are
destined for deep water oil exploration and production, arctic oil
exploration or production, and shale oil projects in Russia.
+ Services necessary for deep water oil exploration and
production, arctic oil exploration or production, and shale oil
projects in Russia may not be supplied, for instance drilling, well
testing or logging services.
29.10.201512

13. PRACTICAL MEANING OF SANCTIONS FOR
FOREIGN COMPANIES – EU RESTRICTIVE
MEASURES COUNCIL REGULATION (EU) No 833/2014 of 31
July 2014
It is prohibited to directly or indirectly purchase, sell, or provide
brokering or assistance in the issuance of, or otherwise deal with,
transferable securities and money-market instruments with a
maturity exceeding 90 days, issued by:
A major credit institution which has an explicit mandate to
promote the Russian economy’s competitiveness and is
established in Russia with over 50% public ownership or control
as of 1 August 2014, as listed below:
29.10.201513

14. PRACTICAL MEANING OF SANCTIONS FOR
FOREIGN COMPANIES – EU RESTRICTIVE
MEASURES
 COUNCIL REGULATION (EU) No 833/2014 of 31
July 2014
List of institutions referred to in the above
document:
1. SBERBANK
2. VTB BANK
3. GAZPROMBANK
4. VNESHECONOMBANK (VEB)
5. ROSSELKHOZBANK
29.10.201514

15. PRACTICAL MEANING OF SANCTIONS FOR
FOREIGN COMPANIES – US RESTRICTIONS
Executive Order 13662
 Exports, re-exports, or in-country
transfers to certain Russian energy
companies designated on the Entity
List (i.e., Gazprom, Gazprom Neft,
Lukoil, Rosneft, Surgutneftegas) are
subject to licensing requirements
 Otherwise above activities by a U.S.
person or within the United States are
prohibited
 Licenses are issued by the U.S.
Commerce Department’s Bureau of
Industry and Security
29.10.201515

16. PRACTICAL MEANING OF SANCTIONS FOR
FOREIGN COMPANIES – US RESTRICTIONS
Executive Order 13662
IT IS PROHIBITED
 in support of exploration or production for deepwater, Arctic
offshore, or shale projects that have the potential to produce oil in
the Russian Federation, or in the maritime area claimed by the
Russian Federation and extending from its territory
 only where the exporter (i) knows that the items will be used for
targeted end-uses (i.e., deepwater, Arctic offshore, or shale
projects) or (ii) is unable to determine whether the items will be
used for such end-uses
29.10.201516

17. RESTRICTIONS FOR BUSINESS DEALS
Financial assistance
Q. Does the provision of payment services and issuance of
letters of guarantee/credit constitute financial assistance and are
they therefore prohibited as goods and technology subject to a
ban?
A. Payment services and issuance of letters of guarantees/credit
constitute financial assistance and are prohibited when linked to
the underlying commercial transaction subject to a ban.
29.10.201517

18. RESTRICTIONS FOR BUSINESS DEALS
Financial services measures
Trade Finance
Q. Can EU persons process payments, provide insurance, issue
letters of credit, extend loans, to sanctioned entities for non-
prohibited exports or imports of goods, or non-financial services
to or from the Union?
A. Yes, all of these operations are allowed as long as they are
subject to the exemption under Article 5(3).
29.10.201518

19. RESTRICTIONS FOR BUSINESS DEALS
Financial services measures
Trade Finance
Q. Can an EU citizen provide funds to a non-sanctioned entity,
including loans or credit, which are channeled through a
sanctioned entity, provided that the funds do not stay with the
sanctioned entity for more than 30 days?
A. Yes, that would not constitute providing a new loan or credit
with a maturity exceeding 30 days to a sanctioned entity and
would therefore not fall within the prohibition.
29.10.201519

20. LEGAL CONSEQUENCES FOR BUSINESSES &
INDIVIDUALS
Examples of fines for breach
For breach of embargo Germany and others can use the
following measures:
(1) fines imposed on companies in the event of criminal
prosecution – up to 10 mil EUR depending on the
economic benefits obtained;
(2) forfeit of goods related to breach;
(3) cancellation of export privileges.
29.10.201520

21. MEASURES TO BE TAKEN
FOR AVOIDING RISKS
29.10.201521
Measures to be
taken for avoiding
risks

22. MEASURES TO BE TAKEN FOR LEGAL
COMPLIANCEANDAVOIDING RISKS
29.10.201522
• Check all existing and potential business contacts
• Analyze the consequences of continuing or establishing
businesses
• Companies who have representative or branch offices in
Russia may want to think of changing their structure –
establishing subsidiaries pursuant to Russian laws

23. MEASURES TO BE TAKEN FOR LEGAL
COMPLIANCE ANDAVOIDING RISKS
CLEAR UNDERSTANDING OF EXTENT OF THE
FOREIGN COMPANY’S BUSINESS IN RUSSIA:
 To review contractual clauses you have to insulate yourself
against from the effects of sanctions measures
 To determine whether your company currently has citizens of
EU/US/other jurisdictions in management positions in Russia.
Option of multiple directors
29.10.201523

24. MEASURES TO BE TAKEN FOR LEGAL
COMPLIANCEANDAVOIDING RISKS
 Existing subsidiaries that have EU
citizens in their management may
change structure – the “sole executive
body” of an RF company can be
restructured. Since Sep.1, 2014, it is
possible to have multiple directors
 If a citizen of the US/EU/other
relevant jurisdiction is the direct owner
of a company in Russia, then it is
possible to restructure ownership so
that the owner is from a third-country
29.10.201524

25. MEASURES TO BE TAKEN FOR LEGAL
COMPLIANCEANDAVOIDING RISKS
SANCTION EXAMPLE: US/Executive Order 13685 prohibits
all direct and indirect transactions by US persons/entities to or
from Crimea
29.10.201525
Circumvention practices:
 Omission of references to Crimea in
transaction documentation
 Omission of references to Crimean
cities/towns in SWIFT messages (street
references only)
 Distribution agreement with a third-
country to sell US products in Russia (sales
in Crimea)

26. MEASURES TO BE TAKEN FOR LEGAL
COMPLIANCEANDAVOIDING RISKS
29.10.201526
Requesting additional information from parties (including
financial institutions, corporate entities, and individuals) that have
previously violated or attempted to violate U.S. sanctions targeting
Crimea before processing relevant transactions.
Ensuring that the company’s transaction monitoring systems
include appropriate search terms corresponding to major
geographic locations in Crimea and not simply references to
Crimea.

27. MEASURES TO BE TAKEN FOR LEGAL
COMPLIANCEANDAVOIDING RISKS
Clearly communicating U.S. sanctions obligations to, and
discussing sanctions compliance expectations with, correspondent
banking and trade partners.
Such communications should include, for example, a description
of the U.S. prohibition on the direct and indirect exportation or re-
exportation of goods, technology, and services (including financial
services) from the United States to Crimea.
29.10.201527

28. i. The EU has adopted a prohibition on imports originating
from Crimea and Sevastopol unless accompanied by a
certificate of origin from the Ukrainian authorities.
ii. Investment in Crimea or Sevastopol is outlawed.
Europeans and EU-based companies may no longer buy
real estate or entities in Crimea, finance Crimean
companies or supply related services.
iii. EU operators will no longer be permitted to offer tourism
services in Crimea or Sevastopol. In particular, European
cruise ships may no longer call at ports on the Crimean
peninsula, except in case of an emergency. This applies
to all ships owned or controlled by, or flying the flag of, a
European Union member state.
29.10.201528
RESTRICTIONSFORCRIMEAANDSEVASTOPOL

29. RESTRICTIONSFORCRIMEAANDSEVASTOPOL
1. The EU has adopted a prohibition
on imports originating from Crimea
and Sevastopol unless
accompanied by a certificate of
origin from the Ukrainian
authorities.
2. Investment in Crimea or
Sevastopol is outlawed. Europeans
and EU-based companies may no
longer buy real estate or entities in
Crimea, finance Crimean
companies or supply related
29.10.201529

30. 3. EU operators will no longer be
permitted to offer tourism services
in Crimea or Sevastopol. In
particular, European cruise ships
may no longer call at ports on the
Crimean peninsula, except in
case of an emergency. This
applies to all ships owned or
controlled by, or flying the flag of,
a European Union member state.
29.10.201530
RESTRICTIONSFORCRIMEAANDSEVASTOPOL

31. 4. It is prohibited to export certain
goods and technology to Crimean
companies or for use in Crimea.
This concerns:
5. Transport, telecommunications and
energy sectors or companies
involved in the prospection,
exploration, and production of oil,
gas and mineral resources
6. Technical assistance, brokering,
construction or engineering services
related to infrastructure in the same
sectors must not be provided
29.10.201531
RESTRICTIONSFORCRIMEAANDSEVASTOPOL

32. What de facto application of Russian legislation in
Crimea/Sevastopol means for foreign businesses?
 Traditional trade flows are affected
 Legal uncertainty - the validity of contracts, legal remedies,
business registries and databases (e.g. rights to real estate
property)
 Many companies are switching legal jurisdictions and their
Crimean affiliates have started operating as part of the
Russian market with employees re-hired
29.10.201532
BUSINESSINTHECRIMEA

33. What de facto application of Russian legislation in
Crimea/Sevastopol means for foreign businesses?
29.10.201533
BUSINESSINTHECRIMEA
• Unclear taxation system – which taxes under which law
• Unclear situation with VAT refunds
• Uncertainty with renewal of licenses
• Non-implementation and non-recognition of court
decisions

34. POSITIVEIMPACTOFSANCTIONS
29.10.201534
+ The greatest sanction is fear – one should
overcome it and win;
+ It is a good time to do business in Russia
due to the cheaper Rouble and locals being
more interested in attracting investors.

35. 29/10/1535
PASSION FOR RESULTS