Conducting Business within Sanctions Against the Russian Federation
In light of Russia's ongoing military aggression against Ukraine, the international community took immediate measures in the form of economic and social sanctions. They affected both large players on the Russian market as well as foreign companies that decided to leave the business market of Russia. The measures also included asset freezes and visa restrictions for people on sanction lists (in this case, the EU list), as well as a ban on companies from sanctioning countries to do business with listed individuals and organizations.
However, a big question remains whether it is possible to have any economic and commercial relations at all if your counterparty is located in the territory of the Russian Federation or has its assets there.
In this article we describe how sanctions can affect small and medium-sized businesses and what the sequence of actions should be in case you are one of the parties of the Russian-Swiss business relation.
Overall legal framework
The Swiss Federal Council decided to fully adopt the first, fifth and sixth package of EU sanctions imposed on Russia. The measures include individual and economic sanctions as well as restrictions on media and diplomatic measures.
In the area of financial restrictions, these sanctions include a ban on providing audit and business consulting services and a clarification of the ban on providing services to trusts.
Trade sanctions concern a ban on imports of coal and other goods that are an essential source of income for Russia, and a ban on exports of kerosene and other goods that might contribute to Russia's industrial capacity (including industrial robots and some chemicals).
In the area of financial restrictions, sanctions include a ban on the participation of Russian companies in public procurement, a ban on financial support for Russian state institutions and other new financial measures, especially those targeting trusts. It has been also approved the exclusion of four Russian and Belarusian banks (i.a. Sberbank), from the SWIFT financial messaging service and the expansion of the list of banned exports of goods that may contribute to Russia's military and technical strength or its defence and security sector, namely certain chemicals, as well as the list of economically important goods banned for import.
In addition, Switzerland decided to implement a sanction list of Russian individuals and entities.
Recommendations for Actions
What should I do if my counterparty is a representative of Russia or is located on the territory of the Russian Federation?
1. Commercial or trade relations
First, and most importantly, there are no direct restrictions on any commercial or trade relations with representatives of the Russian Federation. Second, among the sanctions that are now in place, a direct and non-alternative ban on economic interaction applies only if your counterparty is on the sanction list of individuals and legal entities (to find out if certain people are covered by the sanctions, follow this link.
2. Payments and bank transactions
There is also no general prohibition for Swiss citizens to make payments toward Russian nationals holding a bank account in a Russian bank. It is however important to make sure that payment does not breach other prohibitions, for instance, that it is not in favour of a natural person or entity designated under the sanction list or does not serve the military support.
There is also no general prohibition on receiving payment made by Russian legal entities.
You are subject to restrictions for receiving payments from your client or counterparty if the provided goods or services are:
(a) prohibited trade under the sanctioned person; or
(b) connected with technical or financial assistance and services to the Russian military or arms.
3. Financial and other support
Regarding the support of the Russian Federation, it is essential here to specify the list of prohibitions.
Further, it is not allowed to provide any funds or economic resources, directly or indirectly, to individuals or entities on the sanction list, whether by gift, sale, barter, or any other means. Said includes the return of the designated person's funds (for example, businesses are not allowed to sell or supply products or services to these individuals, even if in exchange for adequate payment).
Please note that there are several exceptions of this prohibition, including for prior contracts where payment to a listed person you are obliged to under an agreement entered or an obligation incurred prior to the listing of that person.
It is also prohibited to
sell,
supply,
transfer or
export any goods or technology to any person or entity operating in the energy sector.
You can find the more detailed list of the prohibitions within the sanctioning Russian Federation divided into the areas below.
Thus, if you are conducting your business related to the listed below goods or sectors with a Russian person or entity as a party, it won't be allowed to continue such a commercial relation.
List of Prohibitions
Goods measures
Prohibitions on dual-use goods, special military goods, and goods for military and technological strengthening or the development of the defence and security sector;
Ban on imports of firearms, ammunition, explosives, pyrotechnic articles, and gunpowder from Russia and Ukraine;
Ban on imports of iron and steel products;
Bans on aerospace goods;
Bans on goods for the energy sector.
Bans on luxury goods
Export bans on kerosene and other goods such as industrial robots and chemical products;
Bans on imports of coal and other goods such as cement, wood, fertilizer and caviar.
Financial measures
Asset freezes and standby bans;
Reporting requirements for blocked assets;
Prohibitions on issuing and trading transferable securities and money market instruments;
Prohibitions on granting loans;
Prohibitions on accepting deposits above 100,000 francs from Russian citizens or individuals and legal entities in Russia;
Obligations to report existing above 100,000 francs;
Prohibitions in connection with transactions with the Central Bank of Russia;
Prohibitions on the provision of specialized messaging services for payment transactions and rating services;
Prohibitions concerning transactions with certain state-owned enterprises;
Prohibitions concerning trusts;
Prohibitions on providing financial support to Russian public entities.
Measures concerning specified territories
Prohibitions on import of goods originating in the specified territories without a certificate of origin issued by the Ukrainian authorities;
Ban on export of certain goods and related services to the specified territories;
Prohibitions on financing, shareholdings and certain services.
Travel sanctions
Ban on take-off and landing of Russian aircraft.
You can also find the full list of goods for military and technological reinforcement or development of the defence and security sector and security sector here.
Conclusion
In concluding the legal analysis of the sanctions, we would like to point out that at the time of the publication of this article, there is no strict prohibition on conducting business if your client or counterparty is Russian or is seated in the territory of the Russian Federation. Meanwhile, it is essential to consider that the other party to your economic relationship or commercial activity does not belong to the sanctions list of individuals and entities and does not concern any of the areas listed in this article, and is prohibited for the transaction.
Please note that sanctions are subject to rapid change and adaptation to the situation in question. The current regulations of the respective competent authorities apply.
This article was written by our legal intern Alisa Demchenko.
If you have any further questions, please do not hesistate to contact Balthasar Wicki or Hans Kuhn.