The Bear Bites Back?
May. 2018
TradeSecure

Russian Countermeasures and Criminal Penalties

For Western companies doing business in Russia, sanctions compliance may get even more complicated. The United States and Russia appear to be back to Cold War era tit-for-tat policies.

On 23 May, the Russian State Duma (lower house of parliament) passed Bill No. 441399-7 in retaliation for the 6 April United States sanctions on Russia. The Draft on Countermeasures titled “On Measures (Countermeasures) in Response to Unfriendly Actions of the USA and (or) other Foreign States” has the potential to disrupt operations by foreign-owned companies in Russia and to tighten Russian export control.

While the draft bill singles out the United States directly, it states the countermeasures may apply against foreign countries who commit “unfriendly” acts against the Russian Federation. U.S. and E.U. companies are now on notice.

Vladimir_Putin_and_Donald_Trump_at_the_2017_G-20_Hamburg_Summit_(9)

The countermeasures included therein are broadly defined, though the bill gives the Russian President and Federal Government the right to determine which sectors, products, materials, individuals, and entities are impacted. Five key measures are outlined below with a sixth dependent on the will of the Russian President:

1. Termination or suspension of international cooperation between Russia/Russian legal entities with hostile foreign organizations, including those directly or indirectly controlled or affiliated with those unfriendly foreign governments
2. Prohibition or restriction on the import into Russia of products/raw materials originating in unfriendly foreign states
3. Prohibition or restriction on the export from Russia of products/raw materials by citizens of unfriendly foreign states
4. Prohibition or restriction on access to public procurement of goods, works, and services
5. Prohibition or restriction on the sale of Federal property to citizens of unfriendly foreign states
6. Other measures in accordance with the decision of the Russian President

Russian lawmakers are bolstering the countermeasures by discouraging Russian nationals’ compliance with foreign sanctions regimes. On 15 May, the Russian State Duma filed Bill No. 464757-7 which threatens up to four years of jail time and fines for individuals or representatives of Russian legal entities that restrict or deny doing business with a Russian citizen due to U.S. or other foreign sanctions. This may limit the ability of Russian national employees of foreign firms to comply with corporate internal compliance programs.

The main question now is: how far will Russia go?

Encouragingly, President Putin on 18 May indicated “any retaliation against U.S. sanctions must not hurt the Russian economy or partners that do business in Russia.” The revised version of the Draft on Countermeasures does partially echo Putin’s sentiment, having reduced the number of countermeasures from 14 to 5, including removing much of the draft bill’s threats to specific industries and sectors. While painful proposed counter sanctions on procurement of foreign technology equipment and software, rare earth metals, medicine, provision of consulting and legal service by foreign firms, and the exhaustion of IP rights among others have been diluted, the current draft is so broad that no one specific industry can be sure they can proceed unscathed. Simply put: the Draft of Countermeasures enshrines a wealth of discretionary power for counter sanctions.

As with all things Russia, the bite of these new countermeasures will be subject to Putin’s discretion. There are signs that Putin is reigning in more comprehensive measures that would isolate Russia economically. However, as evinced by recent U.S.-China trade negotiations, the immediate future of the Russian draft bill may be determined by the unpredictable relationship between Trump and Putin. Until the final text is made available, uncertainty will continue.

TradeSecure will continue to monitor developments as the Draft on Countermeasures moves through the Federation Council.

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