- Targeted sanctions following Russia’s invasion of Ukraine have made it difficult for legal and compliance leaders to keep up.
- Past violations by enterprises of varying sizes provide compliance lessons for this situation.
- Stay aware, improve screening capabilities and increase third-party due diligence to help ensure your organization’s compliance with new sanctions.
Following the Russian invasion of Ukraine, more and more governments have placed strict sanctions on Russia. The sheer number of participating governments and the speed at which they have enacted sanctions has created a complicated and fast-changing situation for legal and compliance leaders to navigate.
Read more: Resources for Executives and Their Teams Amid Russia’s Invasion of Ukraine
“Complying with a torrent of new sanctions imposed by multiple jurisdictions is an unprecedented challenge,” says Dian Zhang, Senior Specialist, Research at Gartner, who interviewed sanctions lawyers based in the U.S. and EU about the topic. “Legal and compliance leaders need to quickly analyze the current situation while also avoiding pitfalls of the past.”
3 ways to keep up with the new sanctions
Tip No. 1: Stay aware
It’s vital to keep abreast of how sanctions are changing on a day-to-day basis across jurisdictions. Most major jurisdictions, such as the U.S. Department of the Treasury, the U.K. HM Treasury and the EU European Commision, allow you to sign up for email alerts. Subscribe to ensure you’re aware of the latest developments.
It’s important to fully understand the differences between jurisdictions. For example, U.S. sanctions apply to any transaction involving a U.S. citizen, the U.S. financial system or other U.S. touchpoints (such as data servers located in the country). In contrast, EU restrictions apply if business is done even in part within the union, regardless of whether EU nationals or entities are involved.
We recommend performing a rapid risk assessment to understand which corporate activities may continue and which are subject to sanctions. Ask the following questions to ascertain this:
- What kind of business are we conducting in Russia?
- Who are our business partners, customers and vendors?
- Do we have an office in Russia? Do we have staff there?
- Are we supplying goods, services or equipment to Russia?
- What do our commercial documents include, and what kind of protections do we have to terminate or pause agreements?
Tip No. 2: Improve screening capabilities
People and entities who are not on designated lists may still be subject to blocking as a result of their relationship with sanctioned parties. For example, U.S. entities half or more owned — whether directly or indirectly — by one or more sanctioned people are considered automatically blocked. In the U.K. and EU, any entities that are owned or controlled by a designated person also face restrictions.
Read more: The Top Business Questions About the Russian Invasion of Ukraine
“It’s key to educate business teams that work closely with external partners or customers, so they can raise any issue they encounter to legal and compliance,” says Zhang.
If you use an automated screening tool, now is the time to review the results and conduct an audit to ensure accuracy. Yet in an opaque system like Russia, clarity on corporate ownership and control is not easily obtained. It’s unlikely that the tool will identify a full corporate structure and beneficial ownership. As such, it’s necessary to conduct separate independent diligence into corporate structures.
Tip No. 3: Increase third-party due diligence
As the global sanction list grows, companies may find some of their contracts untenable.
Prepare now by taking stock of existing contracts and identifying any avenues that allow for extricating your organization in the event of additional sanctions. Going forward, include such clauses in new contracts.
Proactively help your third parties remain compliant. Explicitly tell them — and distributors — whether your products are subject to export controls.
Clients can access Gartner's full suite of resources for navigating the Russian invasion of Ukraine here.