Note to Directors and Officers of Foreign Firms Doing Business in Russia and Crimea Today

Annexation of Crimea by the Russian Federation

Any organization doing business globally with interests in Ukraine and Russia is aware that the U.S. and European Union have imposed sanctions on certain individuals and institutions in the region, including asset freezes and travel bans.

This is of very real, immediate concern to all global organizations doing business in the region, but especially to U.S.-based companies, which serve as the largest source of foreign investment in Russia, primarily in technology and financial services.

For foreign firms doing business in Russia, sanctions raise two potential risks: they could serve to harm U.S./foreign interests, and may result in Russia pushing back against global companies.

Events May Move Swiftly; Executives and Their Firms Will Need to Respond ASAP

The US and UK sanctions are not subject to the traditional advance notice and comment period and may be put into effect without prior notice but with the need to act in real time. Directors, officers and their firms need to stay on top of the regulations or chance exposure to violations.

Fortunately, from the U.S. perspective, one can register directly with the Treasury Department for Ukraine-related Sanctions e-mail updates. Similarly in the UK, the Treasury’s Asset Freezing Unit offers e-mail notifications when a financial sanctions-related release is published and the consolidated list of targets of UK/EU financial sanctions is updated. Both may be useful in keeping abreast of events.

Many Questions Asked, Few Answers Available

Many may find themselves in unchartered territory. The good news is that the Office of Financial Asset Control within the U.S. Treasury Department has compiled hundreds of frequently asked questions about the possible implications of U.S. sanctions. These questions along with official advice is available on its website FAQ page. The bad news is that none of these FAQs relate specifically to the current Russian sanctions.

Regrettably, the same is true of the formal interpretive guidance issued by OFAC on issues related to the sanctions programs it administers.

But should the sanction situation continue or escalate, it is possible that some of this guidance may be useful in suggesting a path forward from the U.S. perspective on issues including but not limited to:

  • The protection and transfer of intellectual property rights
  • Professional membership association guidance
  • Guidance on internet connectivity
  • Computerized reservation systems.

Meanwhile, It is NOT Business as Usual in Crimean Legal Matters and Standards

Russia-Ukraine Crisis Could Trigger Cyber War

If tensions continue to escalate cyber-attacks may be expected targeting foreign government and business cites and operations both inside the Ukraine and Russia, as well as abroad. NATO websites have already experienced fairly low level attacks from a group calling itself the “Cyber Berkut” designed to knock the pages offline. More sophisticated attacks may follow.

Crimea – The Russian Cyber Strategy to Hit Ukraine

Earlier, Ukraine’s mobile phone infrastructure was under attack; internet connections in the Crimean peninsula were also said to have been severely hindered.

For those with existing open legal matters in Crimea and those concerned with possible future liability for ongoing contracts or for attempting to terminate or exit a contract, while Ukrainian authorities hold that Crimea is remains under Ukrainian law, state authorities have effectively been prevented from operating on the Crimean peninsula.

Meanwhile, Article 23 of the Russian federal constitutional law addressing the inclusion of Crimea into the Russian Federation, states that Russian laws and regulations are effective in Crimean territory.

Potentially good news is the fact that Russian federal law also holds that the laws of the republic of Crimea (essentially Ukrainian laws) that do not contradict the Russian Constitution will apply until the end of a transitional period (on January 1, 2015) or until the adoption of a subsequent law.

Until all is known, stay alert and consult knowledgeable legal counsel.

 


Photo: Russian president and representatives of breakaway Republic of Crimea and Sevastopol sign a treaty whereby Crimea and Sevastopol are formally declared federal subjects of Russia. Credit: Kremlin.ru

About Ann Longmore

Ann is Executive Vice President of Willis' Executive Risks practice. Based in New York, she has been with the compa…
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