Continued Analysis of the Global Impact of Sanctions Against Russia on Your Business

K2 Integrity is committed to tracking, assessing, and reporting the rapidly evolving multilateral sanctions against Russia for its ongoing invasion of Ukraine. Our latest Policy Update summarizes global sanctions developments since K2 Integrity’s last update and outlines implications for the private sector.

Since 25 February, numerous authorities have undertaken sanctions-related actions against Russia as follows:

EU actions include:

• Sanctioning 26 persons and one entity, including Russian oligarchs and individuals active in the oil, banking, and finance sectors as well as government and military officials. These designations largely align with U.S. sanctions and target those who support the Russian Federation’s revenue generation and direct contribution to the invasion of Ukraine.¹
• Imposing restrictive measures on listing and provision of services in relation to shares of Russian state-owned entities on EU trading venues. These include: prohibiting deposits exceeding EUR 100,000 from Russian nationals or residents, the holding of accounts of Russian clients by the EU Central Securities Depositories, and the selling of euro-denominated securities to Russian clients; prohibiting the sale, supply, transfer, or export to Russia of specific goods and technologies in oil refining; and introducing an export ban covering goods and technology in the aviation and space industry and related insurance, reinsurance, and maintenance services.²
• Designating Vladimir Putin and Sergei Lavrov as directly responsible for Russia’s unprovoked and unlawful further invasion of Ukraine.³

UK actions include:

• Freezing the assets of all major Russian banks and excluding them from the UK financial system.
• Limiting deposits Russian customers can make in UK bank accounts to GBP 50,000.
• Introducing laws, effective 1 March 2022, to stop major Russian companies and the Russian state from raising revenue or borrowing money on UK markets; stopping designated banks from accessing sterling and clearing payments through the UK; and banning exports of high-tech items in sectors including electronics, telecommunications, aerospace. Future laws will reportedly add oil refineries to UK sanctions as well.⁴
• Suspending export licenses for dual-use items.
• Designating Vladimir Putin and Sergei Lavrov as directly responsible for Russia’s unprovoked and unlawful further invasion of Ukraine.⁵

Swiss actions include:

• Freezing the assets of sanctioned individuals and entities, including those targeting Russian Federation President, Vladimir Putin, and Minister of Foreign Affairs Sergei Lavrov.⁶
• Pledging to adopt EU sanctions imposed on 23 and 25 February with immediate effect.

U.S. actions include:

• Issuing Directive 4 under Executive Order (EO) 14024 that prohibits transactions with the Central Bank of Russia, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation.⁷
• Adding the Russian Direct Investment Fund (RDIF), its management company, one of the managing company’s subsidiaries, and its CEO to OFAC’s Specially Designated Nationals and Blocked Persons List.
• Designating Vladimir Putin and Sergei Lavrov as directly responsible for Russia’s unprovoked and unlawful further invasion of Ukraine.⁸
• Adding regulations to implement EO 14024. As additional restrictive measures complicate compliance measures, these regulations will provide interpretive guidance, definitions, general licenses, and other regulatory provisions as necessary.⁹

Impact on global markets:

• According to U.S. Treasury officials, Russia has an estimated USD 630 billion in reserves, and the U.S. and EU restrictions on the Russian central bank’s assets will immobilize nearly half of Russia’s reserves. Directive 4 will disrupt Russia’s attempts to prop up its currency by restricting global supplies of the ruble and access to reserves that Russia may try to exchange to support the ruble.
• These multilateral actions have exacerbated a rapid sell-off in assets and the steepest depreciation in the ruble since 1998. It is anticipated the ruble will continue to fall against the U.S. ollar, as the currency loses a third of its value in offshore markets, hitting an all-time low per dollar in Moscow.
• Notably, the U.S. actions to this point explicitly carve out exceptions for energy-related transactions to minimize market volatility.

Private sector implications:

• The U.S. prohibitions related to the Central Bank of Russia, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation include restrictions on transfer of assets to such entities or any foreign exchange transaction for or on behalf of these entities. The sanctions are effective immediately, and there is no general license authorizing a wind-down period. These sanctions prohibitions do not include an asset freeze obligation. The U.S. Department of the Treasury also amended General License 8A to include the Central Bank of the Russian Federation to authorize any transaction that is “related to energy.”
• Industries should be prepared for a potential full-scale trade embargo and should analyze their exposure to Russia and Belarus. While the short-term impact of sanctions and restrictions are hurting the Russian economy, the broader message from the EU and United States indicates that these restrictions will not stop until Russia ceases fire and retreats from Ukraine.
• In light of its rapidly diminishing access to the global market, we anticipate that Russia will pursue efforts to evade various sanctions prohibitions. In addition to traditional nontransparent practices, evolving sanctions evasion techniques may emerge, which may require adjustments to client and transaction monitoring programs to detect these evasions tactics.

Stay tuned to K2 Integrity and the DOLFIN platform for additional thought leadership on Russian sanctions topics.