Sanctions Tracker – Russian Counter Sanctions

Russia first issued counter sanctions in 2014, which were initially limited to a ban on importation to Russia of certain agricultural goods originating from the countries which introduced the sanctions.  Subsequently they were accompanied by sanctions targeting certain Ukrainian persons.

In the last few days, the EU, US and UK (and a number of other countries) have imposed unprecedented new sanctions on Russian persons in response to the conflict in Ukraine, and continue doing so. In response, Russia has started implementing new – also unprecedented – counter-sanctions. In this post we provide a summary of these counter-sanctions.

On 28 February 2022, Vladimir Putin issued decree No. 79 (“Decree 79“), with effect from 1 March providing inter alia that:

• persons subject to Russian currency control measures (which includes Russian legal entities and citizens, but not local branches of non-Russian entities) (“currency control residents“) are obliged to sell 80% of the foreign currency they receive as a result of supplying goods, works, services or IP abroad;
• Currency control residents are prohibited from (a) lending to non-residents in foreign currency; (b) placing foreign currency on the foreign accounts of such residents; and (c) making payments via foreign processing systems without opening the accounts.

Notably, Decree 79 does not restrict Russian residents from paying in foreign currency for any goods, works, services or IP they acquire abroad, but such payments may only be remitted from their Russian bank accounts. From the perspective of foreign suppliers, such supplies can of course only be made if in compliance with applicable restrictions relating the supplies of goods and services to Russia, which have been significantly expanded (as set out in our other briefings)..

More severe prohibitions followed shortly – on 1 March 2022 Vladimir Putin issued decree No. 81 (“Decree 81“) restricting divestment of foreign investors from Russian assets.  Specifically, with effect from 2 March 2022, certain transactions (the “Transactions“, see below for details) involving Russian residents and legal entities established in the states sanctioning Russia, or doing significant business or deriving significant profit therefrom, as well as entities, wherever established, controlled by the sanctioning states (the “Foreign Investors“) can only be performed if approved by a special Government Commission (the “Commission“).

The Transactions include, subject to limited exemptions:

• Lending rubles to Foreign Investors;
• Transfer of title to real estate;
• Transfer of title to securities.

The Commission has the power to approve foreign currency lending to non-residents and placing foreign currency on foreign accounts of Russian residents (which transactions are otherwise prohibited by Decree 79).

It appears that Decree 81 seeks to prohibit divestment of Foreign Investors from the Russian assets; but, as currently drafted, it does not technically capture transactions between non-residents.  However, it appears likely that Decree 81 was intended to capture such offshore divestment as well, and as such it will be necessary to see how enforcement practice develops.

These restrictions may complicate the efforts of international investors to divest their interests in Russian businesses and real estate. More generally, the potential escalation of counter-sanctions measures will be of concern to international businesses seeking to comply with the international sanctions imposed on Russia and who have local operations in Russia, who will need to be cognisant of the potential impact of these measures.