Update - Russian Anti-Sanctions Measures

The Russian parliament fast-tracks two bills that give the Russian President a broad authorization to retaliate for foreign sanctions and criminalize compliance with U.S. and other foreign sanctions against Russian parties. While the practical impact of the additional authorization for the President is unclear, criminalization of compliance with the foreign sanctions may have serious negative repercussions for U.S. and European businesses operating in Russia or having other Russian exposure.

Retaliatory Measures

The draft Federal Law "On Retaliation Measures (Countermeasures) for Unfriendly Actions by the United States of America and/or Other Foreign States" (the "Draft Law") contemplating Russia's response to the latest U.S. economic sanctions imposed by the U.S. Department of the Treasury's Office of Foreign Assets Control in April 2018 was adopted in the second reading by the Russian State Duma (the lower chamber of the Russian parliament) on May 17, 2018.

As anticipated in our previous alert, the Draft Law was substantially revised. The initial Draft Law authorized the Russian Government to undertake rather specific retaliatory measures, many of which attracted active criticism of the Russian public and/or certain lobbying groups. These unpopular measures included prohibition or restrictions on import of pharmaceutical products, a travel and/or employment ban on U.S. citizens and citizens of other "unamicable foreign states," termination or suspension of international cooperation in the nuclear, aviation and rocket-propulsion industries, etc.

The amended Draft Law now contains broad authorizations for the Russian President to undertake such measures as he may consider necessary in response to "unamicable actions" of foreign powers. In particular, the Draft Law sets out five broad, generic measures that may be applied to the "unamicable foreign states" and entities under jurisdiction of such states (also capturing entities that are more than 25 percent directly or indirectly owned by such foreign entities):

1. termination or suspension of international cooperation between Russia and Russian legal entities and "unamicable foreign states" and their entities, in the sectors to be determined by the Russian President;
2. prohibition or restriction on the import of products and/or raw materials into Russia originating from the "unamicable foreign states" or manufactured by their entities (the list of such products / raw materials to be determined by the Russian Government), except for "vitally necessary goods" that are not produced in Russia;
3. prohibition or restriction on the export from Russia of products and/or raw materials by citizens and/or entities of the "unamicable foreign states" (the list of such products and/or raw materials to be determined by the Russian Government);
4. prohibition or restriction on access, directly or indirectly, to public procurement for providers of works/services that are under jurisdiction of the "unamicable foreign states" (the list of particular works/services to be determined by the Russian Government);
5. prohibition or restriction for entities under jurisdiction of the "unamicable foreign states" to participate in privatization of state or municipal property, provide works/services for the organization of sale of federal property in the name of the Russian Federation, and/or fulfilling functions as a seller of federal property.

The Draft Law also authorizes the Russian President to take "any other [retaliatory] measures as may be determined by the Russian President."

Given the wide support of the Draft Law in the Russian parliament, it will likely easily pass the remaining third reading in the State Duma and will be approved by the Federation Council (the upper house of the Russian parliament). It will become law after signing by the President.

Considering the wide criticism of many specific retaliatory measures proposed by the initial Draft Law and the generic authorizations provided by the amended draft, it remains unclear what measures (if any) the President chooses to implement. He also arguably did not need an additional authorization for taking such measures.

Criminal Liability for Compliance with or Facilitation of Sanctions

On May 14, 2018, a draft law "On Amendments to the Russian Federation Criminal Code" (the "Amendment") was also introduced in the State Duma. The Amendment seeks to impose criminal liability for compliance with U.S. and other foreign sanctions against Russian parties. The Amendment passed the first reading on May 15, 2018 and was initially scheduled for the second reading on May 17, 2018. However, due to the wide criticism of the bill by the Russian and foreign business community, its second reading has been postponed to allow for more consultations and input from various parties and groups that may be affected by the Amendment.

The Amendment introduces a new Article 284² to the Russian Criminal Code imposing criminal liability for two types of crimes:

1. Compliance with Sanctions: Any action or inaction aimed at compliance with foreign restrictive measures resulting in restrictions on, or refusal to engage in, the customary business activities or transactions with Russian nationals, entities, governmental or municipal bodies, and their controlled persons.
   • "Customary business activities and transactions" include actions aimed at performance of legal or contractual obligations or entering into agreements where a refusal is not customarily expected based on individual characteristic of a counterparty (including "public offer" transactions, performing under an existing agreement, opening bank accounts, processing payments, transactions with securities).
   • Violation could result in criminal liability for individuals of up to four years' imprisonment or fine of up to 600,000 rubles (approximately US$9,700) or the amount of individual's salary/income for up to four years.
   • Arguably, application of this provision is not limited to Russian parties and may also apply to foreign companies and/or individuals doing business in Russia or with Russian counterparties.
2. Facilitation of Sanctions: Intentional actions by a Russian national facilitating foreign restrictive measures, including by providing recommendations or information that results or may result in the imposition of restrictive measures on Russian private or public persons or their controlled persons.
   • Violation could subject a Russian national to up to three years' imprisonment or a fine of up to 500,000 rubles (approximately US$8,000) or the amount of individual's salary/income for up to three years.
   • This new provision may be interpreted very broadly to include certain activities of opposition activists, investigative journalism and other similar activities.

If the Amendment is enacted in its current form, this may have serious negative repercussions for U.S. and European businesses operating in Russia or having other Russian exposure. In particular, managers and employees of Russian and foreign companies, banks and other entities operating in Russia may be prosecuted for terminating or suspending contractual obligations with Russian counterparties, refusing to enter into a new contract with a Russian counterparty or other similar actions. However, there may still be an opportunity for the business community to lobby changes in this Amendment in order to minimize the negative affect it would have on a broad number of businesses.

We will continue monitoring the developments.