What is the status of the evolving international sanctions against Ukraine and Russia?

• Since the recent escalation of the Ukraine crisis in March, there have been almost daily developments regarding economic sanctions – ranging from details of implementation to proposals for new or tougher measures.
• This update is part of a series of snapshots of the current sanctions, how they apply to financial institutions doing business in or with Ukraine and Russia and their customers and counterparties, compliance requirements in different scenarios, and where sanctions might be headed in the near future.

What the sanctions mean for your financial institution – Do the sanctions apply to your financial institution?

• With respect to US sanctions, first you must determine if you are a US Person. The sanctions apply to US Persons, which include:

– Individuals and entities located in the United States;

– US citizens and green card holders, wherever located;

– US incorporated companies and banks, including foreign branches; and

– US subsidiaries of non-US companies.

• US persons are prohibited from dealing directly or indirectly with designated parties or blocked persons. US financial institutions involved in transactions with Russian entities that become designated must ensure they take the appropriate actions required under US law. For example,

– any US investment advisor, investor, or trading platform will need to ensure its actions going forward are consistent with the designated status of the Russian entity and the financial instruments in which that entity has an interest.

• Second, financial institutions that are not US Persons still must determine on a transaction-by-transaction basis (for all activities including, but not limited to, financings, note issues, underwritings, IPOs, syndications, trading activities, or actions that support or facilitate any of the foregoing) whether a transaction with a US nexus (denominated in US dollars, involving US persons, or somehow taking place in the United States or availing itself of the US financial system) also involves blocked persons. Under certain circumstances, US sanctions can reach non-US persons involved in transactions with blocked persons if the transaction occurs in the United States or has a sufficient US nexus.
• Moreover, even where there is no apparent US nexus, you should exercise extreme caution engaging in transactions with blocked persons given the fluid and evolving nature of the sanctions and the fact that the US has warned that it may designate additional parties, including those found to have provided support to designated parties.
• The Executive Orders specifically identify the provision of support or other services to designated parties as a basis for potential future designations.
• EU sanctions are only applicable to activities falling under EU jurisdiction, i.e., when there is an EU nexus linking restricted activities to the EU. As a general rule, the EU has jurisdiction in the following five situations:

– within the EU territory;

– on board any aircraft or vessel under EU Member State jurisdiction;

– to nationals of EU Member States (even if outside the EU);

– to entities incorporated or constituted under the law of a Member State; and

– to entities in respect of any business done in whole or in part within the EU.

• This means that non-EU companies can potentially be covered by the EU’s sanctions, depending on the circumstances under which they perform business activities in the EU.
• For example,

– in such a context, there will generally be EU jurisdiction when Member State nationals are acting as employees, or when a particular (restricted) transaction relates to the company’s business within the EU.