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.

How the sanctions scenario might change in the future

• The current sanctions are fluid and volatile, and are subject to unforeseeable political and economic developments. For example, in the US, one Executive Order already authorizes future sanctions on entities operating in the financial services, energy, metals and mining, engineering, and/or the defense and related materiel sectors of the Russian Federation.
• In addition, the legislation passed on April 3, 2014 authorizes future sanctions on close associates or family members of Russian Government officials.
• With respect to EU sanctions in response to the Crimea crisis, the EU Council recently confirmed that work is underway on a proposal for economic, trade and financial sanctions which would be applied if further steps are made by Russia to destabilize the situation, but the details and timing of such additional restrictions are at this stage unclear.
• Furthermore, it has been reported that the EU will in the near future impose economic and trade restrictions against Crimea itself which would essentially treat it as an occupied territory, as a legal consequence of Russia’s annexation
• On April 17, 2014, the US, EU, Ukraine, and Russia engaged in diplomatic talks in Geneva and agreed on initial concrete steps to de-escalate the crisis. On April 28, the G-7 issued a statement promising further sanctions in light of the absence of Russian steps to implement the agreement reached in Geneva
• The additional EU and US designations and export restrictions were announced following the G-7 statement. There continues to be talk of potential new sanctions on the horizon.

– Taking a historical look at sanctions imposed in past crises may suggest alternative future scenarios, assuming there is no definitive diplomatic solution to this crisis:
– Current sanctions could continue in place largely as is for an extended period;
– Sanctions could become progressively tougher and broader in scope but still allow significant financial activity (which EU sanctions normally do in any event, as there is a tendency to avoid comprehensive country-wide sanctions measures);
– Expanded sanctions could include restrictions on additional Russian government entities (e.g., police/military, state-owned banks) or on close associates or family members of Russian Government officials, restrictions on individuals or entities in certain sectors (e.g., financial services, energy, metals and mining, engineering, and/or defense), and limitations on government procurement opportunities;
– From the US perspective, extraterritorial measures or “secondary sanctions” also could be imposed that, for example, would require no US nexus as was done in the case of Iran (e.g., prohibiting access to the US commercial and financial systems to non-US entities that engage in sanctionable conduct);
– Comprehensive country-wide sanctions that would restrict all commercial and financial activity relating to Russia (an unlikely scenario unless events escalate markedly); and
– Strengthening of sanctions by the US and EU would also likely lead to strengthening of sanctions by Russia.