Legal position of businesses with Russian contracts
By Mike Hayes21 March 2022
In response to Russia’s invasion of Ukraine, the UK, EU, US, Canada and other countries have imposed unprecedented sanctions against Russia.
Currently, new sanctions are being imposed on a daily basis. Those sanctions impact on Russian business and people but also overseas companies with contracts to provide goods and services to Russian businesses or within the territory of Russia.
The restrictions include:
- Effectively an embargo on operating in Crimea and the two breakaway regions in the Donbas;
- Numerous individuals and entities being added to the UK, EU and US assets freeze lists, including business persons whose companies are also sanctioned as a consequence;
- Russian chartered ships being banned from UK ports;
- Significant sectoral sanctions restricting capital markets and the ability to be paid though certain Russian banks including VTB and Sberbank;
- Restrictions on insurance and reinsurance;
- New export control restrictions relating to dual-use items to, or for use in, Russia, irrespective of end-user. The UK government has suspended all existing export licences for dual-use items into Russia and has suspended the approval of any new export licences for dual-use items into Russia.
Despite these financial sanctions and trade restrictions, much business with Russia remains lawful.
There is a moral question for all businesses to ask about whether they consider it ethical or sustainable to continue with Russian business: many companies have withdrawn or ring-fenced their Russian related business operations; other businesses have decided to continue Russian related operations and contracts because they have no contractual right to terminate or they consider there to be a greater moral obligation to their staff and customers to continue with those projects so that jobs and livelihoods can be maintained.
If a decision is made to continue with Russian contracts, the need for effective risk management has never been more essential.
Companies should be:
- Carrying out due diligence and sanctions list screening. This entails checking that customers, suppliers and business partners in Russia or connected with Russia are not on a sanctions list or owned or controlled by someone who is;
- Undertaking classification exercises to ensure that the goods and technology to be exported are not dual use or otherwise controlled from a licensing perspective;
- Checking and sanctions screening proposed payment routes to ensure the payment mechanism is legally compliant. From a practical perspective, there is a need for companies to speak with their banks to see if their bank will continue to transact Russian payments;
- Checking and speaking with the company’s insurers to ensure contracts of insurance remain valid and enforceable;
- Ensuring contracts are under English law; consider the INCO terms to ensure compliance with the shipping related sanctions; consider payment terms to provide for advance payment or payment on delivery; add a sanctions clause that allows the contract to be suspend if there is any further escalation in sanctions or the company’s banks, insurers or suppliers refuse to support any Russian related business;
- Taking legal advice and signing up to the sanctions alerts issued daily by the UK, EU and US authorities.