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August 06, 2022

Doing business with Russia? Exceedingly difficult, but still doable

The U.S. sanctions related to doing business in Russia after its invasion of Ukraine in February have upended the traditional way of doing business with Russians and supply chain operations there, but lawyers involved in foreign commerce say transactions are still possible with considerable caveats.

“Take risk seriously,” is the way Alex Landis, assistant general counsel for Textron Systems in Annapolis, Maryland put it.

Landis and three other lawyers bantered about the Russian sanctions and how they affect government and nongovernment contractors as well as in-house and outside counsel at a panel, “The Impact of Economic Sanctions on Russia to the Supply Chain.” The 90-minute session on Aug. 5 at the 2022 American Bar Association Annual Meeting was among several programs sponsored by the ABA Section of Public Contract Law.

The discussion followed a fast-paced Q&A, along the lines of TV game show like Jeopardy. The chief theme emerging from the discussion was that the sanctions on Russia pose lots of new legal hurdles for U.S. entities, but business can still be pursued in a more limited way.

While covering a wide range of topics dealing with the sanctions from the prospective of U.S. law firms and businesses, the discussion did not address the impact in Russia of the sanctions on the country or its people.

As an ABA Legal Fact Check detailed earlier this year, starting in March the Biden administration trotted out a series of sanctions against Russian oligarchs and public and private entities. Collectively, they represent the most comprehensive set of multilateral economic sanctions ever applied to a major global economy.

The sanctions are rooted primarily in two statutes, the National Emergencies Act and the International Emergency Economic Powers Act (IEEPA). Enacted in 1977, IEEPA authorizes the president to block property, prohibit transactions or otherwise regulate assets in which a foreign person has an interest, in response to the president’s declaration of a national emergency.

During the past six months, the administration has rewritten the rules for U.S. entities to do business there and with Russians in third countries. While most of the dealings are under the watch of the Office of Foreign Assets Control in the U.S. Department of Treasury, agencies overseeing areas such as the military supply chain and general commerce are also involved.

OFAC, as the Treasury agency is known, enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers and other threats to the national security, foreign policy or economy of the United States.

Erica L. Bakies, senior associate at Seyfarth Shaw in Washington, D.C., observed that caution is always the best approach. Whether you should do a transaction, depends on the risk, she said, adding at least three guidelines should apply to any deal. “Do sufficient diligence to ensure you can engage in the transaction,” she explained, adding that U.S. parties should “know who your end user is and … be aware of red flags.”

Nearly every type of good sold in Russia or to Russians now requires some sort of license, said Timothy P. O’Toole of Miller & Chevalier in Washington. And if a company was liquidating its Russian assets to a local entity – “likely pennies on the dollar” – he said the transaction could be quite burdensome to meet U.S. regulations.

He said he has even counseled clients leaving Russia to destroy items rather than sell them. For instance, if an entity wanted to get rid of an internet router, he suggests smashing it rather than including the router in the sale. If you break it, he explained, you don’t need a license”

“If you are leaving Russia,” O’Toole quipped, “don’t forget the sledgehammer.”

Craig Smith of Wiley in Washington served as the “game host.”