Overview
On May 14, a cross-party group of Russian lawmakers at the Russian State Duma, the lower house of the Federal Assembly of Russia, introduced an amendment to the Criminal Code of the Russian Federation to create a new offense that would criminalize compliance with US and EU sanctions on Russian soil. On May 15, the State Duma unanimously approved the proposed amendment in the first reading. If enacted into law, these restrictions would create significant complications for companies seeking to comply with US and EU sanctions.
Part 1 of the amendment prohibits a person from taking any action (or omitting to take any action) for the purposes of implementing sanctions against Russia if such action or omission restricts or denies Russian citizens, corporate entities, or government institutions the performance of ordinary business operations and transactions. The proposed amendment defines “ordinary business operations and transactions” in broad terms. This includes performance of statutory and contractual obligations and pre-existing obligations, as well as entry into a “public contract”, and any other operations, which are not ordinarily refused due to the individual characteristics of the counterparty, including the opening of a bank account, making and accepting payments, performing transactions with securities, and accounting for such transactions. A person guilty of the offense may be punished with, among others, imprisonment for up to four years in prison or a corrective labor colony, or a fine of up to 600,000 rubles (approximately $9,700 USD).
Part 2 of the amendment prohibits a Russian citizen from deliberately aiding and abetting the imposition of sanctions by foreign states on Russia. This includes making recommendations or passing information that leads to or could lead to the imposition of sanctions and restrictions on Russian individuals, corporations or government entities. A person guilty of this offense may be punished with, among others, imprisonment for up to three years in prison or a corrective labor colony, or a fine of up to 500,000 rubles (approximately $8,100 USD).
Both the Russian Government and the Supreme Court have supported the proposed measures. If adopted, the new offenses will present a compliance conundrum for both Russian and international companies operating in Russia. Their Russia-based employees may find themselves at risk of prosecution in Russia if they decline to enter into transactions with Russian counterparties that would cause the company to violate either the EU or US sanctions, or to engage in otherwise sanctionable activity under US secondary sanctions. In particular, US and EU banks and financial institutions operating in Russia would be severely impacted by these measures. They would need to assess their ability to deny or restrict transactions with, and accounts belonging to, Russian persons subject to US and EU sanctions. The law would also be likely to affect Russian banks and financial institutions as a blanket refusal to comply with US sanctions may lead to them being targeted for US secondary sanctions.
The second reading of the proposed amendment was due to be held on May 17, but was postponed, as business interest groups and human rights advocates raised concerns about the broad scope of the law. On May 23, the Council of Legislation chaired by the Chairman of the State Duma, held a public consultation with experts and representatives of the business community. Russian media reports that at that meeting the lawmakers had somewhat softened their stance and were considering making compliance with US and EU sanctions punishable by administrative fines instead of attaching criminal liability to such conduct. However, subsequent reports indicate that the lawmakers are committed to imposing some form of criminal liability on persons who actively incite or assist in the enactment of foreign sanctions against Russia. At the meeting the business community reportedly advocated that lawmakers consider exceptions from the new law for Russian and foreign businesses operating in Russia that must comply with US and EU sanctions because they entered into agreements with US and EU entities that contain standard contractual obligations to comply with US and EU sanctions.
The lawmakers are expected to hold another round of consultations with the business community once the proposed legislative changes have been discussed with the Russian Government and relevant ministers. The proposed amendment will then be resubmitted for a second reading in the State Duma.
The proposed amendment to the Criminal Code was introduced in the State Duma at the same time that Russian lawmakers were considering what countermeasures Russia could impose on the United States and its allies in response to the toughening of US sanctions on Russia in April. On May 22, the State Duma adopted a law granting a broad authority to President Putin to impose countersanctions on the US and EU governments, citizens, and corporate entities. The countermeasures can include termination of international cooperation with the Russian State, import and export restrictions and prohibitions, bans on participation in procurement and privatization activities in Russia, and any other measures deemed appropriate by the President. The proposed law will now be considered by the Federation Council, the upper body of the Russian Federal Assembly, before being signed into law by President Putin. It has been reported that Russian lawmakers expect that the countermeasures will be adopted by June.
