In light of the war in Ukraine, if you are a company or an individual with business relations with Russia or Belarus, you need to be aware of the imposed sanctions and take action to prepare. We have compiled an overview of the key facts to know about sanctions, potential consequences for violations, as well as practical tips for ensuring the continuity of your business. 

What are sanctions

International sanctions are a political tool designed to change the behavior of a person or the state to which they apply. Sanctions are of various types, e.g.:

  • sectoral, meaning various restrictions on financial transactions, trade in goods and technology used in certain sectors, services in the transport, telecommunications, energy sectors, exploration for and exploration for oil, gas and mineral resources, etc;
  • territorial – prohibitions of certain activities in specific territories;
  • targeted at specific individuals or companies.

Where to find information about imposed sanctions

Most up to date information on sectoral sanctions can be found via the links below:

  • US sanctions against Russia can be found here
  • US sanctions against Belarus can be found here
  • EU sanctions against Russia can be found here
  • EU sanctions against Belarus can be found here
  • Companies/person checks for EU sanctions can also be done via Sanctionsmap
  • US sanctions can be checked here
  • UN sanctions can be checked here

It is important to understand that legally if a person is included in the list of sanctions, it does not necessarily mean that no activities can be carried out with such a person at all. The first step should be to assess the extent of the restrictions imposed on a particular person, country, or sector and what actions are prohibited. Therefore, in each case, it is very important to have a good understanding of what a particular sanction is prohibiting and only then decide on the next steps accordingly.

Note that there is no list of persons subject to sectoral or territorial sanctions and these can only be identified based on information on the client (industry, location, etc.).

What sanctions apply

Lithuania

At present, the Republic of Lithuania is obliged to implement the international sanctions established by the United Nations and the European Union. They must be complied with by both, the private citizens (independently of their location) and all companies operating in Lithuania, including companies registered in Lithuania, when they operate outside Lithuania have subsidiaries or branches outside the European Union.  

Latvia

In Latvia, every individual and entity must follow sanctions established by the United Nations and the European Union, as well as Latvian national sanctions. US sanctions are mandatory for financial institutions, in public procurement, as well as in the field of European Union funds and other foreign financial assistance. 

Estonia

Estonia is obliged to implement international sanctions established by the United Nations and the European Union. There are currently no national sanctions imposed. International financial sanctions must be complied with by all natural and legal persons. Some entities have specific obligations in relation to implementing international financial sanctions.   

Common to all 

Taking into account the impact of US sanctions, it is strongly recommended to comply with them, irrespective of whether they are mandatory in a particular country. 

Who must comply with EU sanctions

  • All persons within the territory of the Community, including its airspace;
  • Those on board any aircraft or any vessel under the jurisdiction of a Member State;
  • Any natural person inside or outside the territory of the Community who is a national of a Member State;
  • Any legal person, entity, or body which is incorporated or constituted under the law of a Member State;
  • Any legal person, entity, or body in respect of any business done in whole or in part within the Community.

How to terminate transactions due to sanctions

Contracts with directly sanctioned entities are subject to termination according to the law applicable to the contract and public laws applicable to its counterparties.

In many instances, however, the sanctioned persons are not a direct party to a contract. Several restrictive measures in force prohibit making funds available (directly and indirectly) to the sanctioned persons.

If a link to the sanctioned person is suspected, the following steps are recommended:

  • Explore whether the performance of obligations under a contract violates or may potentially violate the sanctions;
  • If so, carefully assess the wording of the contract if it gives leeway for termination;
  • Force majeure clauses should be considered. Note however that in many instances force majeure may not be directly relied upon for immediate termination and it serves as a tool for suspension of performance of obligations under the contract;
  • If actual performance of the contract becomes materially hindered or impossible, it should be considered if hardship may be invoked;
  • In case of doubts, each EU Member State has designated national competent authorities in charge of the implementation of sanctions and these may be consulted before taking measures.

To sum up, particular situations and contracts should be carefully evaluated on a case-by-case basis to find the best exit strategy in a given case.

A party is relieved from liability, including civil liability, if due to applicable sanctions it abstains from entering into a contract, terminates the contract, or requires the premature performance of the obligations from the other party.

Potential consequences for violations

Possible negative consequences for businesses not complying with sanctions:

  • fines and criminal liability;
  • increased reputational risk. Due to reputational damage:

– companies may lose existing business partners and customers;

– it may be difficult for companies to establish business relations with new business partners and to expand their business to foreign countries; etc.

  • Other adverse consequences and financial losses may also result from non-compliance or improper implementation of international sanctions, including:

– a ban on companies engaging in certain economic activities in specific jurisdictions;

– termination of incoming funding or unavailability of intended new funding;

– termination of any service or supply contracts;

– non-compensation for losses incurred as a result of non-compliance or improper implementation of international sanctions.

Practical tips

Given that situation is changing very rapidly, companies that have connections with Russia and/or Belarus or their individuals need to prepare for all possible scenarios.

Some practical advice/recommendations to ensure that the implementation of sanctions is effective and does not impede economic and business development:

What you should do now:  

  • Consider appointing persons responsible for monitoring and implementation of international sanctions in your company;
  • It can be difficult to keep up with all the news, follow the political statements and media – it’s a good indication of what is to come in a few days.
  • Follow the sanctions adopted and announced by the international organizations and the US for Russia and Belarus and assess the restrictions specified therein in the context of your economic activity/business; make sure that your actions are based on legal measures adopted. Note that depending on the geography of business, you may need to observe sanctions imposed by specific countries (e.g. United Kingdom, Canada, Japan);
  • Self-assess with which customers and business partners you work, with whom you make transactions, settlements, to whom you supply goods or provide services, who supplies goods/raw materials/services to your company, etc – conduct due diligence, accordingly.
  • Adjust new client onboarding/existing client new requests acceptance procedures. Check if the existing/new customer or business partner is sanctioned:
    • EU sanctions – make sure that the counterparty and/or its beneficiaries are not included in the list of persons subject to EU sanctions in Annex I to Regulation (EU) No 269/2014 (restrictive measures against Russia) or Annex 1 to Regulation (EC) No 765/2006 (restrictive measures against Belarus).  Companies/person checks can also be done via  Sanctionsmap;
    • UN sanctions – can be checked here;
    • US sanctions can be reviewed here;
    • EU, UN and Latvian national sanctions can be checked here (in Latvian only);
    • International financial sanctions are published on the website of the Estonian Financial Intelligence unit here (in Estonian only).If sanctions are not imposed on the customer/counterparty (including persons owning legal entity), it should be assessed whether the sector itself is sanctioned, i.e. trade, import, export, and related transactions of certain products/services are not prohibited.Assess the area to which the transaction is directed (so that the territorial sanctions do not apply). Make sure that the final destination of the product/service is not sanctioned jurisdiction/entity.
  • Review your existing contracts and adjust contracts with markets under impact. Include in contracts with customers and/or partners provisions to ensure that the agreement can be terminated unilaterally if one of the parties to the contract becomes directly or indirectly subject to sanctions despite that particular sanctions are not legally binding for your company. For example, the risk of sanctions should be considered as one of the circumstances of the force majeure condition.
    If the company establishes that it directly or/or indirectly (for example, through other persons) concludes or executes transactions subject to international restrictions implemented in your country, the execution of such transactions  should be immediately terminated during the period of validity of sanctions;
  • Depending on your business needs, consider engaging with third parties/partners that provide an automatic monitoring/checks solution for international sanctions. This would ensure continuous monitoring and verification of clients and partners in the latest lists of international sanctions;
  • If a situation is unclear always check with your legal team or national competent authority responsible for sanctions enforcement.

Practical tips regarding  payment transfers

  • Be prepared to provide additional supporting documents to financial institutions (including information on the beneficiaries of the business partner and/or client).
  • Provide complete and accurate information on the purpose of payments when making payments. For example, when making an invoice payment, indicate not only its number but also the final recipient of the goods, type, jurisdictions, and other relevant information.

Five-step sanctions compliance model

Complying with sanctions requires more than just checking a list of restricted companies. So to help you measure your sanction-related risk level and protect your business from illegally engaging with sanctioned companies or individuals, we have developed a five-step sanctions compliance model. We recommend to start with the screening and decide on next actions based on the findings.

Our Sanctions Compliance team can either assist you with individual steps or offer a full five-step package.