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Law Firms Struggle to Keep Up with Unprecedented Russian Sanctions

March 31, 2022

The ABA Journal recently reported that companies are navigating a complicated web of rules and regulations to ensure compliance with sanctions and trade embargoes against Russia, affecting its banks and state-run companies as well as its oligarchs and their family members. Attorneys are advising companies as they offload assets and cut ties with sanctioned institutions, entities or individuals.

Caroline E. Brown, a partner with Crowell & Moring, says the sanctions not only touch the financial, banking and insurance sectors but also manufacturing, tech and aerospace. While some companies have “established sanctions compliance programs,” she said, “others do not.”

“The U.S. simply hasn’t seen sanctions of this magnitude coming out of the U.S. government at such a quick pace before,” Brown said.

Biden is imposing sanctions through the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). This includes sanctions against Russian oligarchs, Russian President Vladimir Putin and others in his inner circle. The U.S. put them on a Specially Designated National and Blocked Persons (SDN) list.

The sanctions target 10 of Russia’s largest banks, which hold nearly 80% of the nation’s banking assets.

For law firm clients in the financial sector, including U.S. banks and hedge funds, that means freezing assets or interests in properties owned by entities and individuals on the SDN list, according to a Holland & Knight alert. Under OFAC rules, if an individual or entity on the SDN list has a 50% or more ownership stake in a business, “directly or indirectly,” then that business is also subject to sanctions.

Additionally, the U.S. Department of Commerce’s Bureau of Industry and Security is imposing export control restrictions on Russia and Belarus.

Andrea Al-Attar is a Washington, D.C.-based solo practitioner who once worked at Allen & Overy, which has offices in Moscow, and is a former enforcement officer and section chief of the Licensing Division of OFAC. She says lawyers will advise companies with Russian connections to rerun internal compliance tools; canvas and rescreen their lists of customers and counterparties in financial transactions; and review their supply chains to sever relationships with sanctioned clients.

Dariya V. Golubkova, an attorney with Holland & Knight’s International Trade Group, says she’s been fielding questions from clients with international trade exposure in Russia, Ukraine and Belarus. Clients are having to work out whether they use Russian contractors and subcontractors, either directly or indirectly, and how they can legally pay them for their services if they bank with a sanctioned financial institution.

Some clients are concerned about the reputational harm to their businesses for noncompliance with the sanctions. The legal costs are clear because most of the sanctions fall under the International Emergency Economic Powers Act. The law gives presidents authority to regulate commerce when there is a national emergency or when the United States is threatened by a foreign power. Under the law, there are civil and criminal consequences for noncompliance, depending on the egregiousness of the offense. If you do not comply, there could be civil or criminal enforcement actions and penalties.

Law firms have to consider compliance too. Many global law firms are deciding whether to cut ties with their Russian clients. There are implications for global firms with offices in Russia and attorneys who represent oligarchs.

While law firms are barred from representing sanctioned individuals and entities in business transactions, there would be no penalties for lawyers choosing to represent oligarchs or companies if they are contesting sanctions in court or seeking counsel on compliance.

The U.S., United Kingdom and European Union have all agreed on economic sanctions, which has made it easier for attorneys to advise international clients. Still, lawyers have found the demands challenging. Things change every day – and it is tough to keep up with those changes with all of a law firm’s clients.

Sharon D. Nelson, Esq., President, Sensei Enterprises, Inc.
3975 University Drive, Suite 225, Fairfax, VA 22030
Email:   Phone: 703-359-0700
Digital Forensics/Cybersecurity/Information Technology
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