Sanctions: A Legal Cause with Commercial Effect​

By Jake Rickman​

What do you need to know this week?

On Tuesday, the European Commission announced it would impose sanctions against Russia, which will reduce the supply of Russian oil by “two-thirds”. Shortly after, the US and UK followed suit: the US announced an outright ban against the import of all Russian oil, and the UK will phase out imports by the end of 2022.

This marks an escalation in a series of sanctions against Russia, largely because the export of oil and gas is one of Russia’s biggest industries. This will further isolate Russia from the global economy and make the lives of many Russians substantially more difficult.

Why is this important for your interviews?

Not only will the cumulative effect of these sanctions cripple the Russian economy, but they will also disrupt businesses across many sectors and drive up the prices consumers pay for many goods, including food and fuel. It is therefore important to have a fundamental understanding of how sanctions operate because they are ultimately enforced through the legal systems of the countries that are imposing them.

In the UK, the sanctions passed against Russia take three forms:
(1) laws that make it illegal to send money to Russia;
(2) laws that freeze assets owned by identified Russian individuals and businesses; and
(3) laws that freeze the assets owned by the Russian government itself.

An “asset freeze” means that it becomes illegal to either deal in the Russian rouble or to make any kind of currency or financial security (e.g., shares, derivatives, and loans) available to the targets of the sanctions. In many cases, it is also illegal to provide financial or legal advice to Russian targets.

In the case of sanctions targeting the oil trade, simply paying for oil is itself a breach of the sanction.

Sanctions are generally enforced by the Foreign, Commonwealth and Development (FCDO). The Office for Financial Sanctions Implementation (OFSI) is responsible for ensuring that businesses within the UK comply with the sanctions.

The Financial Conduct Authority (FCA) ensures industries like banking and finance comply with the sanctions because they are often the advisers that the 'sanctionees' instruct to avoid the effect of the sanctions.

If a business is suspected of breaching sanctions in the UK, the government has broad powers to impose civil and criminal penalties against the business. These include fines of up to £1m, as well as court orders preventing businesses from engaging in certain activities.

How is this topic relevant to law firms?

Sanctions are economic in nature because they target the ability of certain businesses and governments to engage in trade with businesses and individuals, subject to the laws of the countries imposing the sanctions.

That said, sanctions have teeth because they have the force of law underneath. Businesses must comply, or they will face civil and criminal penalties. For these reasons, businesses seek the advice of law firms.