Should U.S. Businesses Be Preparing for Additional Russian Sanctions?

Following the alleged poisoning of opposition leader Alexey Navalny, new Russian sanctions may be on the horizon…

Government economic policies can have a significant impact on businesses, particularly when sanctions are involved. Following the alleged poisoning of opposition leader Alexey Navalny, new Russian sanctions may be on the horizon.

For U.S. businesses doing business with Russia, sanctions have become the new reality. In 2014, the United States imposed sanctions in response to Russia’s invasion of Ukraine. Over the past several years, the  U.S. government has also imposed sanctions on Russia in response to election interference, malicious cyber activities, human rights violations, chemical weapons use, arms sales, illicit trade with North Korea, and support to Syria and Venezuela.

Russian Sanctions in Response to Navalny Poisoning

The United States is now considering additional sanctions in the wake of the Navalny poisoning. As detailed in media reports, the opposition leader became ill on a flight from Siberia to Moscow. Navalny was ultimately transported to Germany for medical treatment, where doctors concluded that he was poisoned using the same type of nerve agent that was used against Sergei Skripal, a former Russian military officer and double agent for the UK’s intelligence services, in 2018.

The United States and its allies contend that Russia’s use of chemical weapons violates international law, including Chemical Weapons Convention. The European Union (EU) has already imposed sanctions on six member of Putin’s inner circle, including Alexander Bortnikov, the head of the Federal Security Service (FSB), and Sergei Kiriyenko, Putin’s first deputy chief of staff. The EU froze the assets of the sanctioned individuals and imposed a travel ban on them. The EU also imposed sanctions on the Russian State Research Institute of Organic Chemistry and Technology, which it maintains developed the nerve agent used to poison Navalny.

In September, U.S. Senators Mitt Romney (R-UT), Chris Coons (D-DE), Marco Rubio (R-FL), Ben Cardin (D-MD), and Chris Van Hollen (D-MD) introduced the Holding Russia Accountable for Malign Activities Act of 2020. The bi-partisan legislation requires the Trump Administration to identify any current or former official of the Government of the Russian Federation who was involved in the Navalny poisoning or the subsequent cover-up. Those individuals would then be subject to sanctions, including asset blocking and travel prohibitions.  The Holding Russia Accountable for Malign Activities Act of 2020 also requires a report on the personal wealth amassed by Vladimir Putin and his family.   

In October, a bipartisan group of Senators also wrote a letter to Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin calling for sanctions. “We urge you to hold those accountable for this heinous act through sanctions authority already available to the Administration, including under the Sergei Magnitsky Rule of Law Accountability Act, the Global Magnitsky Human Rights Accountability Act, and the Chemical and Biological Weapons Control and Warfare Elimination (CBW) Act,” the senators wrote. “The United States must lead the international community and act decisively to deter future attacks both within Russia and beyond its borders on Mr. Navalny and other regime critics.”

The Sergei Magnitsky Rule of Law Accountability Act and the Global Magnitsky Human Rights Accountability Act authorize the President to sanction individuals/entities responsible for gross violations of internationally recognized human rights committed against individuals either seeking to expose government corruption or to obtain, defend, exercise or promote human rights and freedoms. Such individuals/entities are subject to both U.S. entry and property sanctions.

When it has been found that a chemical agent has been used as a weapon, the CBW Act requires the President to terminate arms sales; export licenses for U.S. Munitions List items; foreign military financing; and foreign assistance, other than that which addresses urgent humanitarian situations or provides food, agricultural commodities, or agricultural products. Under the law, the President must also deny credit, credit guarantees, or other financial assistance from the U.S. government, including Export-Import Bank programs, and to deny export licenses for goods or technology controlled for national security reasons. If certain conditions are not met, the CBW Act authorizes additional sanctions, including further import/export restrictions.

Key Takeaway

The effectiveness of the country’s current sanctions against Russia is widely debated. Some argue that the United States should introduce additional sanctions on Russia and/or work to fully implement existing sanctions. Meanwhile, others maintain that sanctions are unlikely to change Russia’s conduct and that sanctions will instead harm U.S. businesses by directing economic opportunities to businesses in other countries. Accordingly, U.S. businesses must be ready to adapt when doing business in Russia, which includes complying with additional sanctions.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Teddy Eynon, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.