The cross-sanction game affects trade with Russia. The massive withdrawal of Western societies goes beyond the constraints resulting from the texts. What about trade with Russia?
Sanctions against Russia and Russian counter-sanctions are limited in their scope and in terms of who they target. However, the movement observed is that of a massive withdrawal of Western societies from Russia which goes far beyond what is required.
Competition between European and American sanctions regimes.
Freedom of trade being in principle, all sectors and all persons not targeted by the sanctions are legitimately suitable for trade.
It is briefly recapitulated:
• that European and American companies cannot trade with the Russian military-industrial sector and the circle of power;
• this prohibition is extended to companies under the direct or indirect control of the Russian state, government or central bank;
• that dual technologies (for civilian and military use) cannot be exported;
• that the oil and aeronautics sectors are hampered by the prohibition to finance them, to provide maintenance, services and financing;
• some Russian banks can no longer use SWIFT financial messaging;
• that European airspace is closed to Russian airlines;
• that Russian steel goods can no longer be imported into Europe;
• that exports of luxury goods are prohibited to Russia.
On the other hand, the civil space and nuclear sectors are excluded from the scope of the sanctions.
The sanctions result from a stack of texts whose origin for Europe are regulations 269/2014
contemporaneous with the annexation of Crimea and consolidated by successive regulations, the latest of which date from March 15, 2022.
European texts are often adapted from texts drafted by the United States Treasury office, OFAC.
But the fear remains for European companies operating on the American market, or using the dollar, to respect the European text by risking being at fault with regard to the American text, which has given rise to traumatic sanctions for a number of European groups.
However, the United States is more pragmatic than the Europeans and the texts of prohibition are immediately followed by texts of exemptions clarifying the doctrine of what remains authorized notwithstanding the principle of prohibition. The European texts refer to the faculty for the European Council and the national authorities of application of the text to derogate, which introduces a risk of arbitrariness.
Some sanctions are as much a display as a desire to constrain Russia.
The package of sanctions of March 15, 2022 targeting luxury goods and means of transport can be read “in reverse” as an authorization to trade for the sector. For example, only luxury products with a unit value of more than €300 or automobiles with a value of more than €50,000 are covered. This is similar to an authorization to trade for these sectors while remaining below these thresholds which represent the bulk of the flows.
Similarly, transactions (purchase and sale with the exception of maintenance, production assistance or new investments) in the field of hydrocarbons intended for the European Union are expressly exempt from sanctions. The purchase of metals necessary for European Union industry is authorized (copper, nickel, palladium, iron ore, etc.)
The application of sanctions beyond the texts carries risks and gives rise to counter-sanctions.
If there is no question of passing judgment on the decisions of “general public” brands to temporarily withdraw from the Russian market for image reasons, one can wonder about the advisability of breaking transactions in the field of professional-to-professional relations.
There is a risk in going beyond sanctions to a boycott. The resulting imbalances are major.
Russia, in response, has enacted counter-sanctions against “unfriendly” countries aimed at maintaining the security of its supplies (banning the export of certain agricultural products), hindering the flight of capital (payment in rubles of foreign creditors), and to safeguard jobs (taking control of companies that have decided to cease their activity).
Thus, in the event of abandonment of activities in Russia, an administrator may be appointed with the mission of maintaining the activity for a time before proceeding with its sale if the foreign partner does not change its position.
The ban on the export of certain aerospace equipment, which echoes the ban on Western aircraft manufacturers from continuing to maintain the aircrafts they have sold in Russia, will quickly hinder European access to space.
Restrictions on the export of fertilizers, of which Russia and Ukraine are major suppliers, may also jeopardize future harvests.
The application of sanctions beyond the texts is a source of responsibility.
Often companies complain of the impossibility of trading in areas where there is no prohibition. Many interlocutors have told me of the impossibility of recovering funds or sending them to Russia in the context of their business when there is nothing legally opposed to it.
The banker can be the obstacle to maintaining the relationship. “Internal” bank directives may require the closing of accounts and the opposition to the execution of transactions.
These behaviours are facilitated by the penchant for caution and the immunity granted to economic actors applying the sanctions. The texts provide that the liability of anyone who, believing that he is applying the sanctions in good faith, breaks a commitment or refuses to perform it, cannot be held liable.
But this immunity is relative. Only the application of sanctions in good faith is exonerating. A co-contracting party, given formal notice to execute, with proof of the lawful nature of the operation, must follow up on pain of liability under the usual conditions.
To improve the legal certainty of its operations, a company, after precise analysis of the scope of the sanctions related to its activity, may request to benefit from a form of ruling from the Treasury Department. A favourable response will facilitate the execution of its operations both from a banking and customs point of view. It will also make it possible to inform the public authorities of the reality of the flows and to manage, if possible upstream, relations with the authorities of the United States to reduce conflicts of interpretation and the risk of extraterritorial application of the sanctions regime from the United States to European companies.