After the Russian Federation decided on 23 February 2022 to recognise the Donetsk People’s Republic and the Luhansk People’s Republic as independent states, followed by the invasion of Ukraine on 24 February, the EU, the UK, the US and Canada as well as other countries have launched wide-ranging sanctions aimed at changing Russia’s behaviour and eliminating the current threats in Ukraine and CEE.
The sanctions are hitting more than 700 individuals and entities associated with the Russian Federation’s ruling elite and Putin’s inner circle. These financial and sectoral sanctions will have substantial effects on Russia’s overall economy and future development, including the technological development of the aviation, military and defence sector.
To scale up the financial sanctions, the EU, the UK, the US and Canada have jointly decided to disconnect seven banks of the Russian Federation from the international SWIFT system, which is expected to hinder international payments.
Below is a summary of how the sanctions have evolved following the changes agreed between the EU, the UK and the US by 3 March 2022.
The size of sanctions and the speed of implementation are unprecedented and create a need for companies and every Latvian resident to adapt swiftly because we are all jointly responsible for sanctions compliance. A sanctions breach may have various implications:
Clearly, companies are currently facing the greatest challenges, especially if their business is associated with Russia and Belarus. Given the changing scope of the sanctions, a company should assess how the relevant sanctions risk has changed. If the company has a system of internal controls in place to ensure adequate management of sanctions risk, are the controls still as efficient as before?
What you can do to help your company manage the growing level of sanctions risk:
Our experience suggests that financial institutions (banks) working with customers whose business involves heightened sanctions risk (e.g. imports and exports of goods and raw materials for companies) may ask a company to draw up and/or file a sanctions policy confirming that the company is able to manage the risks inherent in its business, thereby mitigating the risk associated with the bank’s dealings with the customer. A company’s inability to duly provide any required information or a lack of internal controls to manage sanctions risk may give the bank a basis for deciding to stop providing their services, while also making it difficult or impossible to resume business if customer risk is too high for the bank’s risk appetite.
PwC Latvia has teams of professionals with vast experience in managing money laundering risk and sanctions risk who would be pleased to help your company set up or improve its system of internal controls for managing sanctions risk.
Sanctions may be imposed by the EU Council issuing regulations, by the UN Security Council preparing resolutions, and by the competent authorities of other countries, such as the US Treasury’s Office of Foreign Assets Control (OFAC).
The following sanctions are legally binding in Latvia:
With respect to NATO members’ sanctions at 4 above, it is important to note that participants in the Latvian financial and capital market are also complying with the OFAC sanctions because those are substantially affecting the interests of this market. Compliance with these sanctions is also in the interests of any public and private person that conducts financial transactions or takes part in public procurement, for example. In addition to the OFAC sanctions, there is a risk that an individual or entity will become subject to the OFAC sanctions or that access to payments in USD will be restricted or denied, and that some other adverse implications will arise. To avoid any risks inherent in working with a sanctioned individual or entity, any individual or entity should regularly monitor the latest sanctions.
With respect to the present situation in Ukraine and the historical development of the sanctions, the EU Council adopted Regulation (EU) No. 269/2014 on 17 March 2014 and Regulation (EU) No. 833/2014 concerning restrictive measures in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine, as well as actions destabilising the situation in Ukraine a couple of months later. Regulation (EU) No. 269/2014 has been amended since the Russian Federation decided to recognise the Donetsk People’s Republic and the Luhansk People’s Republic as independent states and invaded Ukraine. Also, Council Regulation (EC) No. 765/2006 of 18 May 2006 imposing restrictive measures to deal with the situation in Belarus has been amended to reflect the engagement of Belarus in the invasion of Ukraine.
Since these events in Ukraine the EU Council has issued a number of decisions and adopted regulations amending Regulations (EU) No. 269/2014 and (EU) No. 833/2014 and Regulation (EC) No. 765/2006:
It is important to note that publicly available tools for searching sanctions, such as the Financial Intelligence Unit’s tool for searching sanctions imposed by the EU/UN or the OFAC tool for searching sanctions may not contain the latest data because the sanctions are being rapidly changed and regularly updated. To make sure a supplier or individual is not sanctioned, it is advisable to verify the latest information on EU sanctions against the EU Official Journal and on OFAC sanctions.
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