How to Comply with Sanctions?

What are sanctions?

Law on International and National Sanctions of the Republic of Latvia

Section 2. Purpose and Scope of the Law

1. The purpose of this law is to ensure peace, security, and justice in accordance with Latvia’s international obligations and national interests by implementing international sanctions, establishing national sanctions, or applying sanctions imposed by the European Union or NATO member states as specified in this law.
2. The law applies to all persons, and they are obligated to observe and comply with international and national sanctions.

What types of sanctions must be observed?

European Union Sanctions

Russian Federation – Regulation 269/2014 + Regulation 833/2014

Regulation 269/2014 applies to persons listed in the annex (currently 1091 individuals and 80 entities), providing for the freezing of funds and suspension of economic resources. The term “funds” should be understood as any kind of financial assets. The EU has frozen nearly 30 billion euros of assets belonging to sanctioned Russian and Belarusian citizens and companies. Regulation 833/2014 (sectoral regulation) – imposes a ban on the circulation of certain goods and services. Part of it applies to persons listed in the annexes, and part applies to any person. Sanctioned sectors include the financial sector, energy sector, transport sector, technology sector, etc.

Republic of Belarus – Regulation 765/2006 + Regulation 269/2014

Since the beginning of the war, the EU has already approved the fifth round of sanctions, which fully prohibit:

• All types of Russian coal imports (effective from August 2022),
• Russian and Belarusian land freight transport in the territories of EU countries,
• Russian ships docking at EU ports,
• Russian exports to EU countries including timber, cement, rubber products, alcoholic beverages (including vodka), luxury seafood, and Belarus is prohibited from exporting potassium fertilizers to EU countries,
• Export of EU technology to Russia (including semiconductors, quantum computers, aviation fuel, etc.),
• EU countries from conducting any transactions with four Russian banks, etc.

US / OFAC Sanctions

All OFAC sanctions are binding on state institutions, public procurements, and participants in the financial and capital markets (including credit institutions). LOFAC sanctions are binding only on certain institutions (credit institutions, state institutions, etc.), while OFAC sanctions are also binding on Latvian residents and companies that cooperate or wish to continue cooperation with these institutions – such as opening bank accounts, making payments, receiving financial services, etc.

What needs to be determined – Risk Approach:

1. Identify the type of sanctions: individual, sectoral, or comprehensive. For example: sectoral sanctions – prohibition of selling, supplying, transferring specific goods, providing specific services in a specific territory.
2. Conduct in-depth risk assessments of existing and prospective business partners and clients, monitor transactions during the cooperation.
3. Ensure timely risk awareness and management, transaction transparency.
4. Determine who owns and controls the company.
5. Determine if the person is associated with the military, state structures, or politics.
6. Determine if the sanctioned person benefits directly or indirectly from the transaction.
7. Associated persons and beneficial owners – EU 50%+, US 50%, if minority shareholders are subject to sanctions, evaluate the risks in depth.
8. Identify the actual recipient of money for the service or goods.
9. Use of nominal persons.
10. Control of the company – rights to appoint officials, decisive influence on property and organization of economic activities.
11. Verify information not only in sanction lists but also using internet resources and other databases, including annual reports of companies.

Where and how to check if a person/company is on the sanctions list?

Information sources:

• Sanctions Map – includes all EU sanctioned persons and companies.
• OFAC Sanctions Search – list of US sanctioned persons and companies.
• European Commission Sanctions Information – detailed information about EU sanctions.
• FKTK Announcements – FKTK general approval for exceptions, including for legal entities.
• US Sanctions and Measures – US sanctions and other measures against Russia for the use of chemical weapons.
• CAATSA Section 231(e) – List of Russia’s defense sectors under CAATSA.
• FID Sanctions Database – includes EU and UN sanction lists.
• Lursoft Sanctions Database – includes EU, UK, and US sanction lists.
• Sanction Risk Management Regulations – Sanction risk management regulations.

What to do with contracts or transactions concluded before sanctions?

The principle is that contracts must be fulfilled, unilateral withdrawal is possible if permitted by the nature of the contract, stipulated in the contract, or required by law. Check the force majeure clause of the contract – sanctions may be recognized as a force majeure event. According to Section 13.5, part 2 of the Sanctions Law, if a person refrains from a transaction, terminates the transaction relationship, or demands early fulfillment of obligations, this does not incur legal liability (including civil liability) for that person or its management (including board and council members) and employees. Sanctions are not absolute, companies can request special permits from the Financial and Capital Market Commission, which issues payment permits, and from OFAC, which issues special licenses for business operations. Sanctions regulations provide for the possibility for FKTK to issue permits for payments related to basic needs, such as receiving pensions, paying state fees, maintaining accounting, medical and educational expenses, etc.

Liability

Section 86 of the Criminal Law defines the liability for violating sanctions imposed by international organizations and the Republic of Latvia. Violating sanctions imposed by the United Nations, the European Union, and other international organizations or national sanctions of the Republic of Latvia is punishable by imprisonment for up to four years, or short-term imprisonment, or probation, or community service, or a fine. For the same actions causing significant harm, the penalty is imprisonment for up to five years, short-term imprisonment, probation, community service, or a fine. For offenses under the second part of this section committed by a group of persons by prior agreement or by a state official, the penalty is imprisonment for up to eight years.

©INNOVATOR  28.04.2022