Author: Anna Raczkowska - attorney at law trainee, Jarosław Kruk - attorney at law, managing partner
Due to the intense global discussion on sanctions against the Russian Federation, we would like to mention various types of sanctions from a legal and business perspective.
Sanctions are one of the possible economic consequences of violating the international order. Sanctions are defined as a volitional means of exerting pressure, because their application is each time decided by individual states, groups of states or international organizations. Due to the purpose of introducing sanctions, we can divide them into sanctions introduced to punish a given subject of international law for breaking a rule or norm of this law, and sanctions introduced to prevent violations of norms and principles.
Sanctions may take various forms, including: customs duties, embargoes, import or export quotas, monetary restrictions (blocking bank accounts, ban on currency transport), entry restrictions for persons on a special list, freezing the assets of persons or entities on a special list, other restrictions covering specific sectors of economic activity, e.g. ban on the export / import of certain goods or technologies.
One of the financial sanctions is the asset freeze and financial restrictions. Freezing assets and funds means the temporary prohibition of the transfer, conversion, sale and transfer of assets or funds or the temporary management of assets and funds at the discretion of the competent governmental authority.
Assets and funds are, on the other hand, financial instruments, assets of any kind, movable or immovable, tangible or intangible, however acquired, and documents or instruments in any form, evidencing title or interest in such funds or assets (such as: traveler’s and bank's checks, money orders, shares, securities, bonds, bills of exchange, letters of credit, interest).
Where a financial sanction is an asset freeze, it is generally prohibited to deal with the frozen funds or economic resources owned or controlled by a designated person, make available, directly or indirectly, funds or economic resources or services to the designated person and engage in activities that directly or indirectly bypass financial sanctions and prohibitions.
Regarding the regulation, there are separate asset freeze provisions for each sanction regime, and the EU maintains a consolidated list of persons subject to asset freeze in the EU, i.e. where all the funds and economic resources of the said persons must be frozen. In addition, funds or economic resources must not be made available, directly or indirectly, to or for the benefit of these persons.
For example, British legislation provides for the freezing of funds and economic resources of certain persons, entities or bodies involved in destabilizing Ukraine or undermining or threatening the territorial integrity, sovereignty or independence of Ukraine, or benefiting or supporting the Russian government.
What is important, according to the US law and most European regulations, the frozen assets remain the property of the oligarch, but they cannot be transferred or sold.
What can be expected of the business effects of the freezing of Russian assets? For example, in the UK, you will need an Office of Financial Sanctions Implementation (OFSI) license if you need to make funds available to companies that are owned by sanctioned persons. Therefore, it will now be important to exercise extreme caution when undertaking new transactions and to check if there is any risk due to the sanction imposed.