Thinking | 11 March 2022

Russia – the most sanctioned country in the world

By Chris Sacre and Kendall Messer

Russia is now the most sanctioned country in the world.[1] Australia is among the countries leading the charge, having announced 462 sanctions since 25 February 2022.[2] These sanctions are additional to the sanctions implemented in 2014-2015 following Russia’s annexation of Crimea and Sevastopol.

On 25 February 2022 we introduced our readers to the structure and scope of the Australian sanctions regime in relation to Ukraine and Russia, in our article Australian sanctions against Russia: what do Australian companies need to know? This article updates on the latest developments from an Australian perspective.

Russia sanctions update

On 3 March 2022 Australia issued autonomous sanctions designating seven Russian financial institutions: Central Bank of the Russian Federation, Russian Direct Investment Fund, Okritie Bank, Cetelem Bank, Management Company of the Russian Direct Investment Fund, RVC Management Company, and the Russian Agency for Export Credit and Investment Insurance.

These sanctions, alongside those issued by the US, UK, EU, Switzerland and others, are intended to place financial pressure on Russia. It now seems these sanctions are succeeding. Since 25 February 2022, the Russian stock market has simply not opened, and, while the Ruble continues to trade, it continues to devalue.[3] On 8 March, ratings agency Fitch downgraded Russia’s sovereign rating to ‘C’, reflecting Fitch’s view that a sovereign default is imminent.[4]

On 8 March 2022 the Australian Government announced sanctions against 10 people targeted for their role in pro-Russia propaganda legitimising Russia’s invasion.[5] This follows similar sanctions already announced by the EU. The Australian sanctions are against visible individuals such as Vladimir Solovyov, the presenter of the Russia-1 Channel, and Dmitry Peskov, Press Secretary for Russian President Vladimir Putin.

Also on 8 March 2022 the Australian Government sanctioned the Armed Forces of the Russian Federation, which includes the Russian Ground Forces, Russian Navy, and Russian Aerospace Forces, as well as the Strategic Missile Troops and Russian Airborne Troops, and has the effect of prohibiting the export of goods from Australia to all Russian military end users.

Australians and Australian entities have until 28 March 2022 to ensure their compliance with the Crimea and Sevastopol sanctions regime that is extended to Donetsk and Luhansk.

Russia’s ‘unfriendly’ list

On 8 March 2022, Putin announced that Australia, and 51 other countries who have implemented sanctions against Russia, are on an ‘unfriendly list’. For any business dealings between a Russian company and a company or individual from an ‘unfriendly’ country, the deal must be approved by a Russian government commission, and the Russian company can pay in Rubles. This applies to all deals worth more than 10 million Rubles a month, the trouble being that the Ruble is devaluing further every day subjecting more Russian companies and individuals to the ‘unfriendly’ approval regime every day.

Due to the minimal trade relationship between Australia and Russia, this is unlikely to directly affect most Australians and Australian entities. However, we recommend that Australians and Australian entities review their full supply chain as any supply from Russia exceeding approximately A$100,000 will be impacted by ‘unfriendly’ listing. This is another source of disruption for supply chains and likely to cause delay.

Risk of indirect supply

Australia has a relatively small trading relationship with Russia. However, there remains a risk that Australians and Australian entities may unwittingly breach the Australian autonomous sanctions regime. Australia’s sanctions apply to direct and indirect supply to sanctioned individuals and entities, or certain categories of goods. This means that if supply unintentionally ends up with a sanctioned end-user a breach may have occurred.

China is Australia’s largest two-way trading partner[6] and China has announced that it is maintaining its trade relationship with Russia. Therefore, while Australia has significant trade with China, and China with Russia, this poses a risk to Australian businesses, particularly those engaged with the supply of items relating to the creation, acquisition, or development of infrastructure:

  • for transport, telecommunications or energy sectors;
  • the exploitation of oil, gas or mineral reserves; and
  • arms or related material.

We recommend Australians and Australian entities review:

  • the DFAT consolidated list[7] to assess their risk of indirect supply; and
  • the DFAT Russia[8] and Russian influence Ukraine Region[9] sanctions regime websites to inform their assessment of their risk;

Shipping and supply chain risks

Australia has not sanctioned any Russian vessels; however, vessels are being seized across the world as a result of UK and US sanctions. Several shipping lines have immediately suspended all shipments to Russia, MSC, Maersk, CMA CGM, DB Schenker, and Hapag Lloyd among them. Additionally, Russia's siege and capture of Mariupol and Kherson mean that ships are generally avoiding these ports also.

Russians and Ukrainians make up a large proportion of the seafarers on internationally trading vessels, with Russia being the second largest supplier of crew after the Philippines[10]. This presents an issue when it comes to crew changes, with crew unable to safely travel into and out of Russia and Ukraine.

The impact is that supply chains that have survived the pressure and disruption of COVID-19 are now further disrupted as trade routes are varied or entirely scrapped.

We recommend that:

  • Traders and cargo interest allow increased time for supply when contracting.
  • Cargo interests avoid trade on vessels owned or operated by a sanctioned entity or others with connection to Russia which may cause delays.
  • All shipping interests review their insurance cover for war risks.
  • Insurers review their exposure to risks covered by policies for war risks and sanctions and consider options to cancel where appropriate.
  • Charterer interests review their voyage plans and upcoming charter obligations to ensure safe ports are nominated.
  • Those involved in international commodity trades consider options for termination or suspension by reason of force majeure.

This is a regularly evolving situation and we encourage you to schedule regular risk reviews, taking into account the recommendations above and in our first article.

Please contact Chris Sacre or your usual Hall & Wilcox contact if you would like to discuss these issues further.

Contact

Chris Sacré

Chris is a leading transport and trade lawyer with extensive experience in shipping, international trade and marine insurance.

Kendall Messer

Kendall is an experienced transport and trade lawyer in our Perth office.

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