Russian Federation takes counter measures against another expansion of US sanctions

On May 22, 2018, the State Duma of the Russian Federation adopted a draft of the Federal Law “On measures (counter measures) in response to unfriendly actions of the United States of America and other foreign states” (hereinafter the “Draft Law”).

According to the attached explanatory note, the adoption of this Draft Law will encourage the development and improvement of the Russian industrial market and strengthen Russia’s political position on the global arena. In addition, the lawmakers believe that the replacement of US goods, works and services with analogs from other countries will strengthen economic relations between the Russian Federation and foreign partners that do not support the US sanctions policy.

Initially, the Draft Law contained many counter measures. By the second reading, the list of measures was reduced to 6 items. The lawmakers are proposing to take such counter measures as:

• suspension of international cooperation (with both states and state organizations, as well as with legal entities from jurisdiction of unfriendly states);
• prohibition or restriction on import and/or export of certain products to/from the territory of the Russian Federation;
• prohibition or restriction on performance of works, rendering of services for government and municipal needs, and also works or services purchased by certain types of legal entities¹;
• prohibition or restriction on participation of organizations under direct or indirect control of unfriendly foreign states in privatization;
• other counter measures.

The above measures (counter measures) are being taken by the Russian Government in accordance with the President’s decision and do not apply to essential goods with no analogs being produced in the Russian Federation.

It should be noted that the State Duma is currently considering another draft law providing criminal liability for compliance with sanctions and other restrictions imposed by the United States and their foreign partners on activities carried out on the territory of the Russian Federation.²

Criminal liability is provided both for actions/inactions for purposes of executing decisions of a foreign state, a union of foreign states or an international organization to take restrictive measures that resulted in restriction or denial of regular economic operations or transactions of Russian citizens or legal entities, the Russian Federation, constituent entities of the Russian Federation or municipal entities, as well as individuals under their control, and for deliberate actions of a Russian citizen contributing to the implementation of such restrictive measures.

Punishment for these actions is proposed in form of a fine of up 600,000 rubles, or restraint for up to 4 years, or forced labor for up to 4 years, or imprisonment for up to 4 years; thereby these crimes fall in the category of medium gravity.

Currently this draft federal law is under consideration by the State Duma in the second reading. If it is adopted without significant amendments, most companies operating in both Russian and foreign jurisdictions will have to revise their business procedures in detail in order to comply with the new restrictions.

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¹ Federal law N 223-FZ “On purchases of goods, works and services by certain types of legal entities” dated 18.07.2011.

² Draft law No. 464757-7 “On amendments to the Criminal Code of the Russian Federation (to ensure implementation of Federal Law ‘On measures (counter measures) in response to unfriendly actions of the United States and foreign countries’).”