Since the Russian invasion of Ukraine, numerous German and international banks have been trying either to reduce their exposure to Russia significantly or to withdraw from the country altogether. These de-risking activities have been triggered in part by actual or expected (counter-)sanctions and in part by purely reputational concerns. However, compliance and reputational risks not only loom in banks' Russia-related back books, but also arise in connection with new business. Banks must therefore carefully and continuously monitor the quickly evolving (EU) sanctions landscape to avoid breaching sanctions. The financial sanctions are largely based on EU Regulations that are directly applicable in each EU Member State. Regulation (EU) 269/2014 and Regulation (EU) 833/2014 are the most relevant statutes concerning the sanctions against Russia.
Regulation (EU) 269/2014 imposes such measures as an asset freeze and a prohibition on providing funds or goods to numerous sanctioned persons (both natural persons and legal entities), as well as to entities controlled by sanctioned persons. By contrast, Regulation (EU) 833/2014 sets out numerous sector-specific sanctions, some of which are of particular relevance to the financial services sector, including:
the exclusion of major Russian banks (e.g. VTB, Gazprombank, most recently Sberbank) from the SWIFT network used for financial messaging among banks. Decoupling these banks from SWIFT effectively cuts them off from international interbank transactions.
a prohibition on dealing in or assisting with the issuance of certain issuers' securities, not just in the financial sector, but in other industries as well (defense, oil).
a prohibition on credit institutions accepting deposits exceeding EUR 100,000 from Russian citizens and entities, as well as from natural persons resident in Russia (save for narrow exceptions), with existing deposits exceeding this threshold being grandfathered.
So, what do companies need to keep in mind?
The consequences of violating EU (financial) sanctions are harsh. In most cases, transactions in breach of EU sanctions will be void under civil law. In Germany, breaches may also qualify as a criminal offence or an Ordnungswidrigkeit (administrative offence) under the German Foreign Investment Act. Banks may also face supervisory measures for failure to establish a proper business organisation that prevents such breaches. These measures can range from a mere request to remediate the organisational shortcomings to repercussions for the management of financial institutions.
As the situation is evolving rapidly, our assessment of this issue might change. If you have any specific asset-related questions, please reach out to one of our experts.