Russia and Beyond: Sanctions Developments and Lessons for Boards from 2022

January 17, 2023


This past year’s Russia-Ukraine conflict sparked a significant transformation of the global economic sanctions landscape, with developments and lessons extending well beyond Russia. 

In 2023, boards of directors should continue to monitor Russia-related sanctions across multiple jurisdictions, be aware of the implications of sanctions developments for the energy sector and consider planning for sanctions and export control contingencies, particularly relating to China.

Russia-Ukraine Sanctions

In the wake of the Russian invasion of Ukraine, the United States and its partners and allies imposed a range of sanctions that were unprecedented in scale, scope and speed of deployment.  In particular, the United States, European Union and United Kingdom imposed various prohibitions and restrictions relating to major Russian financial institutions, oligarchs and government officials (as well as entities owned or controlled by such parties); any new investment in Russia; the provision of certain professional services (including accounting and management consulting services) to Russia; export/import bans (including prohibitions and restrictions related to Russian-origin crude oil and petroleum products); transactions with the Russian Central Bank, Ministry of Finance and National Wealth Fund; and dealings with certain occupied territories of Ukraine.[1]  In response, the Russian government implemented a number of novel countermeasures that include various forms of capital controls, disclosure exemptions, trade and intellectual property restrictions and other government approval requirements and restrictions on foreign parties. 

Boards should be aware that the consequences of these sanctions extend beyond their immediate economic effects and compliance obligations for companies.  Indeed, new and newly revised sanctions measures—such as the new investment ban and sector-specific services bans, as well as Russian countermeasures—that have been deployed since February 2022 may constitute a new “blueprint” for sanctions to be applied in future contexts beyond the conflict in Ukraine.  In addition, the UK and EU sanctions regimes have not only expanded, but have also undertaken significant institutional reforms.  For example, the UK Office of Financial Sanctions Implementation (OFSI) now imposes civil monetary penalties under strict liability (similar to U.S. sanctions).  Also, the European Commission introduced measures to harmonize enforcement of EU sanctions across Member States, including a pending proposal for fines on companies of at least 5% of worldwide turnover and imprisonment of individuals for violations of EU sanctions against Russia. 

Similarly, close coordination between U.S., EU and UK sanctions authorities over the past 10 months have established new, and strengthened existing, channels that may facilitate future coordination in both the imposition and enforcement of sanctions (including, for example, through the reestablished U.S. Office of Sanctions Coordination at the U.S. Department of State).  Of course, such cooperation extends as far as sovereign interests are largely aligned, and even then, as demonstrated by the current conflict in Ukraine, certain divergences between jurisdictions in the scope or timing of sanctions may be unavoidable for technical, legal or political reasons.  It is thus imperative that boards be aware of the increasingly complex and extensive reach of sanctions across jurisdictions, potential countermeasures from sanctioned jurisdictions and the resulting compliance and business risks.

Entering the new year, as the conflict in Ukraine continues into its second year, new measures against Russia could include additional designations of Russian financial institutions and major businesses, oligarchs, government officials and their close associates;  additional designations of sanctions evaders, wherever located; the extension of existing sanctions such as the services bans to new sectors of the Russian economy; and the continued tightening of export controls against Russia (including greater harmonization across partner countries).  Boards should also expect law enforcement and sanctions authorities to continue to take an aggressive enforcement posture with respect to violations of existing sanctions against Russia and to continue to seek novel avenues of asset seizures and forfeitures of sanctions targets. Should the situation in Ukraine further deteriorate, the possibility cannot be ruled out that the Russian government may impose strategic limits on the country’s export of certain critical minerals and other natural resources, which could impact supply chains ranging from battery manufacturing to automotive and aerospace industries, given Russia’s significant share of global supply of such materials.  Ultimately, the direction and intensity of further sanctions and other trade controls will be driven by battlefield realities and the prospects for a negotiated settlement to the conflict.  Boards of companies with business exposure to Russia and Russian parties—including those continuing to wind down or maintain operations in Russia—should continue to monitor the situation.

Energy Sector Developments

Boards should also be aware of the increasing interplay between economic sanctions and energy markets, as demonstrated by recent actions by sanctions authorities.  At a high level, such actions demonstrate an aim by western countries to deprive certain regimes of energy revenues while avoiding destabilization of energy prices. Such actions include Russia-related measures, as well as the potential easing of U.S. oil-related sanctions on Venezuela and the continuation of sanctions targeting the Iranian oil sector and sanctions evasion efforts.

On December 5, 2022, a new maritime services ban and related price cap targeting Russian-origin crude oil entered into effect among an international coalition of countries comprised of the G7, European Union and Australia.[2]  While each coalition member has enacted its own measures to effectuate the ban, persons subject to the jurisdiction of each member are generally prohibited from providing certain services related to the maritime transportation of Russian-origin crude oil unless such oil was sold below a certain price level—initially set at USD $60 per barrel.  A similar ban and price cap with respect to Russian-origin petroleum products is scheduled to enter into effect on February 5, 2023.  In response, on December 27, 2022, Russian President Vladimir Putin signed a decree that prohibits the supply of Russian-origin oil and oil products to any foreign person with respect to a contract that directly or indirectly presupposes the application of the price cap, unless an exemption is granted by President Putin. 

Meanwhile, with respect to Latin America, on November 26, 2022, the U.S. Department of the Treasury, Office of Foreign Assets Control (OFAC) issued two general licenses related to oil activities in Venezuela, in recognition of certain progress that the Maduro regime and the Venezuelan opposition platform made in political negotiations.[3]  General License 41 authorizes Chevron Corporation to resume certain joint-venture activities with Petróleos de Venezuela, S.A. (PdVSA), including the production of petroleum and petroleum products and the import of such products into the United States (sales to other jurisdictions remain prohibited).  With respect to certain other western oil companies, General License 8K renews an existing general license authorizing limited maintenance and wind down operations involving PdVSA.

Lastly, while negotiations concerning Iran’s nuclear program continue to stall, the U.S. government has continued to target Iranian oil distribution channels, including the November 17, 2022 designation of 13 companies for facilitating the sale of Iranian petrochemicals and petroleum products to East Asia, and the December 8, 2022 designation of a prominent Turkish businessman and related persons and entities for facilitating the sale of Iranian oil for the sanctioned Islamic Revolutionary Guard Corps-Qods Force.

Contingency Planning

As demonstrated in the initial weeks of the conflict in Ukraine, economic sanctions and export controls can significantly disrupt a company’s operations and require executives and boards to make consequential decisions based on technical rules under significant uncertainty and time constraints.  In particular, as the United States and certain allies and partners shift to a more direct policy of containment toward China, and as tensions mount in the Taiwan strait, advanced contingency planning can be invaluable to streamline such decision-making, minimize the risk of sanctions violations and mitigate operational disruptions.

Given the significant economic interdependence between the U.S. and Chinese economies, a complete embargo between the countries similar to U.S. sanctions against Iran or Cuba is improbable.  However, even in the absence of a significant escalation of conflict between the two countries, boards should be aware that, in addition to the measures already taken by the United States during 2022 highlighted below, additional trade restrictions against China are a near certainty in light of the shift in U.S. policy and current political climate, particularly with new political leadership in Congress and the establishment of a new U.S. House Select Committee on China with the stated aim to “restore supply chains and end critical economic dependencies on China,” among other priorities.[4]    

  • On June 21, 2022, the Uyghur Forced Labor Prevention Act entered into effect, imposing a rebuttable presumption that any goods produced in whole or in part from the Xinjiang region of China were made with forced labor and thus prohibited from import into the United States. 
  • In July and August 2022, Congress passed additional legislation that proscribes certain Chinese-linked entities or items from government subsidies relating to semiconductor manufacturing and electric vehicle batteries.[5] 
  • On September 15, 2022, President Biden signed an Executive Order identifying national security risks—largely targeting but not explicitly naming China—for CFIUS to consider in its review of inbound investment.[6] 
  • On October 7, 2022, the U.S. Department of Commerce issued significant new export controls—that include expansive restrictions capturing certain items manufactured outside of the United States using certain U.S. technology—designed to restrict China’s ability to obtain advanced computing chips, develop and maintain supercomputers and manufacture advanced semiconductors.[7] 

New measures in the coming year could include executive or congressional action to implement a much-discussed national security screening mechanism for outbound investments (i.e., covering investment by U.S. persons in China);[8] the expansion of export controls to new sectors, such as quantum computing, artificial intelligence, and biotechnologies; the continued designation of Chinese military-linked companies on export controls and sanctions lists; and the engagement of additional U.S. allies and partners to impose similar export controls and sanctions against China.  Such actions may, in turn, increase the likelihood of Chinese countermeasures, including the imposition of sanctions under the Chinese Anti-Foreign Sanctions Law adopted in 2021.[9]

In anticipation of the above and potentially more significant actions and changes, boards may consider preparing advanced contingency plans by identifying key touchpoints to external parties (including suppliers, customers and end-users), outlining potential trade-restriction scenarios and retaliatory countermeasures, evaluating vulnerabilities to their businesses, operations and investments, and, as necessary, mitigating such risks by preparing contingency and crisis response plans.

[1] For additional details, see our “Sanctions Developments Resulting From the Conflict in Ukraine” resource center here.

[2] For additional details on the maritime services ban, see our September 2022 and January 2023 blog posts here and here.

[3] For additional details on these developments, see our December blog post here.

[4] In recent years, U.S. trade controls against China have been primarily limited to sanctions against government officials, sanctions evaders, and Chinese military-linked companies; export control restrictions against specific companies and information and communications technology and services relating to China; and heightened scrutiny by the Committee on Foreign Investment in the United States (CFIUS) in its review of inbound Chinese investments.

[5] See provisions relating to “foreign entities of concern” under the CHIPS and Science Act, Pub. L. 117‑167, and the Inflation Reduction Act of 2022, Pub. L. 117‑169.

[6] For additional details, see our September blog post here.

[7] For additional details, see our October blog post here.

[8] For additional details, see our March 2022 and January 2023 blog posts here and here.

[9] For additional details, see our June 2021 blog post here.