The War in Ukraine and International Economic Sanctions

The economic sanctions the United States has imposed on Russia are an expansion of the existing sanctions placed on Russia since its invasion of Crimea in 2014.

The current expansions came into effect on February 21, 2022. Considering the evolving circumstances, this review of the sanctions and their implications is general in nature and the information regarding the United States and European Union member states may change within the coming days.

US Sanctions

The United States’ main expansion of sanctions includes an absolute ban on all trade with, investment in, or economic ties to the separatist regions in Ukraine. The US also banned relations  with a list of banks and additional Russian companies.

EU Sanctions

The European Union’s expanded sanctions include:

1. A freeze on the assets of all members of the Russian parliament.

2. Suspension of trading of Russian debentures in European markets.

3. Severe restrictions on trade with the separatist regions of Ukraine.

In addition, Germany has already announced it is freezing the Nord Stream 2 gas pipeline project. The project was scheduled to pipe substantial volumes of natural gas from Russia to the European continent.

One can assume further tightening of these sanctions in the near future.

Furthermore, a number of Western countries announced their intention to block several Russian banks’ access to the SWIFT interbank system.

Implications for Israeli Companies

Israeli companies face exposure to business and legal risks due to the international economic sanctions regime, even if Israel does not expressly adopt said sanctions.

The American sanctions regime includes imposing substantial fines on sanctions violations, even if the violation was committed solely due to negligence. A deliberate violation of the sanctions could also result in criminal penalties. The American sanctions apply to every US citizen, registered company, or company operating in the United States. They also apply to any transaction that also contains American-made products (such as a software product based on software made in the US).

Furthermore, the United States government created a regime of “secondary sanctions” in recent years. This regime also bans trade with companies that violate sanctions, even if they have no affiliation with the United States. In other words, an Israeli company that violates the sanctions may find itself on an American “blacklist” that will prevent it from doing any business with American companies.  

Other implications of the sanctions regime for Israeli companies include an “indirect” adoption of the sanctions by Israeli government authorities. For example, as a precondition to granting authorization for defense exports, Israel’s Defense Export Controls Agency requires an applicant company to declare the requested export does not violate American sanctions or those imposed by the United Nations.

Finally, many American companies will refrain from investing in or doing business with companies suspected of having violated the sanctions.

Conclusion

The international regime of economic sanctions against Russia is tightening. Israeli companies that do business with Ukraine or with Russia, or whose products are marketed there, must perform an orderly risk assessment. The assessment should include a comprehensive analysis of the impact of the sanctions on their businesses.

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Professor Amichai Cohen is an of counsel specializing in international law. Professor Cohen joined our firm on February 27th.