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Lawyers warn of Russia exposure risks as sanctions tighten

Shipping lawyers are struggling to keep up with the ‘thousands of pages of regulations issued since a week ago’

Vetting counterparties for sanctions risk has become much harder amid unprecedented sanctions on Russia, and more are expected. The rapid onset of sanctions means operators must scour their counterparties for links with tarred Russian entities

THE Russia sanctions risk is expected to change day by day as the west seeks new ways to punish the country for its war in Ukraine.

With the UK barring Russia-connected ships and the European Union considering similar action, companies are trying to establish where it is safe and legal to trade, and with whom, a BIMCO webinar was told.

The UK Department for Transport asked British ports not to give access to any ship owned, chartered, or operated by any person connected with Russia.

Crowell & Moring partner Michelle Linderman said existing UK sanctions regulations could give a hint of to whom the phrase “connected with Russia” applied.

She said this covered entities either incorporated, constituted, or domiciled in Russia, which was “very, very broad”.

Ships owned, controlled, chartered, or managed by Russian entities could be prevented from coming into UK ports.

“People will have exposure to this,” she said, urging operators to use BIMCO’s sanctions clauses when drawing up charterparties. “The UK might seem fairly limited at the moment, but we do know the EU is looking to do exactly the same thing.”

David ‘DJ’ Wolff, a partner at the law firm, called it the “most comprehensive co-ordinated global sanctions campaign we have ever seen”, adding that restrictions could be divided into those covering people, places, and activities.

Places were the easiest: there was a blanket embargo on separatist-held regions of Donetsk and Luhansk, but since products could not be sent there anyway, this was not much of a problem.

The prohibited persons category was harder since it covered who operators could pay or be paid by.

“Screen your banks, screen the banks of any of your counterparties,” Mr Wolff said.

The US had sanctioned Sberbank, Russia’s largest bank, and other banks had been targeted with more limited credit restrictions. If banks were cut off from Swift, the platform banks use to communicate, it would be nearly impossible to transact with them.

There were questions about whether sanctions on the Russian Central Bank could affect tax payments made to it.

Sanctions on Russian oligarchs, meanwhile, were difficult because of their webs of business links.

“Oligarchs by definition own a lot of stuff,'' Mr Wolff said. “And because sanctions flow down to everything they own — or in the EU or UK case, control — then you're prohibited to not only transact with the individual, but their network.”

The US had not sanctioned the activity of shipping to Russia yet, as it had with Iran. But ships should be aware of export controls, which were increasingly put on certain electronic and artificial intelligence goods.

There were no restrictions on importing Russian oil and gas, but this could change, he said.

Ms Linderman said banks were pausing their Russian activities and refusing to open letters of credit while they got to grips with the sanctions. Some were worried about compliance, others reputational risk of seen to be supporting Russia’s war.

Companies could fall foul of sanctions if they paid a Russian crew member through a sanctioned bank.

She said operators should check with their P&I and legal advisers before refusing to call at a Russian port.

Companies should try to negotiate a middle ground to avoid costly contractual disputes: “There’s enough conflict going on.”

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