Sanctions Compliance for Businesses in Russia: Building a System and Practical Steps

Brief Answer

Sanctions compliance is a system of internal procedures that helps identify, assess, and mitigate risks associated with international restrictive measures. For companies operating in Russia, such a system has become a necessity — regardless of whether the organization itself has fallen under direct restrictions. Without established procedures, businesses risk facing payment blockages, the breakdown of relationships with counterparties, and legal liability. In our practice, we help companies navigate the path from an initial audit to the implementation of a fully developed sanctions compliance system, adapted to both Russian and foreign regulatory requirements.

Key Facts About Sanction Risks for Business in Russia

Restrictive regimes operate simultaneously on the part of the EU, the US, the UK, and a number of other jurisdictions, each with its own lists and rules of application.

Secondary restrictions affect companies that are not themselves included on any list but interact with sanctioned persons.

Russian legislation introduces its own counter-sanction measures, and non-compliance with them entails independent liability.

Banks and payment systems are increasingly declining transactions if the counterparty lacks a documented sanctions compliance system.

A well-established system of internal procedures serves as evidence of good faith during inspections and in response to claims by regulators.

Types of Sanction Risks for Russian Business

Direct, secondary, and sectoral restrictions

Direct blocking measures mean the freezing of assets and a prohibition on any transactions with the designated person. Sectoral restrictions target specific industries: the financial sector, energy, the defense industry, and technology. They do not restrict the subject as a whole, but rather certain types of transactions or supplies.

Secondary restrictions create risk for companies that have not formally appeared on any list. A contractual relationship with a sanctioned person is sufficient for a foreign bank to block a payment or for a counterparty from a third country to refuse cooperation.

Russian Counter-Sanctions and Reputational Threats

Russian legislation introduces its own restrictive and protective measures: a prohibition on complying with certain requirements of foreign jurisdictions, a special procedure for settlements with non-residents, and restrictions on transactions involving persons from unfriendly states. Non-compliance with these rules entails independent legal consequences. Dealing with "toxic" counterparties also carries reputational risks that may result in the loss of business partners.

Initial Assessment of Sanctions Risks: Where to Begin

Threat Mapping and Model Selection

The initial stage involves drawing up a risk map: which counterparties are involved, in which jurisdictions they are registered, through which banks and in which currencies settlements are made, and which goods or services are being supplied. Sanctions pressure comes from different regulators, and it is necessary to determine which specific regimes potentially affect the company's operations.

A risk-based approach allows you to choose a model that matches the scale of your business. A small company with a limited number of foreign counterparties only needs a basic set of verification procedures. A large organization with a multi-tier corporate structure and cross-border operations requires a fully developed multi-level system.

The primary sanctions audit includes an analysis of existing contracts, the counterparty register, corporate structure, payment routes, and internal regulations. The output is a report listing identified vulnerabilities and recommendations for remediation.

Building a Sanctions Compliance System: Key Stages

The implementation of a comprehensive system includes five sequential stages.

Development of internal policy. The document establishes the principles, scope of application, verification procedures, and list of prohibited actions. It must take into account both foreign restrictive regimes and Russian counter-sanction regulations.

Distribution of responsibilities. Depending on the size of the company, this may be a dedicated employee or a distribution of functions between the legal department, the financial service, and management.

Staff training. Employees who interact with counterparties and process payments must understand the fundamentals of restrictive regimes and be able to identify the signs of high-risk transactions.

Automation. Using databases and specialized services to screen counterparties against restriction lists reduces the likelihood of errors and speeds up the process.

Incident response procedure. Who to report to, how to document, what steps to take to minimize consequences — all of this must be established in advance.

Adaptation of Contract Work and Practical Risk Mitigation Measures

The inclusion of sanctions clauses in contracts has become standard practice. Such provisions define the consequences of one of the parties being added to restrictive lists and the procedure to be followed in that event. The wording must take into account the specifics of the applicable law and must not create a conflict with Russian anti-sanctions regulation.

The company's corporate structure should be reviewed to identify which links may prove vulnerable. The procedure for approving major transactions should be supplemented with a mandatory compliance-check stage for restrictive regimes.

Counterparty checks are carried out not just once, but on a regular basis. The lists are updated frequently, and a person who was not subject to restrictions at the time of concluding a contract may be added to them at a later date. Identifying ultimate beneficial owners and control chains is essential for assessing risks associated with the indirect involvement of sanctioned persons.

Documenting all procedures — checks, decisions, rationales — builds an evidence base of the company's good faith in the event of potential claims.

Liability for Violation of Restrictive Regimes

Violation of Russian legislation regarding anti-sanction measures entails administrative liability. Circumvention of restrictive regimes may also carry criminal law consequences. In foreign jurisdictions — the EU, the USA, and the United Kingdom — non-compliance is subject to significant fines and criminal prosecution, including against officials.

A well-structured and documented system of internal procedures significantly reduces legal risks. It demonstrates to regulators that the company has taken reasonable measures to prevent violations, and this is taken into account when determining the extent of liability.

The Role of the Legal Team in Supporting Sanctions Compliance

An external lawyer specializing in sanctions law is needed at the initial audit stage, when developing internal policies, and when incidents arise. Attorney Erich Rath and our team provide a full range of services in this area: from risk assessment to ongoing monitoring and updating of internal regulations. Proficiency in both German and Russian law allows us to take into account the requirements of various jurisdictions and build a system that protects the business from both sides.

For consultation on sanctions compliance matters, please contact us:

Phone: +7 (495) 970-74-16

Email: email address is indicated on our website

Address: Moscow, Rozhdestvenska str., 5/7 bldg. 1

Website: https://www.ratanwalt.com/

Frequently Asked Questions

What is sanctions compliance and why does a company that has not been directly sanctioned need it?

This is a system of procedures for identifying and preventing risks associated with restrictive measures. Even a company not included in any list may face payment blockages, refusal of counterparties to cooperate, or liability for interacting with sanctioned persons.

Where to start building a sanctions compliance system in a Russian company?

From the initial audit: analysis of the counterparty registry, payment routes, corporate structure, and existing contracts. Based on the results, a risk map is formed and the required level of the system is determined.

What consequences does a business face for violating sanctions restrictions?

Consequences range from blocking of banking operations and severance of relationships with partners to administrative fines and criminal prosecution — both in Russian and foreign jurisdictions.

How often should internal policies be updated and counterparties verified?

Scheduled review is recommended at least once every six months. An unscheduled update is required when sanction lists change, new restrictions come into force, or there is a material change in the composition of counterparties.

Is a dedicated responsible employee required, or can the functions be distributed?

For companies with a limited number of cross-border transactions, a functional distribution between the legal and finance departments is acceptable. Large organizations with numerous international connections are advised to appoint a dedicated responsible person.

Do Western sanctions apply to Russian companies without foreign participation?

Yes, if the company uses the currency or financial infrastructure of the relevant jurisdiction, interacts with sanctioned persons, or supplies controlled goods. Secondary restrictions are specifically targeted at third-country companies.

How does sanctions compliance relate to Russian counter-sanctions regulation?

The system must account for both directions. Russian legislation, in certain cases, prohibits compliance with the requirements of foreign restrictive regimes. A properly structured system allows for maintaining balance and minimizing legal risks on both sides.

Internal links

sanctions, ADRs and securities for investors — https://www.ratanwalt.com/faq-sanctions-adrs-securities-investors-shareholders

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