How can sanctions be applied better on Russia? - comment

Accordingly, payments for goods or services from and to parties that are not under sanctions are being held in transfer for weeks.

 DALEEP SINGH, then serving as US deputy national security adviser for international economics, speaks about sanctions against Russia, at a press briefing at the White House, earlier this year. (photo credit: KEVIN LAMARQUE/REUTERS)
DALEEP SINGH, then serving as US deputy national security adviser for international economics, speaks about sanctions against Russia, at a press briefing at the White House, earlier this year.
(photo credit: KEVIN LAMARQUE/REUTERS)

Sanctions have long been used by the United States, the EU and the United Nations to target the wrongdoings of dangerous regimes such as Libya, Iran and Syria; and have indeed had an enormous impact on those terror-sponsoring states. The sanctions imposed on these countries and their relevant actors remain important tools in seeking to deter their heinous activities.

In response to the ongoing war in Ukraine, both the US and EU have assembled new and broad sanctions policies targeting Russia, Belarus and those who are perceived to have influence on, or connections to, the Russian administration. But it is necessary to ask whether these sanctions are being applied properly.

The new sanctions being applied by the Biden administration go beyond Russia’s energy supply and governmental activities and are more extensive than the Obama administration’s 2014 executive order targeting investment and trade at the time of and relating to Russia’s activities regarding Crimea. Businesses today appear to be in a fog when determining whether they can conduct a particular transaction with a person or entity from Russia or Belarus, even one not on the sanctions list.

Due to the broad scale of the new regulations, many corporations and their leaders find themselves in a situation where they risk a breach of perfectly legal transactions as they often hesitate to execute transactions for lack of clarity and the fear of a possible risk to themselves or their businesses.

The White House or Department of Treasury reveal that recent sanctions are being issued under broad catch-all provisions which appear to be ambiguous as to the basis for the sanctions, and thus are creating confusion and are essentially applicable to not only the listed “oligarchs,” but are extendable to a multitude of Russian citizens. This is a consequence which the Biden administration surely did not intend to bring about – punishing presumptively innocent Russian people or legitimate businesses, rather than the Russian government.

 War and sanctions keep Ukraine and Russia tourists from Adriatic coast (credit: REUTERS/STEVO VASILJEVIC) War and sanctions keep Ukraine and Russia tourists from Adriatic coast (credit: REUTERS/STEVO VASILJEVIC)

However, the application of these broad, and in some cases unsubstantiated, sanctions to a wide swath of legitimate businesses in the sanctioned countries – as well as other locations where businesspeople of Russian descent have established companies or subsidiaries, including in the US, EU and Israel – has created an atmosphere of serious doubt over whether the secondary sanctions apply to them and to what extent, and are likely to lead to extensive damage and chaos in ongoing or contemplated business transactions, which runs contrary to the essential goals of the sanctions.

Notwithstanding the intended purpose of primary and secondary sanctions, the US has a vested interest in helping legitimate Russian and Belarus business and personnel thrive in their doing of commerce, particularly outside of Russia. And while the US has taken a clear stand in this case, for Israel, which is caught between the two giants, it is not as simple to take an unequivocal step on the issue.

Russia as another important ally

WHILE THE US may be Israel’s most important ally, Russia is another important ally to Israel, and is a critically necessary ally in the Middle East due to its presence and influence in the region, including the Syrian border and Israel’s ongoing efforts to stop Iran’s movement of dangerous and life-threatening terrorist weapons across Syria to Hezbollah in Lebanon, a designated Foreign Terror Organization. Israel also has a sizable Russian-speaking citizen population living in the country who maintain families, property and ongoing business and personal ties in Russia.

But despite Israel’s present neutral stance, Israeli banks and businesses do not know if and/or when people and entities of Russian/Belarus origin, with whom they may otherwise do business, will be added to the list.

Accordingly, payments for goods or services from and to parties that are not under sanctions are being held in transfer for weeks and sometimes not finalized as the banks do not know how to interpret the potentiality of their customers coming onto a sanction list on a day-to-day basis, creating risk for the banking sector and causing both Israel and the US to lose valuable growth and creating unnecessary controversies between parties to transactions, which is further likely to cause legitimate Russian businesspeople to turn to competitor countries like China or to do their business in the Gulf, including in Abraham Accords jurisdictions, such as the UAE.

For the sanctions to succeed as intended, quick and simple measures must be taken to assure that innocent Russian businesspeople are not improperly sanctioned or precluded from doing legitimate business with the US, the EU, Israel and other allies.

There needs to be a connection, and easy communication between business and banks around the world and the US Department of Treasury, or other administrative personnel that can provide simple and quick guidance. This perhaps could be accomplished through a clearing desk that can review and approve proposed transactions or provide “no action” letters as to avoid punishing those who have no culpability for the tragic ongoing situation in Ukraine and to help efficiently ensure that sanctions are only applied fairly and properly, as intended.

The triangular relationship between Russian, Israeli and American businesses and governments was always both important and impactful but is now precariously stretched to its limits for the ongoing and needed future legitimate transactions, it is important that this triangular relationship not be turned into a Bermuda Triangle, with the lack of clear instructions that will necessarily make good and valuable transactions disappear into thin air.

The international business and legal community must demand fair and efficient treatment and review of sanctions, threatened and feared, to make sure that sanctions, as applied to third parties, do not unfairly punish legitimate businesses and individuals and damage western companies, economies and innocent businesspeople in the process.

Anna Moshe practices corporate and commercial law in Tel Aviv. The views expressed are the personal views of the author(s); Richard D. Heideman is senior counsel of Heideman Nudelman & Kalik, PC, a Washington law firm which represents American victims of terror; Joseph H. Tipograph is a member of Heideman Nudelman & Kalik, PC, and previously served as a vice chairman of the American Bar Association Section of Antitrust Law, Financial Services and Insurance Committee;Yoav Navon is an Israeli lawyer and litigation consultant, with expertise in litigation finance and complex international disputes.