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Big Law’s Russia Sanctions Lawyers Shift Focus to Enforcement

Sept. 26, 2022, 9:30 AM

As the Russian invasion of Ukraine hits the seven-month mark, the legal landscape is shifting for corporations around the world navigating a slew of sanctions stemming from the military action.

“The Russian sanctions are remarkably broad and were enacted with incredible speed,” said Wilson Sonsini partner Mike Casey in an email. “We expect to see a massive uptick of enforcement activity in 2023.”

Companies and their lawyers scrambled in the early days of the fighting to understand thousands of new Russia-targeted economic sanctions and export controls, including from the US, the UK, and the European Union. Now they have a different challenge: steering clear of heavy fines and possible criminal charges as governments step up enforcement of the restrictions.

Sweeping moves in the US alone ban “new investment” in the Russian Federation by any “United States person, wherever located.” They’ve also prohibited a wide range of business services for anyone in Russia and significantly restricted various exports to the country and ally Belarus.

More recently, the Commerce Department boosted financial, administrative and criminal penalties for export control infractions. The agency also changed its policy to require violators to admit to infractions in order to reach a settlement.

Casey and two other Wilson Sonsini lawyers in a Sept. 15 alert to clients warned that companies facing an “unprecedented and dizzying array” of Russia-focused sanctions and export controls need to be increasingly aware of US agencies and foreign governments investigating possible violations.

The law firm, founded in California’s Silicon Valley, is known for representing some of the world’s most prominent tech companies. Casey works generally with clients in the financial, life sciences, and oil and gas sectors among others, according to his LinkedIn profile.

“(A)s the pace of new sanctions and export controls has begun to slow, a new era may be beginning,” the team wrote.

Getting Ahead

Russia’s invasion has dragged on, with little sign the Ukrainian resistance is fading. This week, Russia President Vladimir Putin ordered as many as 300,000 reservist fighters to be called up, an announcement that caused rare street-level protests in more than three-dozen cities in his country.

Since the war started in late February, US agencies and foreign governments collectively have sanctioned more than 9,000 businesses and individuals, according to Castellum.AI, a compliance screening company.

The moves include threatened punishments for doing business with Russian banks and other businesses closely tied to Putin, as well as Putin “facilitators,” family members, and billionaire oligarchs.

For banks, staying on the right side of the law means filing “blocking reports” with the Treasury Department’s Office of Foreign Assets Control. The reports detail possibly unlawful transactions, which OFAC can pause or reject.

The office is also “getting flooded” with voluntary disclosures from other companies looking to explain transactions that might attract scrutiny ahead of time, said Gibson Dunn partner Judith Alison Lee, co-chair of the firm’s international trade practice group.

‘Turns of the Screw’

Law firms are offering clients a range of ways to track the growing lists of sanctions, including through the use of AI-informed legal technology. Akin Gump Strauss Hauer & Feld, for example, has signed more than 200 clients to subscriptions to its Russia Trade Controls Resource Center, which tracks changes to Russia-focused sanctions and export rules.

Akin Gump and roughly two-dozen other firms closed their offices in Russia after the war broke out and initial sanctions were imposed, a group that includes Latham & Watkins, Freshfields Bruckhaus Deringer, and Morgan Lewis & Bockius. Most continue to advise companies on the legal fallout from the invasion.

Covington & Burling’s international trade team has drafted 14 client alerts since the invasion began, advising on how to adapt to the sanctions. The Washington-headquartered firm has hired two more Russian-language speakers, both associates, who have joined the two her group within the firm already employs, said Kim Strosnider, co-chair of Covington’s international trade controls practice group.

Getting a handle on sanctions and export controls early on was like trying to corral a “whirlwind of developments,” said Strosnider. It’s been “a continual tightening” since then, or what she called “turns of the screw.”

Arnold & Porter lawyers “definitely were not getting any sleep” when the sanctions landed, according to partner Soo-Mi Rhee.

Rhee said she previously often got pushback from clients when she urged strict compliance with other sanctions before the Ukraine invasion.

“We always hear this question,” she said. “Can you be more flexible in your thinking?”

Many clients have now softened their resistance, she said.

“Companies are more afraid than ever before of consumer backlash,” Rhee said.

They’re also more willing to pull up the stakes this time and get out of Russia completely than in previous situations where the US has acted alone in imposing sanctions, Paul Marquardt, a Davis Polk partner in Washington, said.

“Our clients are trying to get out of Russia, and that hasn’t always been the case,” he said.

To contact the reporter on this story: Sam Skolnik in Washington at sskolnik@bloomberglaw.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Hughes at jhughes@bloombergindustry.com