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Hold on to your hats! Russia moves on counter-sanctions

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  • Russia
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  • Competition, EU and Trade

18-05-2018

On Monday 14 May 2018 the Russian State Duma (the lower house of the Russian Federal Assembly) was presented with Draft Bill No. 464757-7 which, if signed into law, will make complying with Western sanctions on Russian soil a criminal offence. The bill was unanimously approved following a first reading on 15 May, however a second reading due to take place on 17 May was postponed pending further consultation with key Russian businesses and lobbying groups.

A second Draft Bill on counter-sanctions was approved following a second reading on 17 May.

The two proposed pieces of legislation were first proposed in mid-April as part of Russia’s counter-sanctions measures, following the imposition of new sanctions on Russian companies and individuals by the United States.

Background

On Friday 6 April the United States Treasury Department announced a new wave of sanctions against a number of Russian individuals and companies in response to Russia’s alleged interference in the 2016 US Presidential election as well as “ongoing aggressions” in Crimea, Ukraine and Syria.

Draft Bill No. 464757-7 “On Amendments to the Criminal Code of the Russian Federation” (“the Criminal Liability Bill”) is intended to form part of a retaliatory response to the recent sanctions imposed by the US, along with Draft Bill No. 441399-7 “On Measures (Countermeasures) in Response to Unfriendly Actions of the USA and (or) other Foreign States” (“the Counter-Sanctions Bill”).

The first Bill would impose criminal liability on individuals and companies who comply with Western sanctions on Russian soil, while the second proposes to give the Russian Government power to “introduce a number of measures both of economic and political nature aimed first of all at removing the so-called unfriendly acts of the US".

Proposed Legislative Changes and Timeline

In order for a bill to become law under the Russian legislative process it must survive three readings in the State Duma followed by a reading in the Federation Council (the upper house of the Russian Federal Assembly). If approved, the bill can be signed into law by the President of Russia.

The Counter-Sanctions Bill passed a second reading on 17 May, and is expected to be reviewed by the State Duma in a final reading on 22 May before being sent to the Federation Council for approval.

The Criminal Liability Bill was approved unanimously on its first reading, and currently requires two more votes in the State Duma followed by one vote in the Federation Council before it can be signed into law by President Vladimir Putin. A second vote in the State Duma was scheduled for Thursday 17 May, but was postponed pending further consultations with Russian businesses and lobbying groups which are due to take place the week beginning 21 May.

The deputy head of the parliamentary majority party United Russia has previously suggested that “there is no doubt” that the Criminal Liability Bill would be passed by parliament in the course of the current spring session, and likely before July 29. However, given the delay of the second reading and the need for further consultation, it is uncertain whether the Bill will be adopted in its current format.

The Criminal Liability Bill

The current version of the Criminal Liability Bill proposes amending the Russian Criminal Code to include a new article (Article 284.2) entitled "Restricting or Refusing to Perform Ordinary Business Operations or Transactions for the Purpose of Assisting the Enforcement of Restrictive Measures Imposed by a Foreign State, a Group of Foreign States or by an International Organization".

The proposed Article 284.2 would be formed of two parts which, if signed into law, would give Russian courts the authority to impose prison terms and financial penalties on any individual or representative of a legal entity in Russia who allows the application of anti-Russian sanctions.

Part 1 of the Article would impose criminal liability for “action or the lack of action” regarding the enforcement of anti-Russian sanctions on Russian citizens, corporate entities, the Russian Federation and/or any of its regions or municipalities. Under the terms of this provision, any individual or representative of a legal entity in Russia who refuses to supply or do business with a Russian citizen as a result of sanctions could face a prison term or penal labour sentence of up to four years, along with fines of up to 600,000 Roubles.

Under Part 2 of the Article, it would also be a criminal offence to provide advice or information which could help foreign governments impose sanctions on Russia. A violation of this provision could entail a prison term or penal labour sentence of up to three years and/or fines of up to 500,000 Roubles.

Criticism of the Criminal Liability Bill and Further Consultation

Although the current draft of the Criminal Liability Bill was approved by the State Duma at its first reading, it has been met with resistance from a number of commercial entities who are concerned that the imposition of criminal liability may have a negative impact on Russian business.

The decision to postpone further progress of the Bill is a result of public warnings from leading Russian businesses that adoption of the Bill in its current form could harm the Russian economy. The Russian Union of Industrialists and Entrepreneurs has stated that the Bill creates risks of “restricted cooperation with foreign investors, reduction of interest in investing in Russia from foreign companies and the business climate worsening.” Other groups have raised concerns that under the new law, European businesses would be caught between the conflicting requirements of US and Russian authorities in relation to sanctions, effectively forcing firms to choose between doing business inside Russia or doing business outside Russia, when in fact many rely on being able to do both.

The Deputy Speaker for the State Duma has said that the Draft Bill will undergo further changes before the second reading, although at this stage it is not clear whether the criminal penalties for observing sanctions would be removed from the Bill.

The Counter-Sanctions Bill

Despite the delay to the Criminal Liability Bill, the Counter-Sanctions Bill has been approved in a second reading and is expected to be reviewed by the State Duma in a third reading on May 22.

The Bill does not mention any specific industries, goods or services to which sanctions will be applied, but allows the Russian Government to outlaw or restrict the import or export of goods and raw materials to and from the US and other “unfriendly” countries. If the Bill is adopted successfully it will take effect as of the day of its publication.

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