«Empty threats: why Russia does not control fulfilment of its sanctions». Special adviser on sanctions law Sergey Glandin expresses his opinion to the RBC

Apart from the USA, where the fulfiment of sanctions is monitored in real time, and sanctions violation may cause tough punishment, the Russian authorities impose sanctions, e.g. against the Ukraine, which still can be ignored.

The Russian CB requested an account from banks for measures taken to their clients mentioned in the sanctions list for the Ukraine. Russia is trying not only to impose economic sanctions, but to control their realization. In that connection, let's examine how the Russian system of special economic measures (SEM), or sanctions, works.

Reference to nowhere

The strength of the American sanctions is based on the opportunities of the US economy, and on the existence of a special body which has been controlling their realization since 1940. The Office of Foreign Assets Control (OFAC) of the US Department of Treasury cannot use searches, withdrawals, and "mask-shows". But it can enter a company or a natural person in the sanctions list. The consequences are well formulated in the claim brought to the DC Federal Court by Oleg Deripaska - complete destruction of reputation and economic welfare. The US Department of Justice and Office of the Prosecutor General can bring a person to justice and impose a fine of up to $1 million and sentence them up to 20 years of imprisonment for (an attempt of) deliberate violation of sanctions laws.

The Russian Federal Law "On Special Economic Measures" 281-FL (further – Law on SEM) was passed 30 December 2006, almost 30 years after its American prototype, and 14.5 years later than its Canadian analogue. Realization of these measures is obligatory for organizations and natural persons under the Russian jurisdiction (p.3, c.3 of the Law), but responsibility for non-observance of the Law is not provided. P.4, c.3 of the Law on SEM contains a reference norm that the responsibility of officials is determined by the Federal Law. But this norm refers to nowhere. Judicial practice on the matter does not exist either. Also, apart from the North American analogues, there is no separate chapter "Terms and Definitions" in our Law. It's impossible to understand who should be considered as an official – according to the 2006 legislative practice, when the Law was adopted, only a representative of the state body can be the one, but not a Director General of a Russian LLC, for example.

Anti-Ukrainian sanctions

The Ukraine has been entering Russian natural and juridical persons in its sanctions lists since spring 2014. Our country decided to recognize these actions as "unfriendly and conflicting with the international law" only four years later. The Decree 592 of the President of Russia introduced special protective measures against certain Ukrainian natural and juridical persons. In order to execute the Decree the Government adopted a resolution 1300, according to which the following kinds of SEM were planned to be introduced against Ukrainian citizens and companies under their control:

a) blocking (freezing) non-cash money, uncertified securities and property in the Russian Federation;

2) ban to transfer money abroad.

The Resolution had two supplements concerning natural and juridical persons who were to fall under sanctions. The current edition of the supplements contained 575 Ukrainian citizens and 75 juridical persons. However, it became clear five months later that Russian participants of the business turnover did not hurry up with the execution of the normative acts, and sanctions against the Ukraine could be enforced only if the one wished to do so.

Execution without punishment

Also the governmental resolution did not contain any regulations on liability for violation of the sanctions regime, it only contained a reference to the President's Decree, which, in turn, referred to three Federal laws, whereas only one of them, the Law on the SEM, had that very norm leading nowhere.

Indeed, the Russian Ministry of Finance founded a specialized Department for Control over Foreign Restrictions in September 2018. Judging by the name, it has to deal with the monitoring of compliance with sanctions against the Ukrainian business. However, it has no such functions.

But, in accordance with p.4, c.4 of the Law on the SEM, the Central Bank provides realization of sanctions measures within its competence. Here comes a simple conclusion: the subject composition of the controlled persons over compliance with "anti-Ukrainian sanctions" is limited by the Russian banks; the only controlling body is the CB; the form of control is one-time at the regulator's request, and the kind of potential liability is not determined.

Just for comparison: the American sanctions legislation contains norms on obligatory informing the OFAC about actions for performing duties with regard to the countries, regimes and their residents, who have fallen under sanctions. American regulator won't send letters, it has a real-time access to the SWIFT system, and to transfers through correspondent accounts in American banks. The banks themselves and international companies are sending lots of reports about the ways they block money, accounts and proprietary rights of persons fallen under sanctions, to the department of Steven Mnuchin.

Working sanctions

Three keys to the success of the sanctions mechanism of this or that country, based on the American experience can be singled out:

the country's large share in the world economy;

existence of a permanently working body which administers sanctions and monitors compliance with them; 

real fear to be held accountable; not criminal responsibility or draconian fines should be so frightening, but the danger of being disconnected from the economy and financial system of the country.

It is clear that Russia can't boast of anything like that. But it can go forward that way. The CB has a permanent channel of communication with the Russian banks in the form of financial reporting system. The system of business reporting on the execution of sanctions acts can be introduced by the government. And in order to make the mechanism work, it is necessary to enter a clause on total responsibility for everyone who circumvents, violates sanctions rules, or helps another person to do so, into the profile sanctions law and the CC. That may concern not only Russian companies. Russia is not a global economic power, but it's vote is crucial in the EAEU.