39 Asian Legal Business | October 2024 subject to secondary sanctions if they engage in certain transactions with sanctioned entities. U.S. President Joe Biden’s Executive Order 141141 expanded the authority of the Office of Foreign Assets Control to allow it to impose sanctions on foreign financial institutions that engage in transactions involving Russia’s militaryindustrial base. The executive order has exposed these institutions to secondary sanctions risk, Hansson said, including placement on the Specially Designated Nationals list and total exclusion from the U.S. dollar-based global financial system, a major risk. The extraterritorial reach of EO 141141 and other rules like it means that companies must now carefully consider the potential implications of their business activities, even when those activities occur entirely outside U.S. jurisdiction, as the U.S. government becomes increasingly willing to use its economic leverage to pursue foreign policy objectives. The UK and EU have also imposed extensive sanctions on Russia, including asset freezes on numerous Russian individuals and entities, financial restrictions on major Russian banks, and prohibitions on dealing with certain Russian securities and money-market instruments. While many of these sanctions were imposed when Russia first invaded Ukraine — such as a ban from the global SWIFT interbank messaging system and measures targeting Russian oil exports — they remain complex, constantly evolving and require careful navigation. Flexible provisions Hansson suggested firms have put in place flexible provisions with counterparts so that if rules change, they would be able to modify or exit existing agreements with minimal impact. “It is critical for Asian companies to stay up to date on the rapidly evolving sanctions and export controls that could impact their business,” Hansson added. “They should also develop and implement robust compliance programs that include screening and counterparty due diligence to ensure that they are Sanctions “It is critical for Asian companies to stay up to date on the rapidly evolving sanctions and export controls that could impact their business.” — Leigh Hansson, Reed Smith not inadvertently doing business with sanctions entities.” Adding to the layers of complication, Russia has imposed a series of countermeasures, including foreign direct investment (FDI) reviews of transactions involving “unfriendly” countries. This regime was originally put in place in March 2022 and was expanded through the rest of that year and in 2023. A concern related to this regime is that any transactions that are not cleared may be at risk. As Clifford Chance noted: “In October 2022, Russian procedural legislation was amended to authorise prosecutors to bring legal action in order to invalidate transactions made in violation of the countermeasures introduced in response to Western sanctions or to protect the Russian economy.” The technology sector has emerged as a particular area of concern, with export controls on advanced technologies becoming an increasingly important tool in the sanctions arsenal. “Many of these sanctions and export controls restrict access to some types of technology by many Asian entities,” Hansson said. This has had a chilling impact on access to certain products or technology, she said, which has hindered development. As part of increasing their sanctions compliance, more Asian companies are embracing screening and due diligence tools. Companies are also increasingly turning to advanced technology to enhance sanctions compliance efforts and hiring experts in the region to address all risks. However, the implementation of these technologies is not without its challenges. Companies must ensure that their compliance systems are accurate, explainable, and aligned with regulatory expectations, and address all applicable risks with an up-to-date compliance program. Said Hansson: “It is vitally important to stay on top of the constantly changing sanctions so that you are not caught out.”
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