Cautionary Note on Russian Sanctions

Sean Edwards, ITFA Deputy Chairman, Head of Legal EMEA, Sumitomo Mitsui Banking Corporation Europe Limited

Guidance is needed on the recent extension of the EU sanctions on Russia which came into effect on 8th September (EU Council Regulation 960/2014) and which contains a number of unclear provisions:

· The new sanctions prohibit making, or taking part in the arrangement of, new loans or credit after 12th September 2014 with a term of more than 30 days. It is unclear whether this refers to new loan agreements entered into after that date or if drawings under pre-12th September committed loans will also be impacted by the sanctions regime. (OFAC sanctions permit drawings of any length under pre-sanctions agreements).

· The term “credit” is not defined and it is unclear whether letters of credit are impacted by the sanctions regime or if only certain roles under L/Cs would be impacted eg.it might be possible to advise an L/ C but not act as negotiating bank.

· Trade Finance appears on the face of it to enjoy an exemption from the prohibition on the granting of loans or credit mentioned above where they “have a specific and documented objective to provide financing for non-prohibited imports or exports …between the Union and Russia”. This exemption does not, however, include imports or exports from outside of the Union e.g. from China even where those goods are not prohibited. As a result EU based banks may not be able to finance such transactions and will be at a disadvantage compared to non-EU banks.

ITFA will issue a notice to members if the EU clarifies these questions. Until then caution must be exercised and legal advice sought as necessary by EU members of ITFA if they are involved in situations where these issues rise.