CIS Desk and Russia Sanctions

CIS desk: Russia sanctions and lawful trade with the region

Our CIS desk advises clients from Central Asia, the South Caucasus and other states of the former Soviet Union, and German companies doing business with them, in an environment defined by the EU's sanctions against Russia and Belarus. Since 2014, and on a much larger scale since February 2022, the EU has adopted successive sanctions packages: asset freezes against listed persons and entities, prohibitions on exports and imports of wide ranges of goods, restrictions on services, financing and investment, and measures against circumvention through third countries.

Germany enforces these sanctions with criminal law, and enforcement has intensified. At the same time, trade with Kazakhstan, Uzbekistan, Kyrgyzstan, Armenia, Georgia, Azerbaijan and other states of the region remains lawful and is growing, provided that it does not serve to circumvent sanctions. The task is to distinguish clearly between lawful business and prohibited conduct.

This page explains the framework and the questions clients bring to us. It is part of our international clients practice and describes the legal framework and how we work, without claims about individual team members' backgrounds or languages. It does not describe the content of individual sanctions packages exhaustively, which change frequently; the consolidated texts on EUR-Lex must be checked for each transaction.

EU sanctions on Russia and Belarus and their limits

The EU's sectoral sanctions against Russia are set out in Regulation (EU) No 833/2014, which has been amended by more than twenty packages. It prohibits the sale, supply, transfer or export to Russia of dual-use goods, advanced technology, industrial goods listed in its annexes and many other items, the provision of related technical assistance, brokering and financing, the import of Russian goods such as crude oil, coal, steel, gold and diamonds, and the provision of various services, including accounting, consulting, IT and legal advisory services to the Russian government or entities established in Russia, subject to exceptions.

Asset freezes against listed persons, entities and bodies are set out in Regulation (EU) No 269/2014, which also prohibits making funds or economic resources available to them, directly or indirectly. Comparable sanctions against Belarus are set out in Regulation (EC) No 765/2006.

The Belarus regime mirrors many of the Russian measures, including export bans on dual-use and advanced technology goods and import bans on certain products, but it is not identical. Companies trading with the region must check both regimes, because goods that may be sold to one country can be prohibited for the other, and transit routes through Belarus raise additional questions. Our CIS desk reviews transactions against both sets of rules.

Sanctions have limits, and our CIS desk is equally concerned with those limits. They do not prohibit all trade with Russia, only the activities listed, and they do not apply to persons and companies from third countries that are not listed and not acting as intermediaries for prohibited transactions. Many prohibitions contain exceptions for contracts concluded before a certain date, wind-down periods, humanitarian purposes, medical and agricultural goods and personal use.

Ownership and control matter: an unlisted company owned or controlled by a listed person may be subject to the freeze indirectly. Each transaction must therefore be analysed against the current consolidated texts and the European Commission's FAQs, which are updated after each new package. See our page on export control and sanctions and our insight on the latest Russia sanctions packages.

Anti-circumvention measures

Because goods have reached Russia through third countries, the EU has introduced anti-circumvention measures. EU exporters must include a "no re-export to Russia" clause in contracts for the sale of certain goods, including common high priority items used in Russian weapons systems, to third countries other than listed partner countries, with adequate remedies for breach (Article 12g of Regulation 833/2014).

Companies must assess the risk of diversion of common high priority items and implement due diligence. EU parent companies must use their best efforts to ensure that their non-EU subsidiaries do not undermine the sanctions. Companies in third countries, including some in the region, have been listed for supporting Russia's military, which makes counterparty screening essential.

Asset freezes and licensing by the Bundesbank and BAFA

When a person or entity is listed, all funds and economic resources belonging to, owned, held or controlled by them in the EU must be frozen, and no funds or economic resources may be made available to them. German banks, companies and service providers must identify frozen assets and report them; listed persons themselves must report their assets in Germany to the Central Office for Sanctions Enforcement. Frozen assets can only be released or used under licences.

In Germany, the Deutsche Bundesbank is the competent authority for licences relating to frozen funds and financial sanctions, while the Federal Office for Economic Affairs and Export Control (BAFA) grants licences for trade-related prohibitions, for example for the export of goods under exceptions. Licences are available for basic needs, legal fees, pre-existing contracts, wind-down of business relationships and certain other purposes defined in the regulations.

Applications for licences must be well documented, explain the legal basis for the exception and demonstrate that no funds will reach listed persons. Processing times vary, and transactions must not be executed before the licence is granted. Companies that hold assets of listed persons, such as shares in German companies or real estate, face questions about managing the frozen assets, voting rights and the company's ability to continue operating; in some cases, trustees have been appointed or the company has applied for licences to maintain operations. See our insight on sanctions enforcement in Germany.

Enforcement and penalties in Germany

Germany treats intentional breaches of EU sanctions as criminal offences. Under the Foreign Trade and Payments Act, breaches of EU export and import prohibitions and of asset freezes are punishable by imprisonment of three months to five years, with higher penalties in aggravated cases (§ 18 AWG), and reckless breaches involving listed dual-use goods have become criminal offences too.

Negligent breaches are administrative offences. Companies can be fined up to EUR 40 million for intentional sanctions offences committed by their management (§ 19 AWG), and proceeds can be confiscated. Voluntary self-disclosure protects only against fines for negligent administrative offences that are detected internally, disclosed and remedied, not against criminal liability for intentional breaches.

Customs investigation offices and public prosecutors investigate sanctions breaches, including through searches and seizures, and the Central Office for Sanctions Enforcement investigates assets of listed persons. Managing directors can be personally liable for organisational failures, and the company can be fined where management failed to take supervisory measures that would have prevented the breach. Companies under investigation should secure evidence, coordinate internal investigations with external counsel and consider the interaction with criminal proceedings carefully. See our page on white-collar crime and corporate defence.

Compliance screening and internal controls

An effective sanctions compliance programme includes screening of customers, suppliers, banks and intermediaries, including their owners and controlling persons, against the EU consolidated list and, where relevant, other lists; classification of products against export control and sanctions annexes; end-use and end-user checks, with particular attention to common high priority items and to trade with countries known as circumvention hubs; contractual clauses such as the no-Russia clause and sanctions termination rights; payment controls; training; and documentation of decisions.

Red flags include unusual routes, new customers without a track record ordering goods previously sold to Russia, payment from third parties, reluctance to provide end-use information and prices above market levels. Compliance systems should be proportionate to the company's risk profile but must work in practice, with clear escalation paths, authority to stop shipments and regular reviews when new packages are adopted. See our page on compliance management systems.

Conflicts with other legal systems

Companies with operations in the region may face conflicting obligations, for example counter-sanctions or local requirements to continue supplies. EU sanctions take precedence for EU persons and EU companies, and for business conducted in the EU, while local subsidiaries in third countries are subject to local law and the parent's best-efforts obligation. Contracts with counterparties in the region should include sanctions clauses that allow suspension and termination without liability where performance would breach applicable sanctions, and should address the consequences for payments already made.

Disputes arising from sanctions

Sanctions have generated many disputes: claims by Russian counterparties for non-performance, enforcement of guarantees and letters of credit, and claims against EU companies in Russian courts. EU sanctions regulations prohibit satisfying certain claims connected with contracts affected by the sanctions, and later packages give EU operators the possibility to seek compensation in EU courts for damage caused by claims brought by listed or Russian parties in connection with sanctioned contracts.

German courts have dealt with questions of impossibility, force majeure and the validity of terminations based on sanctions. Our CIS desk works with our disputes practice on these matters, including arbitration where the seat or institution has been affected by sanctions. See our page on international arbitration.

Exiting business with Russia

Companies that have decided to wind down or sell their Russian business face both EU and Russian rules. EU sanctions may require licences for the sale of Russian subsidiaries to buyers who are, or are linked to, listed persons, and for transactions involving Russian state-owned entities, while Russian law imposes its own approval requirements and conditions on exits by companies from countries it considers unfriendly. Transfers of IP, software and services to the former subsidiary after the sale may be restricted. Exits should therefore be structured with both legal systems in mind and documented carefully to show compliance on the EU side.

Payments, banks and logistics

In practice, lawful transactions with the region often fail at the payment or logistics stage. Banks apply their own risk policies, which can be stricter than the law, and may refuse payments involving certain countries, goods or currencies. Transactions with Russian banks are heavily restricted, and several are excluded from specialised financial messaging services.

Logistics providers must check that goods in transit are not prohibited and that transport services are not provided to listed persons; Russian and Belarusian road transport operators are restricted from carrying goods within the EU. Planning the payment route and the logistics chain at the contract stage, and documenting the end use, reduces the risk of blocked payments and seized goods.

Lawful trade and investment with Central Asia and the Caucasus

Trade with Central Asian and South Caucasus states is lawful and growing, supported by EU partnership and cooperation agreements, transport links across the Caspian Sea, and interest in critical raw materials and renewable energy. German companies supply machinery, equipment and services, and companies from the region invest in Germany and the EU, for example in logistics, trading and manufacturing. For such business, the main tasks are robust know-your-customer procedures, end-use checks for sensitive goods, contractual safeguards against diversion and careful structuring of payments through banks that can process them.

Companies from the region establishing subsidiaries in Germany follow the same rules as other foreign investors: formation of a GmbH, registration of beneficial owners and, for sensitive sectors, investment screening as non-EU acquirers. Banks will apply enhanced due diligence to ownership structures. Our CIS desk helps clients from the region prepare the documentation that German banks, notaries and authorities expect, so that legitimate investments are not delayed by unanswered questions about ownership or the origin of funds. See our page on GmbH formation checklist.

How our CIS desk helps

Our CIS desk advises companies and investors from Central Asia, the Caucasus and other states of the region, and German companies trading with them, on EU sanctions against Russia and Belarus, asset freezes and licence applications to the Bundesbank and BAFA, compliance screening and internal controls, contractual sanctions clauses and lawful trade and investment structures. We support companies in internal investigations and in proceedings with customs and prosecutors, and represent clients in disputes arising from sanctions-related terminations and payment blockages. To discuss your situation, please contact us. This page provides general information, not legal advice.