Where are we now? – One year on and the impact of Singapore's sanctions on Russia

Introduction

Russia's invasion of Ukraine in February 2022 prompted an international reaction. The US, he UK and the European Union in particular moved quickly to impose sanctions on Russia in order to admonish, and to diminish its capacity to continue the war.

On 5 March 2022, Singapore unilaterally imposed its own sanctions against Russia over the invasion, departing from previous practice, which had been to track the UN Security Council's measures. With no UN Security Council sanctions due to Russia's veto power, Singapore unusually enacted its own sanctions regime.

The scope of those Singapore sanctions, and what's happened 12 months on is the focus of our piece.

Scope of Singapore's Sanctions on Russia

The sanctions were intended to increase economic pressure on Russia to hamper its ability to continue to fund the war against Ukraine by means of imposing export controls on items that can (i) be directly used as weapons to inflict harm on or subjugate Ukrainians; and (ii) contribute to offensive cyber operations.

Singapore's financial institutions – banks, finance companies, insurers, capital markets intermediaries, securities exchanges, and payment service providers - are barred from entering into new transactions with four Russian banks: VTB Bank Public Joint Stock Company, The Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank, Promsvyazbank Public Joint Stock Company and Bank Rossiya. Financial institutions are also required to freeze any assets and funds in the event of any existing relationships with the above banks, including any transactions relating to cryptocurrencies which circumvent the above prohibitions (for example the payment and settlement of transactions that relate to digital assets like non-fungible tokens). Additionally, financial institutions are barred from entering into transactions and providing services that facilitate fundraising for Russia's government, central bank or entities under their control.

Singapore also imposed a ban on the transfer to Russia of: all items on the Military Goods List, and all items in the Electronics, Computers and Telecommunications and Information Security categories of the Dual-Use Good List, scheduled in the Strategic Goods Control Order. There will be a rejection of any permit applications involving these goods.

Singapore has not updated these sanctions since March 2022.

In retaliation to the sanctions imposed, Russia expanded its “Unfriendly Countries List” (the “List”), in place since May 2021 which details the countries that have “committed unfriendly actions” against Russia, its companies and citizens. Under this new policy, corporate deals with companies and individuals from these “unfriendly countries” will have to be approved by the Russian government. Foreign creditors from the List can now “be paid in rubles for any debts owed to them by Russian citizens, companies, regions or the state itself”, regardless of the currency of the debt owed. The Russian government announced that it would automatically consider any country that sanctions Russia to be "de facto unfriendly", and Singapore is now included in the List.

Impact of Sanctions

Over the last year, we have seen Singaporean and businesses operating in the region, like the world, cut ties with Russia and the Russian government. Businesses are more sensitive not merely about sanctions breaches but the optics of operating with Russian individuals and businesses.

In Singapore, although some reports suggest the sanctions have a limited economic impact because Singapore does not trade with Russia to the extent that the US or EU do, the reality is that Singapore is a trade hub across Asia-Pacific for local and international businesses. These entities have to give more thought to their flow of goods or information, particularly for any products that might fall as “dual-use” i.e. used not just for commercial purposes, but also for military-use. Consider navigation equipment, integrated circuits, electronics, software, etc. Chemicals must be considered too albeit under another regime.

Specifically, in March 2022, Singapore Exchange suspended PJSC Gazprom’s trading on the exchange due to the sanctions announced by the Ministry of Foreign Affairs prohibiting the provision of financial services that facilitates fund-raising by entities owned or controlled by the Russian government. PJSC Gazprom is an entity in which the Russian government has a controlling interest of more than 50 percent.

More broadly, we have seen more robust due diligence being conducted in preparation for listings, particularly in relation to whether there are assets located in, or held by subsidiaries or group companies with a connection to, Russia. All listed companies also have the additional responsibility of identifying, assessing and disclosing any nexus to sanctions-related risks. This is a continuing obligation – listed companies must assess and disclose their exposure and nexus to sanctions-related risks annually, and any material changes (whether positive or negative) in this regard must be announced formally. Over the last year, we have seen several businesses listed in Singapore disclose their nexus to Russia or Ukraine in compliance with the SGX regulations. The compliance efforts of these businesses include (i) active assessing the impact of the Russia-Ukraine war in relation to their businesses; (ii) giving a breakdown of the company’s nature of business with, and cash flows in relation to sanctioned entities; (iii) providing representations that the company will be able to replace and refinance their deposits and existing loans with the sanctioned banks with other banks, if required; and (iv) hiring external sanctions counsel to certify the company’s compliance with their sanctions policies.

Export controls should be a proactive consideration, particularly in trade with Russia (or other sanctioned programs such as Burma, Iran, North Korea in region); with a U.S. nexus, in dual-use or military use-goods, and should be contemplated not just with Singapore’s sanctions regime. In the last 12 months, sanctions and export control checks have increased, as companies sensibly exercise prudence so that they do not violate these, or other, sanctions.

Additionally, as the Singapore sanctions also cover financial institutions and extend to cryptocurrency transactions, we have also seen local and multinational banks and cryptocurrency trading firms go back to their client lists and perform additional sanction checks and monitoring. Firms are future-proofing their onboarding process, and exiting relationships accordingly.  

We also see regulatory interest – domestically and overseas from Australia to America in the ties businesses have to Russian individuals and entities – increase dramatically. How to respond in such circumstances can dictate whether questions keep coming and whether the spotlight glares brighter.

Next steps

There are three primary lessons we guide our clients and prospective clients to take away from this piece and in responding to a heightened sanctions and trade space:

• The compliance umbrella is extending. Gone are the days where compliance would neatly fit under onboarding and providing anti-bribery and corruption training for new employees. Compliance counsel within organisations or with the guidance of external counsel need to contemplate ABC, money-laundering, trade, export controls, gifts and hospitality, local nuance and cultural behaviours within the workplace, all under “compliance”;
• Singapore sanctions are only one sanctions regime; consider your business’ exposure under UK, EU and US sanctions laws. Singapore is not implementing US sanctions as local law, but via money flows, operations, or trading partners you could be exposing your business, and even yourself to strict foreign, international sanctions.
• The costs of getting sanctions or export controls wrong are significant and strict. With multi-month or - more often than not - multi-year regulatory exposure, disruption or prevention of business, significant financial impact, and even jail time a reality. Several Singaporean entities and individuals this last year have personally experienced this. Proactive advice pre-transaction is an investment.

Authored by Khushaal Ved, Ben Kostrzewa, Stephanie Sun, Sophia Kinally, and Crystal Lim.