By Ben Knuth
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By Ben Knuth
The tragic images emerging from Russia’s invasion of Ukraine have shocked the world and elevated the Ukraine crisis to daily headlines around the world. For U.S. law firms, reaction to the crisis has been activated on two fronts.
For one thing, they have responded on a humanitarian level and as business entities themselves. Many firms took swift action to close their offices in Russia, sever their ties with Russian businesses, and offer pro bono legal assistance to refugees and others affected by the violence.
“As Russia intensifies its attacks, more firms are opening their pocketbooks and offering legal aid in support of Ukraine,” reported Law360. “Some are utilizing their offices to help refugees, while others are directing lawyers and staff to donate through charity foundations. Meanwhile, several have said they will be reviewing their Russian clients and cutting ties where appropriate.”
But on a second front, law firms have mobilized to make sure they are properly advising their clients about their compliance responsibilities with a broad range of primary and secondary sanctions imposed by the U.S. government. These are serious requirements and violations carry major consequences.
“Unprecedented sanctions against Russian businesses, banks and individuals have continued to escalate and raise more risk that companies may run afoul of the U.S. Treasury Office of Foreign Assets Control and export restrictions if they are not careful,” said Eric Rosenbaum on CNBC.com.
LexisNexis recently hosted a webinar regarding the myriad resources that legal practitioners can leverage to efficiently and effectively advise their clients during this time of crisis. The presenters were Franklin Holloway, a product specialist at LexisNexis, and Benjamin Knuth, a corporate law subject matter advisor at LexisNexis who is a licensed attorney and former commercial litigator.
Based on the insights from these experts, here are four key areas in which legal resources are available to support law firm work related to the Russia-Ukraine crisis:
Tracking an evolving sanctions regime
“There is a huge net of sanctions imposed by the U.S., including a number of executive orders, Department of Commerce import-export controls, OFAC designations, and a number of other important measures,” said Mr. Knuth. “These are all moving targets so it’s essential for lawyers to stay on top of these requirements to provide legal counsel to their clients.” He noted that the Lexis+ core platform makes it very simple to acquire all of the relevant primary law materials by typing in a few relevant search terms directly on the initial screen, and that daily changes in the Russia sanctions regime can be monitored in the Lexis+ Legal News Hub, especially with real-time access to the Law360 news service. Moreover, the State Net platform can be used to track legislative sanctions activity at the state level.
Evaluating a company’s exposure
U.S. companies are struggling to identify which parties have ties to Russia or how they may be impacted by sanctions regulations. “Most standard compliance procedures don’t generally involve screening for high-risk individuals and entities,” said Mr. Holloway. “However, quickly running checks that can examine occurrences on sanctions and watchlists ultimately helps protect your client.” Mr. Holloway introduced attendees to Nexis Diligence, an all-in-one due diligence tool for assessing any potential risk from the people and third-party entities interacting with any business. He demonstrated how a quick search on Nexis Diligence can reveal whether a company or individual is on a sanctions list or watchlist, has ties to Russia or has Russian beneficial owners.
Guidance for taking appropriate action
Compliance and responsive measures by U.S. companies will obviously vary depending on industry, size and geographic reach — but it’s essential for legal practitioners to be prepared to counsel clients on the key aspects of navigating the federal sanctions and export control regime. “Specific required actions might include unwinding JVs and M&A deals, seeking to excuse from performance of commercial contracts under force majeure and impracticability clauses, pro-actively assessing data security risks, various labor and employment issues, and obtaining political risk insurance,” said Mr. Knuth. Mr. Knuth pointed out that LexisNexis has created a special Ukraine Invasion Resource Kit, which is available from Practical Guidance on Lexis+, to surface cross-practice resources related to practical legal issues raised by the Russian invasion and subsequent economic sanctions. These resources equip lawyers to advise clients on appropriate action they need to take right now.
Drafting SEC disclosures
“If your client has identified a direct or indirect impact of Russia sanctions on their business operations, they may have a responsibility to disclose that information,” said Mr. Knuth. “For private companies, it may just be a matter of sharing information with investors, customers or other parties who need to know about possible impacts to the business, and to consider public relations issues.” But for public companies, there are legally required disclosure requirements that must be evaluated, most notably involving the SEC.” He walked attendees through the checklist for determining if something must be disclosed to the SEC, as well as deciding when and what to disclose, and then introduced Intelligize, the leading compliance management solution for public companies. Intelligize is an advanced SEC analytics tool and offers a web-based research platform that lawyers can use to ensure compliance with required disclosures.
“The breadth of sanctions potentially implicates many U.S. companies with direct or supply chain connections,” said Mr. Knuth. “Compliance with them requires significant diligence.” Mr. Knuth also noted that the consequences for failure to comply are swift and severe, and that this is not an area of regulation where there is any room for less than full attention. As such, companies and their counsel are well advised to make use of all available tools to assess exposure, evaluate appropriate disclosures, and inform appropriate action.
Watch a recorded playback of the LexisNexis webinar, “Resources to Support Ukraine Crisis-Related Workflow,” to learn more about the key legal impacts of the Russia-Ukraine crisis for U.S. companies and the information resources available to attorneys.