Russia's pressure on European energy companies to pay in rubles for gas appears to be paying off, as some of the continent's largest suppliers appear to be working out sanctions-compliant solutions to secure gas flows.
On March 31, Russian President Vladimir Putin signed an executive order requiring companies "from unfriendly countries" to open a designated account with Gazprombank, the Swiss-based trading arm of state-owned energy company Gazprom, where euro or dollar payments could be converted into rubles via a ruble-denominated second bank account.
The move is seen as a way to both prevent the currency from collapsing and to punish the European Union for its sanctions against key Russian individuals and companies.
Uniper, one of Germany's largest energy companies, told the BBC in late April that it was preparing to circumvent EU sanctions by complying with the Kremlin's demand that all transactions be conducted in rubles.
Following Russia's decision to cut off gas supplies to Poland and Bulgaria, other European energy companies, including Italy's Eni and Austria's OMV, are reportedly planning to do the same. If European firms do not comply with Russia's demands to pay for goods and services in rubles, the country has threatened to take similar measures.
The European Union is reliant on Russian natural gas in large amounts. The European Commission proposed a six-month plan to phase out Russian crude oil last week, which President Ursula von der Leyen described as "not easy."
According to the Centre for Research on Energy and Clean Air, Russia exported €63 billion (US $66.6 billion) worth of fossil fuels in the first two months after invading Ukraine on February 24, with the European Union accounting for 71 percent of the total (about €44 billion, or US $46.5 billion). China, the Netherlands, Turkey, and France are the top importers, followed by Germany and Italy.
Despite reports to the contrary, Michael Buckworth, managing partner of law firm Buckworths, does not believe any energy company would knowingly violate sanctions. He believes EU electricity companies' claims that they are willing to break sanctions are "an attempt to sound out government and regulators on whether they would enforce the sanctions regime against power companies or not, as well as an attempt for the EU to change its sanctions regime."
Buckworth, on the other hand, believes that the differing strengths of sanctions laws could be problematic.
While EU guidance suggests that paying in euros but converting the funds into rubles via a second bank account is not a sanction violation, he believes that such a move would likely violate U.K. sanctions.
A conviction in the United Kingdom carries a maximum sentence of seven years in prison and a fine of at least one million pounds ($1.2 million). Meanwhile, depending on national laws, penalties can vary across the European Union.
"If energy companies intend to pay in rubles, they will need to secure legal opinions confirming they are in fact able to do so without breaching the sanctions regime," Buckworth said. "Until such time as the EU explicitly sanctions Gazprombank, it seems to me that a smart sanctions expert could probably find a way to navigate the regime so that energy companies can in fact pay in rubles."
On Sunday, the US announced sanctions against 27 executives of Gazprombank.
"It is worth noting the EU is perfectly capable of preventing energy companies from paying in rubles by either explicitly sanctioning Gazprombank (and any replacement bank nominated to take payment in rubles) or sanction gas in its entirety . The problem is there appears to be little agreement within the EU on how to deal with the EU’s dependency on gas," said Buckworth
While companies may be tempted to believe that flouting EU sanctions is a cost of doing business, ignoring US sanctions, according to Charlie Steele, partner at consultancy Forensic Risk Alliance, is a different story.
"The Office of Foreign Assets Control (OFAC) would come down like a ton of bricks on a company that did that," Steele said. "This is the U.S. government’s highest foreign policy priority, and OFAC would react very strongly to any deliberate attempt to flout U.S. sanctions."
Steele warned that OFAC is not the only thing to be concerned about. The US Department of Justice (DOJ) has become more vocal and active in its pursuit of criminal prosecutions for intentional violations and evasion of sanctions against Russian companies and individuals, establishing task forces and other measures.
Last month, Deputy Attorney General Lisa Monaco stated that the Department of Justice considers sanctions to be "the new FCPA," referring to the anti-bribery law known as the Foreign Corrupt Practices Act. Monaco added that any criminal charges would be in addition to, not in place of, an OFAC monetary penalty.
"For OFAC and the DOJ to have jurisdiction, the company’s actions must have some link to the U.S., but that’s not hard," Steele explained. "Any direct or indirect link will do, even the use of U.S. dollars in transactions, which is very common in international commerce."
By fLEXI tEAM