Ever since Russia’s act of aggression against Ukraine that began on 24 February 2022, the United States and several of its key allies have successively imposed significant sanctions against Russia. These sanctions range from prohibitions on trade and investment in certain regions of Ukraine and the designation of specific nationals that cannot interact with the market and financial system of United States, to imposing new sovereign debt restrictions and even cutting Russia further off from the global economy by removing them from the Society for Worldwide Interbank Financial Telecommunication (aka SWIFT) messaging system and disconnecting them from the international financial system, making them no longer able to operate globally. On 8 March 2022, the Biden administration also announced that the United States would be banning the import of Russian oil.
Singapore has joined these efforts, with Minister for Foreign Affairs Dr. Vivian Balakrishnan issuing a Ministerial Statement in Parliament on 28 February 2022, stating that Singapore intends to impose its own sanctions against Russia. On 5 March 2022, the Ministry of Foreign Affairs (MFA) issued a press statement with two factsheets that set out the details of the economic sanctions and restrictions.
In brief, the economic sanctions and restrictions detailed in the MFA press statement and its two factsheets can be summarised into the two categories mentioned by Minister Balakrishnan during his Ministerial Statement in Parliament:
- Banning the export of all items that can be used directly as weapons in Ukraine to inflict harm or to subjugate the Ukrainians; and
- Blocking certain Russian bank and financial transactions connected to Russia.
Details of Singapore’s Sanctions Against Russia
Export Bans
In order to constrain Russia’s capacity to conduct its war in Ukraine and carry out cyber aggression, all permit applications to Russia involving (a) all items on the List of Military Goods under the Strategic Goods (Control) Order 2021 (SGCO); and (b) all items under Category 3 – Electronics, Category 4 – Computers and Category 5 – Telecommunications and “Information Security” on the List of Dual-Use Goods under the SGCO will be rejected.
Financial Bans
All financial institutions in Singapore are prohibited from the following:
- Entering into transactions or establishing business relationships with the following Russian banks: (i) VTB Bank Public Joint Stock Company; (ii) The Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank; (iii) Promsvyazbank Public Joint Stock Company; and (iv) Bank Rossiya (collectively, the “Banned Russian Banks”).
- Where there are existing business relationships, financial institutions must freeze any assets and funds of these four banks.
- Providing financing or financial services in relation to the export from Singapore or any other jurisdiction of goods subject to the export bans.
- Providing financial services in relation to designated Russian nonbank entities that are involved in the above activities. Where there are existing business relationships, financial institutions must freeze any assets and funds of these designated entities. Details on the designation of nonbank entities will be provided by the MFA subsequently.
- Entering into transactions or arrangements, or providing financial services that facilitate fund raising by (i) the Russian government; (ii) the Central Bank of the Russian Federation; or (iii) any entity owned or controlled by them or acting on their direction or behalf.
- The prohibitions apply to buying and selling new securities, providing financial services that facilitate new fundraising by, and making or participate in the making of any new loan to the above entities. The Singapore Government and Monetary Authority of Singapore will also cease investing in newly issued securities of the above entities.
- Entering into transactions or providing financial services in relation to the following sectors in the breakaway regions of Donetsk and Luhansk: (i) transport; (ii) telecommunications; (iii) energy; and (iv) prospecting, exploration and production of oil, gas and mineral resources.
- Entering into or facilitating any transactions involving cryptocurrencies to circumvent any of the above prohibitions. The prohibited cryptocurrency transactions cover all transactions that involve cryptocurrencies and extend to the payment and settlement of transactions that relate to digital assets (such as non-fungible tokens).
Impact on Companies in Singapore
Local Companies
According to UN Comtrade data, Singapore’s exports to Russia stood at USD 548 million in 2020 (or 0.15 percent of its total exports) and imports from Russia stood at USD 1.4 billion in 2020 (or 0.42 percent of its total imports). With Russian imports and exports occupying such a small percentage of its total trade, it is unlikely that Singapore’s sanctions on Russia alone will have a significant impact on Singaporean companies. However, coupled with other global sanctions imposed on Russia, the uncertainty from the Ukraine crisis and the entire global economy still recovering from the COVID-19 pandemic, this will likely lead to worsening supply chain disruptions, affecting the prices and stability of products in the relevant industries. Moreover, the EAEU-Singapore FTA is likely to be delayed and limited due to Singapore’s sanctions on Russia.
Chinese Companies in Singapore
We understand that few of the Chinese companies that announced plans to cease doing business in Russia experienced a mixed response from their domestic market, and as such, they fear losing a portion of that market if they cease their transactions and arrangements with Russia. Therefore, with the additional sanctions imposed on Russia by Singapore, Chinese companies that comply with the export and financial bans also risk losing their domestic market in China. With it being unlikely for companies in Singapore to be affected by the sanctions due to limited exposure to Russia, unless their domestic market protests the company’s compliance with the sanctions, the negative impact is likely to be similarly muted on Chinese companies that operate in Singapore.
Indian Companies in Singapore
In India, the four biggest sectors that are affected by the Russia-Ukraine war and its related sanctions are the defence, oil and gas, steel and other metals and automotive sectors. The focus will be on the oil and gas and auto industries because of the nature of Singapore’s sanctions. India also has several state-run energy firms that invested in Russian oil and gas blocks; they are estimated to have invested about USD 13.6 billion in Russian oil and gas projects.
India’s auto sector was significantly affected by the ongoing semiconductor shortage. As such, there is fear that scarcity of essential commodities like copper and silicon caused by the Russia-Ukraine war could delay the recovery of the auto sector. Moreover, the auto industry is heavily susceptible to the price of crude oil. While any increase in the price of crude is beneficial for the oil and gas industry, demand for the automotive sector is inversely correlated to the price of crude. Further, since entities in Singapore are banned from exporting all items under electronics, computers, telecommunications and information security categories, the semiconductor chips that used to be sold to Russia and Russian entities have to be redirected to other countries.
The United States’ Ban on Russian Oil
Experts warn that the United States’ ban on Russian oil will result in a surge in oil prices within the United States itself. The United States only imports a small share of Russia’s oil exports and does not import any Russian natural gas. At this stage, it is unclear as to whether the EU will join the ban on Russian oil and natural gas, as Russia provides about 40 percent of their natural gas and about 25 percent of their oil. Singapore’s main sources of crude oil are the United Arab Emirates, Qatar, Saudi Arabia and Kuwait, and Singapore’s main sources of natural gas are from Australia and the United States; it is unlikely that these bans will affect oil prices in Singapore more than the global increase in oil demand due to the war has already done. With the recent sanctions on Russian oil, it may be important for the trading desks established in Singapore to review their respective set of transactions.
Precautionary Measures That Should Be Adopted by Companies in Singapore
Perform a Comprehensive Due Diligence Check
Companies should begin by performing a comprehensive due diligence check through their transactions, counter-parties and arrangements to determine if they have any sanctions-related risks, inter alia as to the beneficiaries in the transaction, source of funds and the location of the source. We strongly recommend obtaining legal advice where necessary.
Stop Financial and Export Transactions with Any of the Banned Entities
In view of the recent sanctions, Singapore entities will need to stop transacting with the sanctioned Russian banks and stop buying and selling new securities or providing financial services that facilitate fundraising by the Russian government, the Central Bank of the Russian Federation or any entity owned or controlled by them or acting on their direction or behalf. Companies should also stop providing financing or financial services on any goods subject to the export bans.
Ensure That Cryptocurrency Transactions Are Not with Any of the Banned Entities
Companies with entities in Singapore should note that while the U.S. sanctions do not explicitly impose a ban on transactions with cryptocurrency, the Singapore sanctions explicitly ban the use of cryptocurrency, including the use of digital assets such as nonfungible tokens, to circumvent the financial bans. Companies should take special care to ensure that the entities with whom they transact with are either not from or do not deal with any of the entities mentioned under the financial bans.
Pay Special Attention to the SGX Regulator’s Column If One Is an SGX-Listed Issuer
On 7 March 2022, the Singapore Exchange (SGX) issued a Regulator’s Column (SGX Column) on what they expect SGX-listed issuers to do with respect to sanctions-related risks, subjects or activities. Some of the expectations stated in the SGX Column are as follows:
- Issuers must have adequate and effective systems of internal controls and risk management systems.
- Issuers must assess if they have exposure or nexus to sanctions-related risks, obtain legal advice where necessary and if they assess or become aware that there has been a material change in the issuer’s risk of being subject to sanctions, they must immediately announce the inherent risk exposure on SGXNET.
- For as long as they have exposure or nexus to sanctions-related risks, the annual report must confirm that there has been no material change to said risk; if there is any material change, it must be immediately announced on SGXNET.
- Where an issuer is subject to sanctions or engages in any activities mentioned in either the export or financial sanctions, it should suspend said activities and immediately announce all relevant information.
- Where an issuer is no longer exposed or no longer has a nexus to any sanctions-related risk, they must also make an immediate announcement along with all relevant information.
For More Information
If you have any questions about this Alert, please contact Eduardo Ramos-Gomez, Priyank Srivastava, Sean La’Brooy, any of the attorneys in our Singapore office or the attorney in the firm with whom you regularly in contact.
About Duane Morris & Selvam LLP
Duane Morris & Selvam LLP (DMS) is a joint law venture between international firm Duane Morris LLP (DM) and Singapore-based firm Selvam LLC. DMS runs a unique Latin American-Asian practice out of Singapore, with a team of international lawyers qualified in multiple jurisdictions including Singapore, the US, the UK, Canada, Mexico and Colombia, with substantial experience in international transactions and disputes. DMS also has a wide cooperation network with some of the best Latin American and Asian law firms.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm’s full disclaimer.