Further details on measures and guidance regarding Singapore’s unilateral sanctions on Russia in response to its invasion of Ukraine

Introduction

On 5 March 2022, the Singapore Ministry of Foreign Affairs (“MFA”) unveiled specific measures to be imposed on Russia in response to its invasion of Ukraine.¹ This follows the earlier announcement on 28 February 2022 by Minister for Foreign Affairs, Vivian Balakrishnan, that Singapore would impose unilateral sanctions on Russia.²

The specific measures imposed comprise: (1) export controls; and (2) financial measures. Further details on the financial measures were announced by the Monetary Authority of Singapore (“MAS”) on 14 March 2022.

In related development, the Singapore Exchange Regulation (“SGX RegCo”) released guidance on 7 March 2022 for SGX-listed issuers on the Singapore Exchange’s (“SGX”) expectations on the management of sanctions-related risks.

We discuss these developments, which affect companies in the defence, technology, telecommunications and cybersecurity sectors, as well as financial institutions and SGX-listed issuers, below.

Export controls measures

Export controls measures were imposed on items that Russia can directly use as weapons to inflict harm on or to subjugate the Ukrainians, as well as contribute to offensive cyber operations.

Singapore has imposed a ban on the transfer to Russia of the following:

1. all items in the Military Goods List of the Strategic Goods (Control) Order 2021(“SGCO”)³ – which include firearms, ammunitions, explosive devices, aircraft missile protection systems, “riot control agents” and ground vehicles specially designed for military use; and
2. all items in Category 3 (Electronics), Category 4 (Computers), and Category 5 (Telecommunications and Information Security) of the Dual-Use Goods List of the SGCO⁴, which include certain types of specialised telecommunications systems and equipment, software and technology.

To implement the ban on the transfer of such materials to Russia, the Singapore Customs will reject export permit applications to Russia for such items specified under the SGCO.

By way of background, Singapore implemented the Strategic Goods (Control) Act 2002 (“SGCA”) in 2003 to regulate the trade in, and transfer (including the export, transit, and transhipment) of, strategic goods and strategic goods technology. Items subject to strategic goods control are listed in the SGCO.⁵ The Singapore Customs is the national authority that administers the SGCA in Singapore.

Financial measures

In addition to export controls measures, Singapore has imposed financial measures targeted at designated Russian banks, entities and activities in Russia. These financial measures aim to restrict the Russian government’s ability to finance its invasion of Ukraine.

On 14 March 2022, the MAS issued two notices detailing the financial measures imposed on Russia pursuant to section 27(1) of the Monetary Authority of Singapore Act 1970 (MAS Act):⁶ namely, Notice SNR-N01 (the “Financial Measures Notice”) and Notice SNR-N02 (the “Non-Prohibited Payments and Transactions Notice”)⁷, both of which take immediate effect.

Financial Measures Notice

The Financial Measures Notice imposes five prohibitions that all financial institutions in Singapore are subject to – including banks, finance companies, insurers, capital markets intermediaries, securities exchanges and payment service providers. They are:

1. Prohibition against dealing with, and freezing of assets of, designated banks and designated entities (the “Dealing Prohibition”). A financial institution must not, directly or indirectly (including through any provider of any brokering or other intermediary services):

• establish business relations with or undertake any financial transaction for;
• enter into any financial transaction with;
• provide, or facilitate or procure the provision of, any financial assistance or service (including but not limited to the granting of export credits, guarantees, insurance or re-insurance) to; or
• transfer any financial assets or resources, or other assets or resources to,

any Designated Bank or Designated Entity. The four Designated Banks are VTB Bank Public Joint Stock Company, The Corporation Bank for Development and Foreign Economic Affairs Vnesheconombank, Promsvyazbank Public Joint Stock Company and Bank Rossiya. The Designated Entities are entities involved in activities related to any item banned under the export controls measures. However, these specific Designated Entities have not yet been identified by MAS.

A financial institution that has in its possession, custody or control in Singapore, any funds, financial assets or economic resources owned or controlled, directly or indirectly, by a Designated Bank or a Designated Entity must:

• immediately freeze all such funds, financial assets or economic resources, as the case may be; and
• ensure that such funds, financial assets or economic resources are not made available, whether directly or indirectly, to or for the benefit of a Designated Bank or Designated Entity.

2. Prohibition against entering into financial transactions or providing financial assistance or services, etc., in relation to the delivery of certain items. A financial institution must not, directly or indirectly (including through any provider of any brokering or other intermediary services):

• enter into any financial transaction with;
• provide, or facilitate or procure the provision of, any financial assistance or service (including but not limited to the granting of export credits, guarantees, insurance or re-insurance) to; or
• transfer any financial assets or resources, or other assets or resources, to,

any person, if the activity relates to the export from, transhipment in or transit through, Singapore or any other jurisdiction to Russia of any item banned under the export controls measures (see discussion relating to export controls above).

3. Prohibition against entering into certain financial transactions or providing financial assistance or services, etc., in relation to the raising of new funds for the Russian government and the Central Bank of the Russian Federation. A financial institution must not, directly or indirectly, on or after 14 March 2022:

• purchase, sell, provide financial services for or assist in the issuance of, or otherwise deal with, securities or certificates of deposit issued by; or
• make or be part of any arrangement to make any new loans or credit to,

the Russian government; the Central Bank of the Russian Federation; or a legal person or legal arrangement that is owned or controlled by, directly or indirectly, or acts on behalf of or under the direction of the Russian government or the Central Bank of the Russian Federation.

This prohibition does not apply to loans or credit that have a specific and documented objective of making funds available for trade which does not involve the export from, transhipment in or transit through, Singapore or any other jurisdiction to Russia of any item banned by the export controls measures.

4. Prohibition against entering into certain financial transactions or providing financial assistance or services, etc., in relation to the breakaway regions of Donetsk and Luhansk. A financial institution must not, directly or indirectly (including through any provider of any brokering or other intermediary services):

• enter into any financial transaction with;
• provide, or facilitate or procure the provision of, any financial assistance or service (including but not limited to the granting of export credits, guarantees, insurance or re-insurance) to; or
• transfer any financial assets or resources, or other assets or resources to,

any person in relation to any activity, including any sale, transfer or export of goods or technology, relating to any of the “specific sectors” in Donetsk or Luhansk – being the transport, telecommunications, energy, and prospecting, exploration and production of oil, gas and mineral resources sectors.

5. Prohibition against entering into certain digital payment token transactions. A financial institution must not enter into or facilitate any digital payment token transaction where the proceeds or benefits from such transaction may be used to facilitate any of the transactions or activities prohibited in the four earlier prohibitions (“Prohibited Digital Payment Token Transaction”).

Entering into or facilitating a Prohibited Digital Payment Token Transaction includes:

• offering the purchase, sale or exchange of digital payment tokens;
• brokering transactions between counterparties on digital payment tokens;
• offering or arranging financing for digital payment token transactions;
• offering the borrowing or lending of digital payment tokens; and
• making or arranging any primary and secondary market offerings of digital payment tokens that make available the services referred to in the four points above.

The five prohibitions above do not apply to:

• any transaction or business relations in respect of which the MAS issues a direction to exclude from the scope of the financial measures; and
• any transaction or business relations in respect of which the MAS, upon application by a financial institution, grants an exemption pursuant to section 178(2) of the MAS Act.

Additionally, the Financial Measures Notice imposes a duty on financial institutions to provide information to the MAS. Every financial institution which:

• has any fact or information about any transaction, proposed transaction, act or thing prohibited by the Financial Measures Notice;
• has possession, custody or control in Singapore of any funds, financial assets or economic resources owned or controlled, directly or indirectly, by any Designated Bank or Designated Entity; or
• has information about any transaction or proposed transaction in respect of any funds, financial assets or economic resources owned or controlled, directly or indirectly, by any Designated Bank or Designated Entity,

must immediately inform the MAS of that fact or information. Financial institutions must also provide such further information relating to the funds, financial assets, economic resources, transaction, proposed transaction, act or thing, as the MAS may require.

Non-Prohibited Payments and Transactions Notice

The Non-Prohibited Payments and Transactions Notice sets out the categories of payments and transactions which are excluded from the scope of the prohibitions in the Financial Measures Notice:

1. Payments for basic expenses and reasonable fees for certain services. The Dealing Prohibition shall not apply to a financial institution in relation to the processing or facilitating of any payment or transfer of funds, financial assets or economic resources, where such payment or transfer is:

• necessary for the payment of basic expenses of any Designated Bank or Designated Entity, including (i) insurance premiums, (ii) reasonable fees for the provision of property management services or technology-related services, (iii) remuneration, allowances or Central Provident Fund contributions of employees, (iv) tax, (v) rent or storage services, (vi) mortgage payments, (vii) utility or telecommunication charges, and (viii) expenses that are necessary for the Designated Bank’s or the Designated Entity’s (as the case may be) compliance with its regulatory requirements; or
• exclusively for the payment of:
  • fees or service charges imposed for the routine holding or maintenance of frozen funds, financial assets or economic resources; or
  • reasonable professional fees and associated expenses for the provision of audit, tax, legal or payroll services.

2. Specified transactions. The Dealing Prohibition shall not apply to a financial institution in relation to specified transactions involving one or more of the Designated Banks. The specified transactions are:

• any transaction to facilitate a person’s withdrawal of funds, financial assets or economic resources pursuant to the termination of existing business relations between the person and the Designated Bank, for the benefit of the person, where such person is not a Designated Bank; and
• any transaction in relation to any funds, financial assets or economic resources which are necessary for the performance of the functions of the Embassy of the Russian Federation in Singapore.

If a financial institution wishes to rely on the exclusions in the Non-Prohibited Payments and Transactions Notice, it must keep accurate, complete and readable records, on paper or electronically, of any such activity.

Consequences of failure to comply

Failure to comply with the directions set out in either of the two MAS notices would constitute a breach of section 27(1) of the MAS Act. Pursuant to section 27(4) of the MAS Act, any financial institution that fails or refuses to comply with a direction given under section 27 of the MAS Act shall be guilty of an offence and shall be liable on conviction to a fine not exceeding S$20,000.

SGX Guidance

In a related development, on 7 March 2022, SGX RegCo published guidance in its Regulator’s Column on its expectations of SGX-listed issuers on the management of sanctions-related risks (the SGX Guidance).⁸

The SGX Guidance applies to sanctions-related risks in general, and not just sanctions imposed by the Singapore government on Russia.

Exposure or nexus to sanctions-related risks

According to the SGX Guidance, SGX-listed issuers should have in place adequate internal controls and risk management systems to mitigate any sanctions-related risks.

An SGX-listed issuer also needs to assess if it has exposure or nexus to sanctions-related risks on an ongoing basis. In this regard, it may be appropriate for the SGX-listed issuer’s board of directors (“Board”) to obtain legal advice as to whether its business dealings may violate any sanctions. If there is a material change in risk of the SGX-listed issuer being subject to sanctions, the SGX-listed issuer should immediately announce its inherent risk exposure on SGXNET, as well as whether it has obtained legal advice. Such announcements should include an assessment on the financial and operational impact to the SGX-listed issuer.

The Board should also confirm in such announcements or in its annual report that the SGX-listed issuer has implemented adequate and effective control measures to protect the SGX-listed issuer’s interests in relation to any sanctions-related risk. Where appropriate, the Board and audit committee should seek independent advice to ensure that the controls are adequate and effective.

Sanctioned Subject or Sanctioned Activity

All SGX-listed issuers that are Sanctioned Subjects⁹ or engaged in a Sanctioned Activity¹⁰ should suspend trading in their securities. They should also immediately announce all relevant information, including an assessment on the financial and operational impact. These SGX-listed issuers should remain suspended until they have demonstrated to the SGX that they are no longer Sanctioned Subjects, or that the sanctions no longer apply to their businesses.

Prohibition on fundraising:

Where an SGX-listed issuer is a Sanctioned Subject or is exposed to/has a nexus to any sanctions-related risks, SGX may require the SGX-listed issuer to undertake an independent review or obtain external auditors’ confirmation that fundraising proceeds are not used to benefit any Sanctioned Subject or finance any Sanctioned Activity.

Cessation of sanctions-related risks:

Where an SGX-listed issuer is no longer a Sanctioned Subject, is no longer engaged in a Sanctioned Activity, or is no longer exposed to – or no longer has a nexus to any sanctions-related risks (“Cessation”), the SGX-listed issuer must make an immediate announcement. This announcement must include an assessment of the financial and operational impact of the Cessation to the SGX-listed issuer.

SGX may require that the SGX-listed issuer obtain and announce legal advice and confirmation from any other relevant parties in relation to whether, following the Cessation, there will be any legal and financial penalties and liabilities (including contingent liabilities) imposed on the SGX-listed issuer. SGX may also require the SGX-listed issuer to confirm the continued validity of any such legal advice in its subsequent annual reports. Where there are material updates to the legal advice, the SGX-listed issuer should make timely disclosure of any changes.

Comment

This is a rare and significant move, and marks only the second time in the history of Singapore that it has imposed unilateral sanctions on another country.¹¹ Companies in the defence, technology, telecommunications and cybersecurity sectors, as well as financial institutions and SGX-listed issuers in Singapore with touchpoints with Russia should evaluate existing relationships, contracts and business dealings to determine whether any steps will need to be taken to ensure that their business activities do not infringe these sanctions measures.

The SGX Guidance is a timely reminder of the need for SGX-listed issuers to be aware of, and put in place adequate internal controls and risk management systems to manage, sanctions-related risks. This involves implementing an effective sanctions compliance program to prevent, detect and address violations of sanctions and internal compliance policy. Such a program should include effective counterparty due diligence measures and internal compliance reviews and investigations to adequately address and respond to sanctions issues when they arise.

The SGX Guidance also expect Boards of SGX-listed issuers to take an active role in compliance, by requiring them to obtain legal advice on specific dealings and to confirm that SGX-listed issuers have implemented adequate and effective control measures in respect of the issuer’s exposure to sanctions-related risks.

Companies, financial institutions and SGX-listed issuers should be aware of other more extensive sanctions regimes that may apply to them in their dealings with Russia, and continually monitor the rapidly evolving Russia-related sanctions landscape to manage such sanctions risks.

Special thanks to Ernest Cheong, Trainee Solicitor, Ascendant Legal LLC, for assisting in the preparation of this update.

This note does not constitute sanctions legal advice. Given the potential serious consequences for companies and their senior managers of any sanctions related issues, in case of any doubt about obligations, companies should consider seeking advice from relevant internal functions or external advisors where appropriate.