Exclusive: U.S. sanctions curb Microsoft sales to hundreds of Russian

    MOSCOW (Reuters) – Two of Microsoft’s official distributors in Russia have imposed restrictions on gross sales of Microsoft software program to greater than 200 Russian corporations following new U.S. sanctions, in response to notifications circulated by the distributors.

    Whereas a lot of the main focus round U.S. sanctions has been on methods they’re being skirted, the strikes by the Russian distributors present how more durable restrictions that got here into drive on Nov. 28 are beginning to chew.

    The brand new measures reduce the length of loans that may be provided to Russian monetary companies topic to sanctions to 14 days from 30 days and to 60 days from 90 days for Russian power corporations on a U.S. sanctions listing.

    Beforehand, the restrictions had primarily affected Western banks lending to Russian companies however with such brief financing intervals, swathes of corporations supplying items and providers to Russian shoppers worry they might fall foul of the principles too.

    It’s routine in Russia for suppliers to attend weeks and even months to receives a commission after submitting invoices for items and providers.

    Some Western companies have been suggested by attorneys that the U.S. Treasury Division may, in concept, take the view this constituted financing in violation of the sanctions, in response to a number of folks concerned within the discussions.

    One of many two Microsoft distributors, a Russian firm referred to as Merlion, mentioned in its notification to companions that each one sanctioned consumers of Microsoft licenses should pay inside tight deadlines, and even pay upfront in some instances.

    The second distributor, RRC, mentioned in its notification, seen by Reuters, that “critical restrictions are being launched” on Microsoft orders from companies topic to U.S. sanctions.

    Each Merlion and RRC cited guidelines stemming from the brand new bundle of U.S. sanctions – signed into legislation on Aug. 2 for Russia’s involvement in Ukraine and cyber assaults – as the rationale for the extra restrictions.

    Neither Merlion nor RRC responded to Reuters questions.

    Microsoft mentioned in an announcement to Reuters: “Microsoft has a robust dedication to complying with authorized necessities and has sturdy processes all over the world to assist be certain that our companions are in compliance as effectively.”

    In response to Reuters questions, a spokesman for the U.S. Treasury Division, which oversees the enforcement of sanctions, referred to its printed steerage.

    The steerage from the Treasury’s Workplace of International Belongings Management (OFAC) states that U.S. companies can conduct transactions with corporations on the sanctions listing so long as the cost phrases don’t exceed the permitted mortgage length.

    “Within the occasion U.S. particular person believes that it might not obtain cost in full by the tip of the related cost interval, the U.S. particular person ought to contact OFAC to find out whether or not a license or different authorization is required,” it mentioned.


    The US can impose a civil penalty on violators of $250,000 or double the quantity of the offending transaction whether it is larger. If convicted of wilful violation, offenders face a nice as much as $1 million, or 20 years in jail, or each.

    Microsoft didn’t reply to Reuters questions on whether or not it had initiated the restrictions launched by two of its Russian distributors.

    Microsoft lists 9 different official distributors of its fundamental software program merchandise in Russia in the identical class of accomplice corporations as RRC and Merlion. One, Softline, declined to touch upon whether or not it had launched stricter cost guidelines. The others didn’t reply to Reuters requests for remark.

    Reuters reported in October that software program produced by Microsoft had been acquired by state organizations and companies in Russia and Crimea, regardless of sanctions barring U.S.-based corporations from doing enterprise with them.

    That case, and several other related ones reported by Reuters, highlighted gaps between the sanctions and their enforcement.

    The U.S. authorities operates two lists of companies topic to sanctions. U.S.-based entities are banned from doing virtually all types of enterprise with companies on Washington’s Specifically Designated Nationals (SDN) listing.

    FILE PHOTO: Russian flag are mirrored on the Microsoft Home windows Set up CD on this illustration taken January 12, 2018. Image taken January 12, 2018. REUTERS/Dado Ruvic

    A second listing generally known as the Sectoral Sanctions Identifications (SSI) listing covers 224 principally Russian companies and their subsidiaries within the banking, power and protection sectors that are topic to monetary restrictions.

    They embrace main Russian corporations resembling oil big Rosneft, pure fuel producer Novatek and Sberbank, Russia’s largest lender.

    Whereas the lending guidelines for monetary and power companies have been tightened, restrictions on financing for Russian protection producers have been left unchanged at 30 days although the brand new sanctions toughened the penalties for any violations.


    The notification from Microsoft distributor Merlion dated Nov. 29, the day after the brand new lending guidelines come into drive, mentioned orders would solely be fulfilled for monetary sector consumers as soon as it had affirmation full cost had been obtained.

    For the protection sector, it mentioned orders can be fulfilled provided that companions confirmed cost can be made inside 30 days of the software program license being activated. For power sector shoppers, affirmation of cost inside 60 days was required.

    “If we don’t obtain from you paperwork confirming cost on orders from the protection and power sectors, the order may very well be considered by the seller as not complying with the processing process and rejected,” Merlion’s notification mentioned.

    RRC didn’t spell out the brand new restrictions in its notification, despatched by e mail final month to its companions.

    “Within the occasion that you’ve got consumers from the next sectors of the financial system (monetary, protection, power) and they’re within the sanctions listing, you’re requested IN ADVANCE to contact your RRC supervisor for additional directions.”

    “In reference to this, critical restrictions are being launched on the putting of, and cost for, orders for Microsoft merchandise … positioned by these consumers (and likewise their subsidiaries and affiliated corporations),” the notification mentioned.


    In addition to the tighter lending guidelines and different new restrictions, a change of wording within the U.S. sanctions bundle can also be sending ripples by means of the Russian financial system.

    The earlier wording was the U.S. president “could impose” penalties if guidelines are violated. That has now modified to “shall impose” penalties, except it isn’t within the nationwide curiosity.

    Legal professionals who advise shoppers on U.S. sanctions compliance mentioned this meant it was extra seemingly Washington would impose penalties on overseas entities doing prohibited enterprise with an organization on the sanctions listing.

    In response, corporations try to place as a lot distance as potential between themselves and Russian entities on the U.S. blacklist, fearing they might find yourself on it too by affiliation, bankers, attorneys, officers, and enterprise executives mentioned.

    Some corporations are conducting audits to search out out if their companions cope with any sanctioned entities and are, in some instances, halting these relationships, in response to a sanctions lawyer and an government with a big industrial agency.

    “Even Chinese language corporations began to ask,” mentioned a senior supply near the Kremlin and the Russian authorities, alluding to the actual fact some Chinese language corporations have till now continued to do offers even the place many Western companies have pulled again.

    On the similar time, corporations which are on the sanctions listing, or consider they could be added, are on the lookout for middleman companies that might enable their companions to maintain working with them, albeit at arm’s size.

    An individual who works intently with a billionaire Russian oligarch mentioned he assessed the danger the oligarch’s enterprise can be put underneath U.S. sanctions was solely 10 p.c. Even so, he mentioned, the enterprise was taking precautions so it could hold working if Washington does blacklist it.

    “We’re establishing non-affiliated enterprise models. Or cope with giant native companions,” mentioned the supply, who declined to be recognized to keep away from attracting consideration to his boss’s enterprise.

    A Russian finance ministry supply mentioned he anticipated an uptick within the variety of shell corporations being arrange as a mechanism to bypass the expanded sanctions.

    Two executives from two top-20 Russian banks mentioned they considered the actual fact their shoppers included Rosneft as a danger. One mentioned lots of the financial institution’s shoppers had began to ask whether or not the Rosneft ties uncovered the lender to sanctions danger.

    Extra reporting by Salvador Rodriguez in San Francisco, Joel Schectman in Washington, and Gleb Stolyarov, Katya Golubkova, Darya Korsunskaya, Olga Sichkar, Elena Fabrichnaya and Polina Nikolskaya; modifying by David Clarke

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