Siemens, a German corporation, has announced that it will no longer deliver power plant equipment to state-controlled firms in Russia after it claimed to discover that Siemens’ Russian customer, Technopromexport, had diverted gas power plant turbines to the disputed territory of Crimea. The United States and the European Union have implemented sanctions targeting Crimea since the Russian military invasion of Ukraine and the annexation of the Crimea region of that country. In addition to the freezing of individuals’ assets, both the United States and the EU ban the importation or exportation of goods, services, or technology to or from Crimea, among other prohibitions.
Siemens has a long history of doing business in Russia, and claims to have taken steps to ensure compliance with what it has identified as the sanctions imposed by the international community related to the dispute over Crimea. According to Siemens, it had a written agreement with its Russian customer to comply with the sanctions by not re-exporting the turbines – or the power generated by the plant using the turbines – to Crimea. After delivery to a power generation project in Taman, a city in southern Russia, Siemens claimed it learned that Technopromexport diverted four turbines to the Crimea region, just across the Black Sea from Taman.
In addition to the indefinite halt on deliveries, Siemens indicated that it also plans to require that its own workers install equipment in Russia in the future. Siemens has also stated its intention to sell its stake in Interautomatika, a Russian power plant technology company.
While it is unclear what action the German or other governments will take in response to this incident, it should serve as a warning to U.S. and European companies – and companies with ties in either jurisdiction – that doing business in Russia can be far more complex and risky than ever before. Here, a very large and sophisticated firm appears to have taken steps, including a written agreement, to ensure its Russian customer’s compliance with the sanctions. According to Siemens, the Russian customer may have breached this understanding, and again according to Siemens, even went so far as to claim that the turbines were of Russian origin (and, thus, not subject to sanctions). Regardless of the details of what took place, companies currently engaging in — or seeking — business in Russia should carefully consider whether their existing sanctions compliance protocol and processes are sufficient to protect the company and personnel from these increased legal and commercial risks.