Do You Contract with State Governments? If So, Beware of Emerging State Sanctions' Obligations Related to Russia and Belarus

3 min

U.S. contractors with global operations are likely aware of the significant restrictions imposed by the federal government in response to the Russian invasion of Ukraine, in the form of new sanctions, allied trade embargoes, and heightened export controls. However, you should also know that many state governments have imposed new executive orders (EOs) or passed laws aimed at severing state business with contractors operating in or with Russia or Belarus. While these new measures vary in scope and severity, some impose reporting or certification burdens on state-level government contractors, particularly on those with operations in Eastern Europe or Russia.

New Jersey, for example, recently banned its state agencies from doing business with companies closely linked to the governments of Russia or Belarus. Governor Phil Murphy introduced these restrictions in EO 291 (March 2, 2022), by ordering a mandatory review of New Jersey state contracts, including those with "businesses that invest directly in … companies [owned or controlled by the government of Russia, Belarus, or their instrumentalities], directly or as subcontractors." While this EO doesn't directly place an onus on the business community, a companion New Jersey state law, P.L.2022, c.3, does. Under this law, state agencies are generally prohibited from doing business with entities or persons determined by the state to be "engaged in prohibited activities" in Russia or Belarus, including those with close links to the governments of Russia or Belarus or headquartered in Russia. Importantly, an entity contracting with the state of New Jersey must certify that neither it, nor any of its subsidiaries or affiliates under common ownership, is "engaged in prohibited activities" in Russia or Belarus. Otherwise, it must accurately explain such activities in these countries. Moreover, if the contracting company is performing any "prohibited activities," it will be obliged to terminate such activities within 90 days and certify as to the same to the state. Finally, under this New Jersey law, a false certification may result in civil penalties and suspension or termination of contracting rights.

State governments in California, Colorado, Indiana, Massachusetts, Minnesota, New York, North Carolina, Ohio, and Washington and others have also recently taken various steps to disassociate from Russian companies, state-owned entities, or their affiliates. In California, for instance, a new executive order requires contractors with projects valued at over $5 million to affirmatively report to the state their compliance with federal economic sanctions, as well as any steps taken in response to Russia's actions in Ukraine. Meanwhile in New York, the governor has directed state agencies to refrain from contracting with entities "conducting business operations in Russia" and to request certification from bidders regarding operations in Russia as part of the procurement process. Some states have also moved to divest themselves of any state-held Russian assets. Others have adopted bans prohibiting the sale of Russian-origin vodkas in state liquor stores.

As with sanctions programs at the federal level, the impact of these state measures on your business is highly fact specific and should be assessed on a case-by-case basis. Venable is closely monitoring the Russia-related sanctions landscape at both the federal and state levels, so if you have questions as to how these restrictions may impact your business, please reach out to our International Trade and Logistics Group or our Government Contracts Group for assistance.