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Legal educational program: how sanctions affect the purchase of software and hardware and what are the pitfalls



After the first wave of sanctions, amendments were made to the law on information regarding the registry of domestic software. Now, for government bodies and companies, it is a priority for procurement under 44-FZ. Recently, a similar priority has been given to software from the EAEU countries, but there are features with a lack of software in these lists to cover all the needs of enterprises.

Still for state bodies other by-laws are provided. So, on the issue of automation of state control, the Order of the Ministry of Communications of Russia dated 03.06.2019 N 252 is valid, which not only emphasizes the priority of domestic software, but also indicates open source.

Thus, the state tells us that domestic and Eurasian software come first, then open source (if, for example, we are talking about developing information systems for government agencies), and only then foreign software.

All these and other protectionist measures are caused not only by the desire to support domestic developers and manufacturers. This is partly a reaction to foreign economic sanctions. Because of them, a situation has arisen when vendors sell software cautiously or not at all.

It’s profitable for a vendor to sell a subscription, and a buyer can get a permanent license agreement with sanctions in force majeure. About the same thing applies to iron, only there it is about maintenance and updating firmware drivers. I would like to talk about how this whole situation affects the market.

We start with the question of what “sanctions” really are and how they work - and what you need to know, for example, CTO or the system administrator about them.

About openors from Order 252:

When purchasing third-party licensed software for the implementation of software modules (plug-ins), it is necessary to give priority to Russian-made software, or to software based on open source codes (open-source, GLU / GPL, Apache License 2.0).

Open source in this regard has one “side” advantage - this is a reduction in licensing costs for software (a factor that makes open source products more popular not only in the public sector, but also among commercial companies). Using open source software, you can replace the proprietary foreign systems VDI, virtualization, private clouds, etc.

Lists


Here is a link to the domestic software registry , as well as a software registry from member states of the Eurasian Economic Union. The point is that if you are a state-owned company or state organization and you need software, you should include in your procurement regulation a priority condition for domestic and Eurasian software and choose the software from these registries. If you don’t have the right software there, then prepare a rationale for why you need Microsoft. The convenience of using the same Russian office, for example, few people care about.

With prioritization of public procurement, there are nuances of the WTO - we, in theory, violate international law in terms of antitrust measures, but so far this does not really affect anything.

Sanctions


A state (for example, the USA) may impose bans on interaction with a company. Each company that violates such a ban will be liable up to the criminal liability for its own management. Therefore, no matter how much money is there, vendors refuse to conclude or terminate contracts with sanctions companies.

Depending on the law (country) in which the contract was drawn up, for such actions after the sale of the license, some kind of refund may be applied. In Russia, recovering losses and fines from a vendor depends on the recognition of sanctions as force majeure, but the judicial practice is ambiguous. In one case, the Supreme Court recognizes the sanctions as force majeure, in another - no. In any case, I advise you to include in the terms of force majeure the possibility of applying sanctions.

Sanctions are blocking (“full ban”) and sectoral (“set of rules of interaction”). Companies under blocking sanctions are, for example, companies in which the owner is also under blocking sanctions. Companies under sectoral sanctions are, for example, some banks. Only part of the interactions are prohibited there: companies registered in the USA or controlled by US citizens and / or controlled by companies registered in the USA cannot lend to such banks for more than 14 days (Credit is also understood as a delay in payment for services, licenses, etc.). The reason may be that the bank is one of the key financial organizations of the Russian Federation, providing loans and banking services to strategically important enterprises of the Russian Federation.But if a bank under sectoral sanctions closes all transactions in 14 days, then such a bank or vendor will not have any problems on the part of regulatory authorities.

Here are the links with details .

The sanctions practice has developed in such a way that the United States applies both blocking and sectoral sanctions, and the EU countries only sectoral. China itself does not apply sanctions to Russian companies at all. Therefore, if you need software, but you are afraid of imposing sanctions and losses in connection with this, then choose this way: first look at Chinese vendors, then European and after that American ones. However, not everything is so simple, we will analyze the situation using the example of American sanctions. Keep in mind that the founders or participants (shareholders) of non-US companies can be US citizens and companies, and therefore they can also stop working with you if sanctions are introduced. Still worth paying attention to the presence of branches and representative offices, property in the United States and other ties with US jurisdiction.

How to check it? Create questionnaires with questions or include in the contract a condition in which the vendor will guarantee that he is not connected in any way with the United States. In the event that the vendor is deceiving and it is necessary to recover losses or fines in court - this will help.

Another important thing to consider when choosing a non-US vendor. For example, a Chinese vendor may be subject to US blocking sanctions and secondary sanctions may be imposed on your company for working with it. Therefore it is worth checking non-American vendors here .

That is, there is a specific list of companies with which American vendors (or companies owned by American citizens or legal entities) cannot deal with at all, and a list of those with whom it is possible to conduct business with some restrictions. In particular, dual-use software cannot be supplied.

What is dual-use software?


In short: this is software that is directly used to create weapons. Windows calculator can also be used to create weapons, but this is not its main function. But some professional software for calculating rocket engine parameters will already be dual-use.

The border is blurred and often determined by practice.

Russian law says the following:

« () » — , , , - , , , , , , ( 11.10.1993 N 1030 « () ».

It is clear that it is worth turning to international regulation. Here we turn to the Wassenaar Arrangements, which determine the types of dual-use products, including software. The parties to the Agreements are the Russian Federation, the USA, some EU states and other countries. So, in accordance with paragraph 1.B.3. and 1.D.1 “List of Dual-Use Goods and Technologies and Munitions List”, the dual-use products include software that is used to create materials for aircraft engines.

In one of the EU regulationsdual-use products are defined as products, including software and technologies that can be used both for civilian and military purposes, and can also be used both for the production of non-explosive substances and for the manufacture of nuclear weapons or other nuclear explosives.

In practice, this means that the vendor will be very afraid to supply their software and hardware to enterprises servicing the defense complex. Nobody really wants to risk it again. For example, there were cases with an aircraft engine factory (civil aviation) when there was no direct ban, but vendors refused to supply. Why? Because if they misinterpret the definition, they may be fined or charged with executives. Who is planting? US state.

How do vendors prevent sanctions risks?


There is no common practice, because often contracts are concluded in different geographies, depending on the vendor, and in different formulations. The approaches in judicial practice differ, as noted above.

To avoid problems, you need to understand how vendors prevent sanctions risks. Common situation - the vendor conducts a small study of the issue. Which involves a very detailed check of counterparties. For example, you need to know for what purposes the customer buys equipment or licenses, whether it will be used, for example, in the territory of the Republic of Crimea or transferred to sanctions companies. For this reason, it’s important for vendors to have a compliance specialist on staff. The composition of the founders (shareholders) of their counterparties is also checked to see if they include sanctions companies or citizens. Often, vendors include in their contracts conditions for the prevention of compliance risks, which, for example, indicate a business purpose, assurances of circumstances (for example,that the counterparty agrees to use licenses or equipment for its needs and will not transfer them to sanctions companies).

Scandals with the fact that some iron fell into the Crimea, although it should not, were already there. Here is an example from Siemens .

Is it true that vendors are switching to subscription?


Not really. Firstly, some state-owned companies have a demand for non-US vendors and their solutions. For example, for whom it is critical, the same energy is used - IBM FileNet or Opentext Documentum is replaced by Directum or Docsvision, and Oracle / MS / IBM DBMS by Postgre SQL. Secondly, if there are no analogues, then yes, vendors are trying to sell subscription a model to terminate SaaS or something similar instead of revoking a license. But, based on our practice, not all vendors switched to a subscription.

Pitfalls of import substitution


The biggest problem, besides the eternal “oh, why is the icon different than in Word, what an uncomfortable guy here” exists on the Open Source market and domestic software, is mutual integration with each other and with foreign solutions. Foreign companies have been developing their products for decades, as many have built interaction, conflict-free software.

For the effective development of import substitution, the formation of an ecosystem and horizontal ties between domestic vendors is necessary. We have a separate structure for this, within which we build horizontal ties with a huge number of developers.

Can I buy foreign software?


1. Are you under sanctions?
- Yes - even Chinese companies may not sell software due to secondary sanctions. The end of the test.
- No, continue.

2. Do you work in Crimea?
- Yes - similar to the first “yes”, vendors may refuse to supply their products to the Crimea. The end of the test.
- No, continue.

3. Is the vendor under blocking sanctions?
- Yes - it’s better not to work with such a vendor, because you yourself may be subject to sanctions. The end of the test.
- No, continue.

4. Can the acquired software be used by you for military purposes?
- Yes - vendors may refuse to supply their products. The end of the test.
- No - it seems you can think about buying.

References




If you have any questions, ask in the comments. If the question is not public - here is my mail VAntonov@croc.ru.

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