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In response to Russia’s unprovoked invasion of Ukraine and its commission of atrocities against the Ukrainian people, several states have taken measures to prohibit state entities from contracting with Russian-owned businesses and/or companies that do business in Russia. For instance, New York Governor Kathleen Hochul has signed an expansive Executive Order (“EO”), prohibiting most state agencies from “entering into any new contract or renewing any existing contract with an entity conducting business operations in Russia.” New Jersey took more decisive action and enacted a bill that prohibits the state from contracting with vendors that are associated with Russia or Belarus or are supporting those governments in their Ukrainian war efforts. Under each of these new laws, businesses that wish to contract with the state are required to submit certifications, signed under penalties of perjury, about their business operations. These new state certifications expand on the U.S. sanctions imposed against the Russian and Belarusian governments, significantly increasing private businesses’ criminal and civil liability risks.
While many states have cut ties with Russia, they do not all require certifications from state contractors. For example, Massachusetts Governor Charlie Baker signed EO 597, which directs state agencies to “verify that no executive department agency is currently contracting with any Russian state-owned company or otherwise engaged in any partnership, affiliation, or exchange with any Russian state-owned company, Russian government controlled entity, or Russian governmental body.” However, Massachusetts does not yet require its state contractors to certify a lack of Russian involvement.
Among the six states that have thus far implemented new certifications – New York, New Jersey, Vermont, California, Ohio, and Georgia – the requirements vary. These variations make it critically important for businesses to fully understand the reporting requirements of each state in which they publicly contract and file accurate certifications. Inaccurate or false disclosures may expose contractors to both criminal and civil liability. Public companies are also under increasing scrutiny by the Securities Exchange Commission to publicly disclose the direct or indirect impact of Russia’s invasion on their businesses, including the effect of sanctions, actual or potential disruptions in the company’s supply chain, and heightened cybersecurity risks.
Below, we briefly describe New York and New Jersey’s Russian business certifications and provide guidance that state contractors should consider when making these certifications.
New York’s certification requirement, which was implemented on March 17, 2022, is by far the most expansive. New York’s EO No. 16 largely prohibits state agencies from contracting with “an entity conducting business operations in Russia,” with a few narrow exceptions.
Under the EO, state contractors are required to submit a completed Certification as part of the contract bid/solicitation or the extension of an existing contract. The Certification asks vendors one question: “Is Vendor an entity conducting business operations in Russia?” Vendor, in this context, only refers to the specific company contracting with New York, and not any parent, subsidiary, or affiliated entity.[1]
The Certification also allows a contractor to qualify its answer if the contractor is taking “steps to wind down business operations in Russia,” the business operations “provide vital health and safety services within Russia,” or the business operations are done “to comply with federal law, regulations, executive orders, or directives.” Significantly, contractors that answer with one of these qualifications are not disqualified from doing business with the state. Therefore, a qualified “yes” should not disadvantage a bidder from receiving an award. In addition, in certain circumstances, New York can award the contract to a contractor that does business in Russia if the agency makes a written determination that the investment or contract is necessary for it to perform its functions and that no suitable investment or contractual alternative exists.
New Jersey’s Senate Bill No. 1889 (“S-1889”), which was signed into law on March 8, 2022, prohibits state agencies from contracting with businesses associated with Russia or Belarus or engaging in any defined prohibited activities. Vendors and bidders seeking to enter into or renew a contract, or respond to a bid solicitation with New Jersey, must Certify that they are “not engaged in prohibited activities in Russia or Belarus.” Prohibited activities are defined as (1) being a company owned or controlled by Russia or Belarus government; (2) commencing new business operations that involve contracts with the Russian or Belarus governments; (3) being a company headquartered in Russia or having its principal place of business in Russia or Belarus, or (4) in any way supporting, assisting or facilitating the Russian or Belarus governments in the war on Ukraine.
Businesses that are engaged in any of these activities are banned from contracting with New Jersey state agencies. If a contractor is engaged in prohibited activities, it has 90 days to cease those activities, and must provide an updated certification on or before the 90th day.
Unlike New York, New Jersey does not prohibit vendors that are headquartered outside of Russia from conducting business operations in Russia, provided that those operations are not with the Russian or Belarus Government.
Although New York and New Jersey are among some of the first states to require broad certifications about state contractors’ Russian ties, a few other states have implemented their own certifications. For example, Ohio has a restriction similar to New York’s, requiring contractors to affirm that they will abide by Ohio EO 2019-12D (which largely prohibits the contracting and purchasing of services from overseas sources, including by subcontractors) and Ohio EO 2022-02D (which prohibits the purchase of services from, or investments in, Russian institutions or companies). In addition, the Ohio Certification requires the disclosure of the principal location of the contractor and its subcontractors, the location where services will be performed, and the location where the state’s data will be stored. In addition, Vermont and California now require Russian certifications from their contractors, although those certifications are focused on the purchase of goods in connection with the state contract, not other business operations with Russia.[2]
Moreover, with Russia’s war on Ukraine further escalating and becoming even more brutal, these certifications are likely only the beginning of new government procurement regulations. In fact, just last month Georgia enacted legislation, GA SB562, requiring all companies bidding on a state contract to certify that they are not owned or operated by the governments of Russia or Belarus. In addition, Congress has introduced a bill in the House of Representatives, H.R. 7185, entitled “Federal Contracting for Peace and Security Act.” This bill seeks to prohibit the federal government from contracting for goods or services with companies conducting business operations in the Russian Federation while Russia is involved in acts of aggression against Ukraine. The new bill, which was introduced in the House but not yet passed, would require federal executive agencies such as the Departments of Defense, Transportation, Education, Health and Health Services, and the U.S. military, to terminate all contracts to procure any product or service from a company (including any affiliates of that company) that is conducting business operations in the Russian Federation while Russia continues its war on Ukraine.
The current state “no Russian business” certification requirements and the proposed federal legislation provide a powerful symbol of support to Ukraine. We therefore expect that other states will impose similar requirements on their contractors, and that Congress will soon pass H.R. 7185 on a bipartisan basis and require certifications for federal contractors.
If you are a vendor or potential vendor seeking to transact with a state agency and have any questions about your disclosure obligations Hinckley Allen’s team of attorneys can assist with various state disclosure requirements. The International Trade and Global Security group is well versed in compliance issues arising out of the Russian sanctions, and our Construction and Public Contracts team has extensive experience procuring state and federal government contracts and can help ensure your company abides by the requirements of each state with whom you contract.
As with all disclosures made as part of a government contract, it is important to be truthful. Failing to disclose business ties with Russia or Belarus to a state that requires such a certification could have civil or criminal ramifications, and may expose your business to liability under the state’s false claims act. For example, New Jersey’s legislature has warned that false certifications will result in “a civil penalty equal to the greater of $1,000,000 or twice the amount of the bid that was false certified” and will prelude the contractor from making additional bids for the following three years.[3] Moreover, the fact that a vendor does some business in Russia may not necessarily preclude the vendor from receiving state contracts. For instance, in New York, state entities can award contracts to vendors that are taking “steps to wind down business operations in Russia” or otherwise qualify for an exception to the prohibition.
However, an inaccurate or misleading representation to a state or federal governmental entity may result in serious consequences to you and your business. If you learn that your business has submitted a certification that is no longer accurate, or was not accurate at the time it was made, it is important to remediate or correct the issue. Hinckley Allen’s White Collar and Government Enforcement team is experienced in defending claims arising out of contracts with state and federal governments, and can work with you by, for example, filing a voluntary self-disclosure and defending any civil and criminal charges, should they arise.
Research assistance provided by Christian Mines.
This article is not intended to be legal advice. The above materials are provided for educational and informational purposes only, for the use of clients and others who are interested in the subject matter. If legal advice is required concerning a particular matter, your attorney should be consulted.
[1] See also New York Office of General Services (“OGS”) Guidelines § II.
[2] See also CA Template Notice to Contractors.
[3] See New Jersey EO 291; see also Bill S-1889.
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