International sanctions have become a key element in current international relations. They are measures applied against States, non-State entities or individuals that could be a threat to international peace and security.
One of the most concerning and discussed subjects at the moment is the economic sanctions against Russia. In particular, the meaning of imposed limitations and the impact these have on the sanctioned country and the rest of the world.
In this article, we discuss what international sanctions can mean for your business if you are dealing with an entity located in a sanctioned country.
What are international sanctions?
Simply put, international sanctions are penalties. They are commercial and financial restrictions that impose a ban on trade and financial relations to limit the export and import of various goods from and to another country.
This is achieved by blocking the sanctioned country’s ports and imposing higher import duties on goods to the sanctioned country.
Current sanctions on Russia
On 24 February 2022, the UK announced the list of sanctions against Russia after the invasion of Ukraine. The lists included:
- All major Russian Banks’ assets are frozen and excluded from the UK financial system
- Large Russian companies are prohibited from raising finance or debt on UK markets
- The Russian owed airline Aeroflot was banned from the UK
- Russia cut out of the SWIFT international payment system
- Stringent export controls for the technology sold to Russia (and similar measures imposed on Belarus)
- Bank Rossiya, the Black Sea Bank, IS Bank, Genbank and Promsvyazbank have all their UK assets frozen
- Three Russian billionaires (Gennady Timchenko, Boris Rotenberg and Igor Rotenberg) had their assets frozen in the British Isles and are barred from travelling to the UK
On the 8th of May, the British and US governments also introduced new sanctions against Russia. To add to the list:
- A total ban on the export of the goods in nuclear trade in particular
- 2,600 Russian and Belarus individuals added to the sanctions list; amongst these are the top managers of Sberbank and Gazprom bank
- US has also prohibited all consulting services provided to Russia by accountants, advertising and PR agencies
In addition to sanctions, several companies have decided to withdraw from Russian markets due to adverse public perception.
Some of the major companies who have stated they will terminate operations within Russia are Nestle, Ikea, McDonald's, Shell, BP, Goldman Sachs, Deutsche Bank, Societe Generale, American Express, Mastercard and Visa, City Group, Deloitte, EY KPMG and PWC, Bloomberg, Netflix, Disney, Sony and Warner Bros, Hyatt, Hilton, UPS, FedEx and DHL, Airbus and Boeing, American Airlines, Delta Air Lines, Siemens, Renault and Hitachi. This list continues to grow.
How do sanctions impact your business?
Sanctions, in general, have a devastating effect on the economy of both, the country imposing and receiving sanctions by preventing any trade growth and thus must be implemented with accuracy.
To date, the most affected are the UK companies that have been importing and exporting the goods or services to Russia or Belarus. The sanctions against major Russian banks, including Central Bank, Sberbank, Alpha, Vneshtorgbank, VTB and Gazprom banks, made every UK business which has a working relationship with the sanctioned banks review their commercial and corporate contracts.
Whilst the contracted goods and services may not be on the sanctions list; no company would wish to be associated with individuals or countries subject to the UK and international sanctions. Any such involvement may end up being included on the sanctions lists or watchlists.
Do sanctions work?
Mr Mikhail Fridman, 57 years old, born and raised in the Soviet Union in the western Ukrainian city of Lviv, a first-wave oligarch now living in London, has provided some interesting insights about sanctions and how, from his perspective, feels that they do not always work as intended.
According to Bloomberg, Fridman lost about $4 billion on paper and is in the “strange position of being an oligarch with essentially no cash”. Fridman himself said “My problems are really nothing compared with those suffering from the war.
If the people who are in charge of the EU believe that because of sanctions, I could approach the president and tell him to stop the war, then I am afraid we’re all in big trouble. That means those making this decision understand nothing about how Russia works.”
On the other hand, according to the latest report published by the UK Government recently imposed sanctions on the additional £1.4 billion in imported products from Russia and raised tariffs by 35% points on chemicals, platinum and palladium. It covers more than £250 million, equivalent to 10% of UK exports to Russia.
The UK has now announced import restrictions on over £2.4 billion of imports from Russia and all the importers are encouraged to source alternative supplies. This creates ongoing issues for the sanctioned country regarding the supply chain and interrupts longstanding business and financial relations with their foreign partners, causing irreparable damage to the Russian economy long term.
The UK Government is planning to enforce new legislation accordingly to implement these measures and recommends that, as with all sanctions, these will be kept under review.
Dealing with a sanctioned entities and how LawBite can help
Being involved in business with a sanctioned individual or company could risk your reputation and may result in heavy penalties and fines.
At LawBite, we help you avoid any legal, financial and reputational ramifications that one could encounter if doing business with a sanctioned entity.
- We can introduce a simple but robust sanctions compliance checklist to ensure that our clients are prepared for and aware of potential risks
- We can review commercial documents and ensure that required legal measures, including the variation of contracts, licence to continue trade or notice of termination, are in place before unnecessary costs are incurred due to violations
- We also help you to have an up-to-date Due Diligence checklist to ensure that their business is compliant with new legal requirements
- We assist with a thorough screening of their potential business partners and a clear due diligence report as a backup to exclude any involvement with politically exposed persons (PEPs) and individuals on a sanction list or watchlists
Our approach and unique compliance checklist help clients meet regulatory expectations and are up to speed with due diligence procedures to only focus on further growth and development of their business.
To find out how we can provide further information and assistance, book a free 15-minute consultation with one of our lawyers today.