Tom Stocker: Firms must risk assess the impact of sanctions on Russian trade

Tom Stocker: Firms must risk assess the impact of sanctions on Russian trade

Tom Stocker

Tom Stocker, partner and sanctions expert at Pinsent Masons, discusses the implications for businesses that comply with sanctions on Russian trade.

Despite successive rounds of UK, EU and US sanctions ratcheting up the pressure on Putin’s government and a further round of sanctions being imminent, we are a long way from a global embargo on Russia.

The UN has not imposed any sanctions - it can’t because Russia is a permanent member of Security Council - and so the vast majority of countries in the world continue to trade with Russia.

Sanctions which have been imposed on wealthy or politically connected Russian individuals have been plentiful, but a significant number of UK, EU and US sanctions are effectively prohibitions on British and Western businesses from supplying goods and services to Russian businesses.

Businesses from other countries that don’t have sanctions in place are stepping into the breach and seizing the opportunity to continue to facilitate the goods and services which Western companies are stepping away from.

A huge number of goods caught by UK sanctions are described as “energy related goods”, “critical industry related goods” and “luxury goods”. But this includes items (which are valued over a certain threshold) such as beer and spirits, golf balls, soups and broths, perfumes and deodorants, bowties, and even wigs, false eyebrows and eyelashes.

Ideally, before sanctions are imposed, there should be a period to forewarn businesses of what is proposed. This will allow businesses time to work out if the sanctions apply to their activities and to prepare for the sanctions coming into force.

The reality is that complex sanctions are being imposed in a piecemeal manner and often very quickly – causing major compliance concern and risk for UK and western businesses. Breaching sanctions is a criminal offence and is the only area of criminal law where lawful activity can become unlawful overnight without any consultation.

Businesses wish to comply with sanctions and many are voluntarily disengaging from perfectly lawful Russian related business Some companies have decided to withdraw from dealings with persons connected with Russia, including dealings outside of Russia, for example on projects in Africa where there is a Russian entity involved.

This approach can have adverse consequences. If a business withdraws from a project or withholds goods and services which are not actually subject to sanctions, it may find itself in breach of contract and subject to a potential claim for damages. Russia may take countermeasures against any of the business’ personnel based in Russia and contractual due payments may be withheld.

Companies should risk assess the possibility of sanctions impacting on their business. Conducting due diligence will ensure that any counterparty is not sanctioned and is not owned or controlled by a sanctioned person. Establishing that the trade (goods or services) in question is not prohibited is a priority, and businesses will need to assess the risk of that business becoming prohibited in the future.

Businesses which continue with lawful Russian business should seek advance payment for goods or at least payment on delivery, and thought should be given to the transaction currency. British companies would be advised to transact in pounds sterling as dealing in euros or US dollars risks exposure to other country’s sanctions regimes.

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