About HKTDC | Media Room | Contact HKTDC | Wish List Wish List () | My HKTDC |
繁體 简体
Save As PDF Print this page

Overseas Firms Urged to Be Wary of Contravening Russian Sanctions

With the latest round of US-led anti-Russian sanctions now entering its fourth month, overseas businesses have been warned of the dangers of inadvertently falling foul of this stringent legislation and incurring penalties in their own right.

Photo: Barred: The latest round of US-Russia sanctions seen as more far-reaching than ever before. (Shutterstock.com)
Barred: The latest round of US-Russia sanctions seen as more far-reaching than ever before.
Photo: Barred: The latest round of US-Russia sanctions seen as more far-reaching than ever before. (Shutterstock.com)
Barred: The latest round of US-Russia sanctions seen as more far-reaching than ever before.

With the latest round of US-led sanctions against Russia now entering its fourth month, a clear picture of their implications is starting to emerge. This most recent trade embargo was enacted following concerns that Russia had actively worked to undermine the 2016 US election, as well as continuing international dismay over its annexation of Ukraine territory.

These latest sanctions have been seen as potentially far more wide-ranging than many of the punitive measures adopted in 2014-15. These earlier economic restrictions were designed to specifically impact upon Vladimir Putin, the Russian President, and his immediate circle of government officials and senior businesspeople.

By contrast, the 2017 sanctions are set to penetrate far deeper into Russian society. In line with this, the US Secretary of State and the Director of National Intelligence are compiling a dossier on all of the senior political figures and businesspeople thought to have links to the Putin administration.

This will contain information on the assets of all such individuals, as well as details of the source of their wealth and that of their immediate relatives. The report will also flag up any known or suspected instances of corruption relating to this target group, while also highlighting the identity of any of their non-Russian business connections.

The clear intention behind these newly actioned sanctions is to identify those overseas businesses or individuals that are illicitly trading with the country and subject them to the same trade embargo. This means that many EU and US firms may suddenly find that their existing middlemen trading partners are now off-limits.

With few senior members of Russia's business community untainted by connections to the country's ruling elite, the broad remit of these new sanctions is expected to make it extremely difficult for overseas businesses to find acceptable intermediaries for their import/export activities. Given the difficulty in second-guessing the exact scope of the 2017 restrictions, many companies are also concerned that they could inadvertently fall foul of this punitive legislation.

In terms of avoiding any such problems, multinational enterprises and overseas companies should first step up their due-diligence procedures, a process seen as the best way to safeguard against unwittingly becoming associated with sanctioned individuals or companies. To this end, it is more important than ever to have an in-depth knowledge of any prospective partners, as well as a comprehensive understanding of their supply chains.

Armed with such information, companies will then be well-equipped to convince international regulators that they have gone out of their way to comply with the terms of the sanctions. Failure to do so may, in turn, lead to such businesses themselves being subject to the same strictures.

It will also be prudent, where possible, for overseas companies to focus on sectors that are less compromised by direct association with senior figures in the Russian government. Overall, these relatively uncontentious sectors are said to include retailing, agricultural products, pharmaceuticals, FMCG and everyday household items.

Thankfully, many of these categories have proved to be particularly robust in terms of weathering Russia's long recession. In particular, the agricultural sector is seen as especially promising, with more overseas companies than ever now looking to establish trading links with Russian agrarian businesses.

The biggest challenge for overseas companies, though, comes in terms of ensuring they are in no way linked to any of the projects or sectors specifically proscribed under the terms of the sanctions. The most high-profile of these off-limit projects is the Nord Stream 2 pipeline, which is designed to pump natural gas from Russia to Western Europe via the Baltic Sea, a route that allows it to bypass Ukraine.

The ban also prohibits any association with Russian export pipelines in general and any businesses related to Russia's military or its intelligence agencies. In line with this, US and EU businesses are specifically banned from selling, leasing or providing goods, services, technology or information to all Russian organisations suspected of having links to any of the blacklisted projects or sectors. All companies found to have contravened this requirement may, again, find themselves subject to sanctions.

The scope of these latest sanctions is believed to be unprecedented in the long history of Russia-US relations, with many also expecting that it may well be a long time before they are repealed. In one instance of previous legislation – 1974's Jackson-Vanik Amendment, which imposed certain trade and investment restrictions across the former Soviet bloc – the enactment stayed in force for 38 years, enduring for 23 years after the fall of the Berlin Wall.

Leonid Orlov, Moscow Consultant

Content provided by Picture: HKTDC Research
Comments (0)
Shows local time in Hong Kong (GMT+8 hours)

HKTDC welcomes your views. Please stay on topic and be respectful of other readers.
Review our Comment Policy

*Add a comment (up to 5,000 characters)