Actual Impact Of Banking And Financial Sanctions On Foreign Businesses In Russia
We have analyzed the extent of the sanctions imposed on Russia and recommend the following risk mitigation actions for foreign investors with business operations in the country.
SWIFT
SWIFT will be terminated for all currently sanctioned Russian banks, including Sberbank, Alfa-bank, VTB, Otkrytie, and Promsvyazbank. Other non-sanctioned Russian and international banks are not affected. International payments for foreign businesses operating in Russia using sanctioned banks may still make and receive payments however there will be transfer delays. We recommend opening accounts with non-sanctioned banks, ideally the Russian subsidiaries of international banks who use financial agent services to process international payments.
Financial Services
Russia’s State-Owned banks have been denied access to the European Union and United States capital markets and cannot obtain long-term loans. Correspondent bank accounts of Sberbank within US banks will be closed. International payments by Sberbank that are processed by US banks will be blocked. European Union banks will not provide investment and listing services for Russian State Owned Defence companies. It should be noted that these sanctions affect the US and European Union capital markets and will not impact regular foreign businesses operating in Russia.
Seizure Of Property
There has been discussion concerning the seizing of foreign owned assets including funds, as well as production lines and other assets. While serious, we do not think that this is likely to occur, and if it should, would be at selected foreign investors with seizures made as a political statement. Should whole-scale war break out between Russia and the West then the situation will escalate towards seizures.
Energy Sanctions
United States and European Union companies are prohibited from transferring any oil / refining technology or products to Russia even if sourced externally from the US or EU. This means that US and EU companies in this sector can be completely shut out of the Russian market.
There are mitigating options: transferring the business operations to a ‘sleeping company’ model, or exit the market and liquidate the Russian entity. Contact us for assistance.
Aviation Sanctions
More than 50% of Russia’s aviation market is leased from foreign suppliers and this impacts upon them. US and EU companies are not permitted to transfer any products or technology for use in aviation and space industries and are banned from selling spare parts and maintenance products to Russian airlines.
Restrictions On Air Travel
Both Russia and the European Union have blocked access to each other’s airspace and barred national airlines from flying to each other’s destinations. Kaliningrad, Russia’s Baltic enclave is now cut off by air from Russia as is Serbia, as overflying EU airspace is now banned.
Accessing Russia from Europe may instead be arranged by transiting through Helsinki (Finland), Baku (Azerbaijan), Istanbul (Turkey), or Abu Dhabi, Dubai, and Qatar (UAE). Alternatively, road and rail border checkpoints between Russia and the EU remain open, although delays can be expected.
Russia/EU Airspace Closures
Technology Sanctions
US and EU companies are barred from transferring dual-use products to Russia, including semiconductors, telecommunications equipment, encryption, lasers, navigation, aviation, and maritime technologies. This can be mitigated against by transferring such business operations to a ‘sleeping company’ model, transfer the business operations to an alternative CIS country (Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Uzbekistan, or Ukraine) or liquidate the business. Contact us for assistance.
Counter-Sanctions
Russia has issued counter-sanctions that also affect normal foreign business practices in Russia. The Central bank has introduced a temporary on securities brokers transferring assets overseas, and foreign holders of Russian securities may not exit or sell out their positions.
80% of all foreign export credits must now be converted to Russian rubles. Russian companies (not foreign) are prohibited from transferring or receiving money from their bank accounts held overseas; and they may not provide loans to foreign businesses. We recommend refraining from any securities transactions, check your business foreign currency account and cash-flow needs and be aware of potential foreign currency deviations and transactional delays.
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About Us
During these uncertain times, we must stress that our firm does not approve of the Ukraine conflict. We do not entertain business with sanctioned Russian companies or individuals. However, we are well aware of the new emerging supply chains, can advise on strategic analysis and new logistics corridors, and may assist in non-sanctioned areas. We can help, for example, Russian companies develop operations throughout Asia, including banking advisory services, and trade compliance issues, and have done since 1992.
We also provide financial and sanctions compliance services to foreign companies wishing to access Russia. Additionally, we offer market research and advisory services to foreign exporters interested in accessing Russia as the economy looks to replace Western-sourced products. For assistance, please email russia@dezshira.com or visit www.dezshira.com
