Paris (AFP)- The deployment of unprecedented sanctions against Russia over the war in Ukraine has left companies with a complex legal minefield to navigate, prompting them to hire more lawyers to avoid costly missteps.
The European Union alone is heading for its sixth sanctions package, while the United States, Britain, Japan and even traditionally neutral Switzerland have imposed restrictions on trade with Russia.
Unprecedented in their scale and speed, Western measures against Moscow range from asset freezes to export bans on strategic products like semiconductors and financial sanctions.
Alex Zuck, managing director of product strategy at Moody’s Analytics, said the company has spoken in recent weeks to “hundreds” of compliance officers “struggling with and reflecting on sanctions exposure.”
Some firms need to expand their legal teams in response to an ever-changing landscape, a European banking industry source said.
“There is a layer of complexity exacerbated by the fact that we receive new rounds of sanctions almost every week,” the source said.
Complying with sanctions is even more difficult because Russia was tightly integrated into the global economy and was seen as a promising market by many Western companies.
These companies are now on a legal “war footing”, said Elodie Valette, a lawyer at Bryan Cave Leighton Paisner, which helps companies in the auto manufacturing and energy sectors, among others.
“They have set up teams that sometimes manage almost only that because, for some, their daily activity has been put in difficulty,” she explains to AFP.
Suddenly overwhelmed with work, lawyers rushed to review penalties, categorize them by activity and invite clients to do audits because they found themselves “a bit lost” initially, she added.
“Now companies are starting to see how they can strengthen their agenda for the future,” Zuck said.
“I don’t think a lot of people think there will be an abrupt end to sanctions – they will last, probably increase.”
The call for economic weapons began with the outbreak of war in late February, with the first steps forcing companies to take inventory of their Russian partners.
Business relationships should be examined individually and thoroughly, including a review of customers, suppliers and partners, to see who is really behind the Russian structures.
“You have to go into computer systems and investigate. Having a name is just the tip of the iceberg, you have to find all the connections and links,” the banking source said.
Zuck said the task is tricky because the United States and the European Union, for example, have different definitions of the level of control a Russian entity must have to trigger sanctions.
The manual approach of asking counterparties to disclose beneficial owners is sometimes “very difficult” due to the opacity of many Russian structures, he added.
“I don’t think a lot of people think there’s going to be an abrupt end to the sanctions. They’re going to last, probably increase,” Zuck said.
Banks, especially those with close financial ties to Russia and countries on good terms with the Kremlin, are on the front lines of the economic war.
Despite some discrepancies between the US, EU and UK sanctions regimes, the policy goals are the same and banks with the most exposure to Russia need to bolster their compliance teams, the European banking industry source said.
Non-compliance with sanctions can be very costly for businesses. In 2014, the United States ordered the French bank BNP Paribas to pay nearly $9 billion for violating American embargoes against Iran, Cuba and Sudan.
“Today everyone wants to strictly enforce the sanctions,” Valette said.
© 2022 AFP