Businesses with new and existing operations in Russia must broach heightened business risks and conduct deeper due diligence in the wake of fresh sanctions from North America and Europe.
So far, sanctions against Russia don’t represent a major barrier to doing business there as they are primarily concerned with asset freezing a number of Russian government officials.
However, they do introduce a new level of business risk that needs to be considered when entering into new deals with Russia.
They do not necessarily prohibit business with Russia, but Western and other foreign companies are being advised to maintain a heightened level of vigilance before conducting business dealings there.
Economic sanctions have been introduced by the European Union, the United States and Canada on a list of Russian and Ukrainian officials who they consider responsible for the ongoing crisis in Ukraine, and specifically Crimea.
Canada has been seen to be particularly aggressive in this respect, with its government sanctioning more than the EU and the United States to send a signal, without banning outright financial services or measures that attack specific sectors.
Canadian sanctions against Iran started small in 2007 and expanded over three years from designated persons to include oil and gas, mining, shipbuilding, and finally a complete trade embargo last May.
Few people would have believed such an escalation of action against Russia by Western governments would be possible, and those same governments are now warning companies registered in their respective jurisdictions who are active in the region to look carefully at their operations, the companies they are dealing with and who is involved in those companies.
Designating individuals is often a challenge for financial institutions, as they will need to be screening records and accounts on a regular basis to ensure there is no involvement in transactions with these designated people.
Most at risk are thought to be businesses operating in the financial sector, followed by companies in commodities and natural resources like mining, oil and gas.
Similarly, companies with activities in the Eastern European region should be scanning and screening activities as well as doing enhanced due diligence around those activities.
Businesses operating in Russia will likely be seeking advice on how to ensure they maintain compliance with their home country's laws, too.
Foreign firms are advised to obtain end use statements for contracts, purchase orders, or agreements, and include representations by those they are doing business with abroad that they are not acting as an agent or otherwise on behalf of any of any prohibited entities on a transaction-by-transaction basis, assessing the risk each and every time.
US rules state that if any of the individuals identified have a 50-per-cent ownership interest or more in a company then American companies are prohibited from doing any business with them.
The sanctioning by the US of Bank Rossiya - thought to be the personal bank of senior officials of the Russian Federation - was a big step that put many multinationals operating in Russia on alert.
