The world is becoming increasingly volatile and uncertain. While we watch the situation in Ukraine unfold with concern, our thoughts are with those who are directly impacted. In response to this invasion, many governments and international bodies have imposed harsh sanctions to prevent the Russian government from having access to funds and supplies to further their war effort. As risk managers, compliance with these new sanctions tests the bounds of third-party programs – as guardians of companies, risk practitioners can’t do business with sanctioned parties and operate lawfully. One of the core pillars of being a more resilient organization is the ability to adapt and respond in the face of change. This blog will outline how you can evolve your enterprise risk and resiliency program to ensure you are able to comply with these new and evolving rules.
What are sanctions?
Restrictive measures, or sanctions, are an important tool for governments and international bodies to use to impose consequences on other countries, individuals, and groups in response to what the sanctioning party considers illegal actions. A sanctions list is created and maintained by the governments and international organizations issuing the sanctions that includes these groups, individuals, or countries.
Each country or international organization (like the United Nations, for example) maintains their own list, and while there is often overlap, companies are required to comply with all lists that impact their business. For example, the United States maintains the OFAC list; the European Union maintains a restrictive measures tool; and the United Kingdom maintains a sanctioned party list. Failure to adhere to these lists, even if you did not know the party you were doing business with is a sanctioned party, can result in fines and penalties to your organization. In some jurisdictions, criminal penalties can be imposed depending on the type or severity of the violation.
What sanctions have been imposed?
The sanctions levied against Russia are particularly complex and rapidly changing both because of the breadth and scope of impacted parties and because they are coming from many countries who have condemned Russia’s actions.
Since each country and international body has their own lists of sanctioned parties, the actions that the international community has taken can feel overwhelming. This list is not exhaustive and continues to evolve, but the core areas where sanctions have been applied include:
Financial Institutions
- The United States and its allies announced that certain Russian banks would be shut off from the Society for Worldwide Interbank Financial Communications (“SWIFT”). SWIFT is a global messaging system used by banks worldwide to conduct their business and issue payments and is a critical system to participate in international trade.
- There are new prohibitions on Russian financial institutions from making transactions in the US dollar, euro, and pound sterling.
- There is an evolving list of financial institutions who have had their assets frozen.
Sanctions on Individuals
- There are additional sanctions against individuals with close ties to Russian Parliament or Vladimir Putin, including things like asset freezes and seizure of property.
Trade Compliance/Supply Chain
- There is prohibition of export of certain goods and technology to Russia that can advance Russia’s military and aerospace sectors, such as electronics, semiconductors, and telecommunications.
- Sanctions have been levied on Russian companies in virtually every major sector (except energy at this time) that may strain supply chains that have already been weakened due to the pandemic.
How can you respond?
Undertake an initial risk assessment to evaluate your organization’s potential exposure as a result of the unfolding situation in Ukraine to determine the impacts to your business. Some things you should look out for include:
- Identify and list all customers and all other third parties including vendors, banks, suppliers, contractors, and agents that have locations or personnel in Belarus and Russia.
- Determine the number of personnel you have in Belarus and Russia to understand what services they provide your customers and if there will be an impact to your core businesses.
- Inventory all products such as raw materials or services that your business is importing from Belarus and Russia as sanctions could have an impact to goods that can impact your supply chain.
- Determine if your business is exporting any products, goods, or services to Belarus or Russia.
- Financial institutions should determine if they are doing any kind of business with Russian individuals or businesses.
Validate that your third-party due diligence program is continuously monitoring high-risk or at-risk suppliers. Most organizations screen third parties only at the point of onboarding. Best-in-class risk and resiliency programs ensure that continuous monitoring of high-risk third parties is a core element of their program to ensure your organization remains compliant. If you are using technology to help with sanctions screening, ensure that you have updated it to receive daily alerts on your high-risk suppliers. This can help you to avoid missing any sanctions and should check for sanctions lists, politically exposed persons lists, and adverse media profiles.
Partner with your Human Resources or Ethics and Compliance department to ensure all personnel who conduct business with your supply chain have received appropriate training on sanctions and import/export compliance. Prosecutors and regulators often look at on-going training when imposing fines or penalties in the event of a violation.
Activate your business continuity plans to help avoid business disruption if your supply chain relies on goods or services from Russia or Belarus.
In addition to providing the foundation described above in this time of uncertainty and confusion, as a risk and resiliency professional you have a unique opportunity to embed these compliance checks into your businesses processes to avoid the likelihood of someone making a mistake and to keep your organization safe. You also have the opportunity to serve as a trusted advisor for your internal business partners to help them navigate this situation and make your business a more resilient place.
Learn More
Download our Sanctions on Russia Overview!
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