Commentary
This was our third call on the situation in Russia. It focused on the practical challenges people are facing: nearly all participants are either running down their businesses or continuing on humanitarian grounds for products which are exempted from sanctions, particularly in the healthcare sector. However, as one participant put it, winding down is easier said than done.
Many businesses operate through franchises in foreign countries. Terminating the franchise agreement may not be enough to stop them continuing the business and using the brand name – some high profile companies which have stopped operations still have franchisees who are continuing to trade, using the name.
In some cases, the name remains on the business. This makes it difficult for the brand owner to walk away, as the reputational risk remains.
People in the healthcare sector feel a need to carry on for humanitarian reasons. For them, there are significant logistical challenges getting new shipments into the country: no flights, very little sea freight, so heavy dependency on road transport, with limited willing suppliers. They are encountering an additional issue: sanctions apply based on customs codes, and some health care products have not been appropriately coded.
In other sectors, companies continue to sell down their existing inventory – but even this can be complicated, as fresh inputs can be required to make goods saleable.
Still other participants have operations which are purely local, and do not require imports. These will typically continue to function, though moves are being made to make them fully independent.
Despite all the above, most participants continue to be able to pay down intercompany debt, pay dividends and settle outstanding intercompany invoices.
Cash operations are complicated by the need to segregate payments emanating from sanctioned banks. Again, this seems to work, and customers are usually willing to transfer their payments to non sanctioned banks.
Many Russian entities have taken steps to disguise their real ownership as a means of evading sanctions: some participants are using a database to identify the true beneficial owners to see whether sanctions apply.
Most international banks continue to function, but SocGen recently announced it is selling Rosbank. This raises the concern it may be sanctioned in the future.
Most international banks are refusing to open new accounts, and none is interested...please sign in to continue reading
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