Sanctions

Transacting with Sanctioned Countries

Report date: 
27 Mar 2023

Commentary

At CompleXCountries, it is our mission to provide a forum where treasurers can openly discuss issues and share experiences. We then publish the essence of the discussion, but in a format which respects the need for confidentiality – though it is valuable general information, there is no upside to telling the whole world your specific company has had a problem with Bank A, or that you find country B’s exchange control regulations difficult to handle.

Sanctions pose an additional problem – and, of course, they are very topical at the moment. The problem is simple: while everybody is anxious to comply with all the rules and regulations, there are always situations which require some element of judgment, or where the rules are not totally consistent. With sanctions, the main issue which arises is that some trade continues to be permitted, usually for humanitarian reasons, and generally involving medical products. But, while medical products can still be sold to Russia and Iran, for example, most banks refuse to handle the cash settlements related to these transactions. 

There can also be inconsistencies between different sanctioning regimes: the US still applies sanctions against Cuba, while most other countries do not. Even for Russia, members tell us the EU’s sanctions list is not fully identical to that of the US. 

To avoid potentially repeating legal considerations we cannot verify, we have decided not to produce a detailed report of our discussions, but to provide a list of the general conclusions and things to watch out for. The items below do not constitute legal advice, but rather, a list of things to beware of. As always, treasurers and their companies are responsible for ensuring compliance with all relevant and applicable laws, and obtaining professional advice.

  • Most international banks will not handle even legal transactions with a sanctioned country. 
    • They have generally shut down their operations there, and so no longer have the resources or expertise to ensure compliance
    • The risk/reward ratio is not symmetrical. The financial benefit of processing these transactions is greatly outweighed by the potential penalties – regularly going into the hundreds of millions of dollars – for a single compliance failure. One French bank paid a $6bn fine several years ago.
    • This can mean that cash left over from former operations in a sanctioned country can
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Treasury & FX in Russia

Report date: 
30 Jan 2019
  • Documentation – complex, time consuming & critical
  • Inter banks – 2 way pooling is available in theory but not at all straight forward in practice
  • Find hedging banks- operating outside to inside
  • Sanctions are very specific – details are key and need to be looked at closely
Service providers discussed in this report: 

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Winding Down Russia: Treasury Challenges

Report date: 
29 Apr 2022

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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Russia Ukraine Crisis Treasury Update

Report date: 
10 Mar 2022

Commentary

Today’s call was very sombre. Two weeks ago (Report: Russia Treasury & Banking Update 21st Feb), members were looking at contingency plans, but the consensus was that most of what was happening was posturing, and that the worst would not happen. Today, there was no discussion of how long hostilities might last – most people agree that there is no easy or rapid solution in sight. Instead, the main priority of most participants is making sure their teams are safe, helping them leave Ukraine if they wish, and making sure salary payments get through in both countries. We all send our best wishes to the many people whose lives have been shattered by this conflict.

The actions and approaches were remarkably consistent across all the participants. Topics discussed and actions taken:

The main priority is the safety of the local teams. Nearly every participant has taken extra steps to make sure local staff have cash, including prepaying salaries by up to three months. This is being done in both Russia and Ukraine, as MNCs cannot be sure of being able to remit cash to Russia in the future.

Most participants have either exited, suspended, or slowed down their businesses in Russia. Those who are importing goods into Russia for sale locally are continuing business as long as inventories last, but they are not shipping new inventory into the country.

There were a few questions about the sanctions, but the general view is that these are clear. Even if a company wants to ship goods into Russia, it is proving very difficult to find logistics companies who are prepared to undertake the shipment.

Payments continue for the time being. In Ukraine, the banking system continues to function, and some participants have sent cash into the country to make sure salaries are paid. Paying cash out of Ukraine is no longer possible, but payments continue to be...

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