Swedish companies should think about this in terms of sanctions in relation to Russia and Ukraine | Realtid.se

After the end of the year, relations between Russia and Ukraine deteriorated sharply from the point of view of security policy, which was manifested, among other things, by the massive build-up of Russian troops on the Ukrainian border.

The European Union, the United Kingdom, the United States and many other countries have announced that Russia will be subject to severe and strong sanctions if the situation escalates further. Among other things, there was talk of a “black list” and / or the issuance of sanctions against a large number of people and companies in Russia that are in various ways connected with the Russian state, which in practice could lead to a partial or complete ban on dealing with these parties as well as with Companies owned or controlled by these parties by more than 50%. Discussions about further sanctions against large Russian banks are of particular importance, including their suspension from the international transaction notification system, SWIFT. In addition, so-called sectoral sanctions are being considered against the oil and gas, finance and media sectors, as well as the expansion of the types of products that are subject to export restrictions.

Below we list seven things we recommend companies consider when assessing their exposure to Russia and Ukraine:

Increasing emphasis on examination of counterparties in Russia: In light of the fact that a large number of new Russian individuals and companies may soon be subject to sanctions by the European Union, the United States of America, the United Kingdom and other countries, companies should allocate resources to screen current and future Russian contracting parties as well as banks and other interested third parties in order to ensure compliance applicable penal legislation. Depending on the result of this examination, companies should explore options for buying and selling products that do not directly or indirectly involve Russia.

Commercial Compliance Terms: There is an imminent risk that companies operating in Russia will have to suspend or terminate contractual obligations in connection with sanctions, force majeure or significantly changed circumstances. We therefore recommend that companies that have direct or indirect exposure to Russia review their agreements in order to assess the possibility of suspending or, if necessary, terminating them, and in this regard develop strategies to avoid conflict. Moreover, companies must ensure that strong commercial compliance clauses are included in new agreements with Russian counterparties, giving the company protection from negative outcomes in the event the counterparty is subject to sanctions.

Product portfolio transparency: In particular, the United States, as well as the European Union and the United Kingdom, are studying new restrictions on exports to Russia in connection with a number of different technologies. As a result, components embedded in smartphones, cars, and aircraft, for example, may be covered by new export regulations. We therefore recommend that companies exposed to Russia analyze their product portfolios in order to determine the extent to which they contain US components that could be subject to new export restrictions, which could also mean that the company can no longer rely on exports from previously issued licenses.

storage buffer: Businesses must already be proactive in order, before a company’s supply chains can be reorganized, to avoid shortages in short-term supplies of products or materials essential to the business. So companies should consider expanding the export of critical products or materials to Russia to create a buffer stock that can help the company deal with short-term supply chain disruptions.

contingency plans: Companies involved in strategic sectors in Russia, such as the energy, banking, mining and transportation sectors, may soon find themselves in a position where Russian law requires them to continue a business that may be prohibited or restricted under Western sanctions. So companies should develop contingency plans on the best way to handle these situations.

Assessment of the so-called American Association: The United States is expected to impose severe new sanctions on Russia in the event of a possible invasion. In light of the widespread application of export restrictions and sanctions in the country, it will be important for companies to evaluate transactions that have a so-called US bond (for example, that the transaction involves US citizens, US products or uses US dollars as a payment method) and consider whether some changes in its supply chains is necessary to reduce the company’s exposure to US export or sanctions laws.

Mapping the supply chains in Ukraine: A possible Russian invasion of Ukraine is expected to make it difficult or impossible to import and export goods in certain regions. This, of course, will lead to significant disruption in the international supply chains that pass through Ukraine. Therefore we recommend that companies designate direct counterparties in supplier, customer and distribution agreements as well as indirect parties in the supply chain in order to get an idea of ​​how and to what extent the company is vulnerable to trade turmoil in Ukraine. Depending on the result of the survey, companies should explore options for buying and selling products that do not directly or indirectly involve Ukraine.

Olof König
Advocaat, Baker McKenzie

Frederic Ericson
jor.kand. , Baker McKenzie