Complexity in the sanctions risk landscape for UK companies continues to intensify. Experts warn that major differences exist between measures issued at Westminster and those emanating from Brussels plscing increased importance on due diligence.
The difference means that there is a “rebuttable presumption”, or mechanism, under EU law which mean institutions may have more flexibility to supply funds to businesses or entities linked to, but not benefiting, a sanction target.
However, according to Stacy Keen, an expert with law firm Pinsent Masons, UK law makes clear if a sanctions target “owns or controls” a corporate entity, the “prohibitions are in play”.
“It does not matter whether or not any funds or goods provided to the relevant entity will be used by or for the benefit of the sanctions target,” she says.
UK businesses will therefore need a licence from the Office of Financial Sanctions Implementation if they want to supply funds to companies linked to any individual or company under sanctions, underlinging the need for reliable due diligence.
“It is important businesses do their due diligence to understand exactly who they are transacting with currently and screen who they might do business with in future, to check for sanctions risk,” says Keen.
UK firms take action on sanctions risk
The warning comes in a week when sanctions issued by the UK government against Russian oligarchs and companies were stepped up.
They began last week, targeting five banks and three oligarchs, but the list has since been extended to cover more individuals including Alisher Usmanov and Igor Shuvalov, said by the government to be worth a combined $19bn (£14bn). The measures were aimed at blocking access to assets in the UK, including mansions. Travel bans were also imposed.
Next week the government says it will launch an “oligarch taskforce”.
Meanwhile, UK institutions may not be waiting for either sanctions or due diligence to cut ties with Russian business interests. According to Nick Whetherly, managing director of Pelican Worldwide, due diligence specialists, there are signs that UK businesses are taking action without waiting for due diligence to confirm a sanctions risk.
“If there is any whiff of anything closely linked to Moscow and the powers-that-be in Moscow, they’re already making their own decisions,” he says.
Putin’s government has clamped down on public protest against the war while introducing economic measures to restrict the movement of foreign currency, among other measures, pointing to an increasingly uncertain political landscape in Moscow.
Whetherly adds that accessing due diligence information from Russian contacts may be more difficult as the war develops. “That may become harder because we don’t know how much the state will be listening in or monitoring their activities.” He adds: “Whether people that we have relied upon, and have become good friends with over the years, are restricted in some way, only time will tell.”
Withdrawal from Russian investments
The potential for compliance risk and reputation damage has already prompted companies around the world to withdraw from Russian investments or operations. These include energy companies Shell and BP, who say they are selling their stakes in Russian energy companies Gazprom and Rosneft. Jaguar Land Rover is halting delivery of cars, while other car companies cutting ties include Daimler, General Motors and Volvo.
Visa and Mastercard have blocked Russian institutions from using their services. Other companies to have taken action include Nike, Apple, HSBC, Compare the Market, Ikea and Wetherspoon, which has removed Russian beer from its pubs. Dock workers in Kent have refused to offload shipments of Russian gas.
Meanwhile, news emerged that BlackRock, the world’s largest fund manager had increased its stake in Polymetal, a Russian gold and silver producer, prompting questions in the media.
Other investors have moved the other way. The Universities Superannuation Scheme is divesting £450m of Russia-linked assets. And more are expected to follow. The International Corporate Governance Network, a network for investment experts, says investors will be “wary’ of Russia “for the foreseeable future”.
“While political sanctions will limit the ability of investors in many Western jurisdictions from investing in Russia,” says an ICGN statement, “other global investors and banks without these constraints may still choose to blacklist refinancing Russian debt as a form of collective engagement.
“We also anticipate a reinvigorated regulatory and investor focus on anticorruption and efforts to eliminate the role Western markets have played in money laundering.”