On the year anniversary of Russia’s invasion of Ukraine, the
focus has rightly been on the loss of life and destruction of cities, towns,
and homes in Ukraine.
The main response of the United Kingdom and the NATO allies has
been to support Ukraine with military equipment, financial assistance and the
imposition of round after round of economic and trade sanctions.
The intention of these sanctions has been to cut Russia off from
western equipment, services and finance with the objective of reducing its
military capabilities and harming the economy so that Russia cannot continue to
fund the war. Unfortunately, Russia appears to have been able to turn to other
countries for support while relatively high oil and gas prices, partly caused
by the sanctions, have sustained its economy for now.
Economic and trade sanctions have become a weapon of choice to
address geopolitical conflict. They appear to Governments to be an easy and
quick option to be seen to be responding to events in a tough manner. The problem
for businesses is that the Russian sanctions have often been imposed with no
consultation, little warning and immediate effect.
The sanctions imposed are highly complex and subject to regular
change. In the last year, there have been 17 statutory instruments amending and
adding to the UK Russian sanctions. It has been exceptionally challenging for
businesses to keep up to date. This has placed a significant burden on
businesses given the consequences of breaching sanctions are criminal.
Some politicians say that businesses should simply exit all
Russian related business. Such sentiments fail to recognise that, unless the
sanctions directly apply to the particular transaction in question, contractual
obligations cannot be terminated without following notice provisions and often
only with cause.
Regulators responsible for issuing guidance and authorising
otherwise restricted trade have also struggled to keep up, with guidance being
issued several weeks after laws have come into force and licensing processes
taking many months. These regulators have simply not been given sufficient
resources to discharge the responsibilities that have been placed upon them.
There are signs that they are beginning to catch up but there is a long way to
go.
The result has been a significant cost to businesses with any
Russian related touchpoints. Many UK and western companies have sought to exit
Russia and Russian contracts but this has resulted in goods and technology
stranded in Russia due to a lack of well thought through divestment provisions
in the sanctions.
Going forward, the lessons for businesses are to prepare for the
imposition of wide ranging and complex sanctions against countries which the
Foreign & Commonwealth Office may currently be encouraging business with.
There is a need to assess and prepare for geopolitical risk. Steps such as not
being overly exposed financially to a high-risk jurisdiction, and ensuring
contracts have sanctions clauses allowing for the suspension of performance in
the event of sanctions being imposed, even if those sanctions do not directly
affect the contractual performance, are advisable.