Ensuring Business Compliance in a Time of Unrest
On Tuesday the 24th of February 2022, the eight-year-long war between Russia and Ukraine finally escalated into a full-blown invasion. It has resulted in Europe’s largest refugee crisis since the Second World War and left 6.4 million Ukrainians with no choice but to flee the country entirely. The effects have reached further than those living in the crossfire – the whole world has felt the ripples of this injustice in various ways. In response to this, many countries have implemented restrictions in their dealings with Russia, to show their disapproval of the violence. If you are a business owner, it is vitally important that you know about these restrictions in order to ensure the compliance of your business dealings. If you do not, you run the risk of breaking the sanctions and having to face the consequences. Let’s delve into them a little bit now to get you started in this research.
The Timeline of Sanctions
The sanctions currently in place are penalties, both economic and others, that are enforced on Russia by other nations. Sanctions have been in place for years, originally started in response to the annexation of Crimea by the Russian Federation in 2014. Over the years, the sanctions have developed and grown in severity. In 2014 when the annexation began, US sanctions were put in place that included travel bans and the freezing of assets. Later in the year, the US led the way in implementing more severe sanctions and severed dealings with many major Russian banks. Over the next year, sanctions continued to escalate as more countries increased their restrictions and Russia earned the status of an enemy of the state from the perspective of Ukraine. Jumping ahead a few years to 2022, Russia ramped up its attacks and invaded Ukraine. In response, President Biden of the United States imposed the freezing of the assets of both the Russian president and his foreign minister.
The Actions of Sanctions
In an attempt to hold President Putin to account for his war, the US and many other countries around the world have put in place unprecedented restrictions to restrict Russia’s access to technology that could support their war efforts and turn the nation into an economic exile. While these drastic efforts are certainly having an impact on the financial health of the country, there are further sanctions that businesses need to adhere to in order to remain compliant. What can you do to deal with these obstacles effectively?
- Keep up to date. As the conflict evolves, so do the sanctions. Therefore, it’s essential to stay relevant and regularly check as the current sanctions are updated, and new ones are introduced. The official treasury website provides the most relevant updates to make sure you remain compliant with the most recent regulations.
- Check your business relationships. You need to analyse your business relationships in order to be compliant. Truly get to know your vendors and customers and all of the businesses they have ownership of. Even if they don’t reside in Russia or Ukraine, they may have businesses there which would jeopardise your compliancy and cause a risk to you when doing business with them.
- Ensure the technology you use is also compliant. Make sure you know the list of sanctioned businesses and people so that you are confident that you are not using any technology or working with any sanctioned individual or company and don’t realise it. Get to know your supply chain and gain a thorough understanding of it.
The Effects of the Sanctions on Russia
The economic sanctions and business retreats that have escalated over the last few years have had a considerable impact on the financial state of the nation of Russia. In fact, studies have found that the sanctions are going so far as to “cripple” the country. Over 1,000 foreign companies that invested in Russia and employed Russian people have been found to be winding down their operations. These businesses make up a significant portion of the country’s financial health, so this has meant severe effects on everyone within that chain. In just six months of the war, three decades of growth had been undone. Russia has lost EU export markets and the industry was struggling to keep up with production with the lack of Western parts. From the start, President Putin preached ideals of self-sufficiency and independency however these are coming crashing down as the country’s production has come to an almost complete halt.
The End Game, The Long Game
The goal of the sanctions is to retaliate against President Putin and isolate his country, crippling its economy. So far, the measures in place do seem to be having the desired effect though sadly it is the regular people of Russia that are feeling the brunt of it. While Russian billionaires have their luxury yachts seized, everyday people are struggling to get the basics they need to live. The government has doubled interest rates and enforced a 21 per cent increase on saving rates to try and stop people from taking out cash. Even though opinions vary on whether the sanctions will be successful, there will no doubt be more to come in the future. Furthermore, they are not the only solution but part of a plethora of tools that will be implemented in the efforts to stop Russia and its violence. According to the UK government, the sanctions they have put in place could last for up to a decade. The aftermath of such restrictions could last for a lot longer.
The Bottom Line
As we’ve discussed, the business restrictions in place to curb the warpath of Russia are here for a reason and they’re here to stay. As a business owner, it is vital that you continue to learn more and adapt to the changing times we operate in to remain relevant and compliant. To tell the truth, it will take some effort but the consequences of not doing so will prove to be far worse.
Companies should review their compliance policies and procedures to ensure that they are up to date or adapt them to the current risk environment. Additionally, companies should create crisis management plans to prepare for and respond to disruptions, be aware of applicable laws, and invest in compliance and staff training.
Companies should monitor local regulations and political developments, as well as any changes in international relations, to stay ahead of any compliance implications. Additionally, global companies should address treaty or sanctions compliance and exercise cultural sensitivity in their operations.
International laws and treaties, sanctions, export control laws, anti-bribery and anti-corruption measures, and data privacy laws pose compliance risks in politically unstable environments.
Companies should ensure that their teams are adequately trained and prepared, as well as develop business continuity plans that include strategies for dealing with potential disruptions. Additionally, it is important to enforce effective internal controls and surveillance processes.
Companies should review the regulatory environment, assess their level of risk exposure, and develop a written compliance program that outlines policies, procedures, and guidelines for their particular business. Additionally, companies should create a compliance monitoring and reporting system.
Regular self-assessments, scrutiny of various jurisdictional laws, and monitoring of regulatory developments are important for compliance teams. Additionally, engaging a third-party vendor or consulting firm may provide useful insights on current compliance requirements in times of unrest.
Companies should be aware of applicable data privacy rules, enforce strong data security controls, and ensure that their employees are properly trained to protect sensitive data in this ever-evolving environment.
Mitigating compliance risk in times of unrest starts with staff education and training to ensure that everyone is up to date and familiar with the most recent guidelines. Additionally, organizations should take proactive steps to investigate any potential areas of risk, and implement robust internal controls.
Management must take the lead in developing an effective and adequately tailored compliance program, setting expectations for compliance across the organization, and staying up to date on applicable laws and regulations. Additionally, management should promote a compliant culture to foster an environment of ethical behavior and trust.
Companies should monitor the external environment for any changes in local regulations and political developments and adjust internal processes to meet these new challenges. Additionally, companies should assess internal risks and review compliance policies, procedures, and processes regularly.