Doing business in the wake of sanctions

01 May 2014

By Ben  Luddington

The West’s response to the annexation of the Crimea by Russia has primarily been the imposition of financial sanctions.  For many, this may appear to be an issue affecting only financial institutions which have the difficult task of complying with the various sanctions regime in place.

However, it is those who do business with companies and individuals in the region that will have to navigate with the most care.  OFAC, the department in the US Treasury responsible for financial sanctions, is often more aggressive in its stance that than the EU. The effects of this are subtle but far reaching.

The Iran sanctions regime is more developed and better understood by companies and financial institutions and might provide organisations doing business in the Ukraine with insight into the likely impact of additional sanctions being imposed by the US or EU. For example, take a widget manufacturer based in the UK which exports to Iran. In this example, the widgets are innocuous goods and are not the subject of any trade embargo and nor is the Iranian customer listed as an EU sanctioned entity. The UK exporter believes therefore that he can continue to do business with his Iranian customer.  However, if the exporter were a US company, under the OFAC regime, it could not export these widgets to Iran.

The difficulty for the UK exporter is that it banks with a subsidiary of a global financial institution with operations in the US. This bank applies the US sanctions regime globally and will reject any payment into its UK customer’s account originating from Iran.  Practically, therefore, the UK exporter is prevented from doing business with its Iranian customer despite the apparent legitimacy of the transaction.

If you do business in Crimea and are not familiar with sanctions issues, you should be thinking about the following:

  1. Ensure that you are screening against all the relevant sanctions lists and that they are up to date.
  2. Review all existing accounts, block accounts if necessary and make the required notifications.
  3. Closely follow new developments and make sure you organisation can respond quickly to changing events.

Our team are experienced in assisting organisations meet the challenges of complying with financial sanctions and can also help with the wider issues facing organisations as a result of the evolving crisis.

Ben Luddington | PwC Forensic Services Director | |+44 (0)20 7804 1865