Background
According to President Biden, the US is currently prepared for any scenario of further developments in the Ukraine crisis. The same is heard and read from the EU and the United Kingdom. Thus, companies in these countries and in the rest of the world should also be prepared accordingly, so as not to be surprised by the legal extent and the actual impact of possible new sanctions against Russia. There is a threat of further escalation at any time and the associated imposition of new and very harsh economic sanctions against Russia from the respective legislators. Such sanctions exist as “smart sanctions” in a wide variety of versions. What they all have in common is that the sanctioned target is to be moved to a change in behaviour by inflicting severe economic pain. An inevitable consequence, however, is that this always results in enormous collateral economic disadvantages for the sanctioning party, e.g., through sales and export bans.
For sanctions to take effect against their actual target, companies from the countries from which these sanctions were adopted must also comply with these rules accordingly. Otherwise, they are threatened with prosecution for violations of sanctions, most of which are punishable. In addition to the politically desired effects vis-à-vis Russia and collateral negative economic consequences for the Russian business of companies, there is therefore also a threat of severe damage due to possible compliance violations under the complex EU, US or UK sanctions rules. In this context, the US sanctions are to be regarded as particularly critical, as they are considered extraterritorial from the US point of view in their wide scope of application and their draconian prosecution.
In addition, it is to be expected that Russia, as the target of sanctions, will in turn impose countersanctions against Western targets, the extent and impact of which must also be considered by affected companies. This would create an even more complex mixture overall.
Whether, when and what exactly will be the sanctions in the Ukraine crisis – depending on further developments in the situation – is currently deliberately not disclosed by all parties for political reasons. The Western allies agree that the possible new sanctions are intended to impose an extremely high price on Russia as a deterrent and punishment.
Preparations for protection
If new sanctions are imposed, they are likely to include financial sanctions in addition to sanctions against selected sectors of the Russian economy. Business may then no longer be done with certain persons, organizations or institutions – with or without a transitional period. In particular, Russian banks could become targets. For example, one measure to counteract this risk could be that companies for instance already agree on advance payment with their business partners today and permanently check different payment options.
Similar measures, if they are “compliant”, can thus create a “Plan B”. From the company’s point of view, however, it is even more important in my opinion to think about the possible scenarios of such a crisis up to the possible very end. Therefore, what is the “worst case” and how to react to it? Until a worst-case scenario, there will probably be various stages in the form of sanctions changed within certain times. Each of these possible stages would require appropriate measures adapted to them. To work out these measures in affected companies, a kind of “task force” is useful, in which all the information necessary for decision-making converges (sales, finance, purchasing, legal, etc.). To comply with all applicable sanctions, it is imperative that a corresponding “stop-sales” authority is available.
Possible next steps
Companies that have a footprint with Russia should now examine this footprint more closely from a sanctions point of view to take certain precautions if necessary and also to become clearer about the possible scenarios up to a (worst case) exit strategy. Thus, the indefinite remaining time until the possible imposition of new sanctions against Russia would be put to effective use. Otherwise, affected companies could only hope for the absence of another Russian invasion of Ukraine. Unfortunately, the development of the Ukraine crisis is currently completely uncertain.