Real impact of banking and financial sanctions on foreign companies in Russia

We have analyzed the scope of sanctions imposed on Russia and recommend the following risk mitigation measures for foreign investors doing business in the country.

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SWIFT will be terminated for all currently sanctioned Russian banks, including Sberbank, Alfa-bank, VTB, Otkrytie and Promsvyazbank. Other unsanctioned Russian and international banks are not affected. International payments for foreign businesses operating in Russia using sanctioned banks can still make and receive payments, but there will be transfer delays. We recommend that you open accounts with non-sanctioned banks, ideally Russian branches of international banks that use the services of financial agents to process international payments.

Financial services

Russian state-owned banks have been denied access to capital markets in the European Union and the United States and cannot obtain long-term loans. Correspondent bank accounts of Sberbank in US banks will be closed. International payments by Sberbank that are processed by US banks will be blocked. European Union banks will not provide investment and listing services to Russian state-owned defense companies. It should be noted that these sanctions affect the capital markets of the United States and the European Union and will not affect regular foreign companies operating in Russia.

Seizure of property

There have been discussions regarding the seizure of foreign-owned assets, including funds, as well as production lines and other assets. While serious, we don’t believe this is likely to happen, and if it were to happen, it would be to selected foreign investors with foreclosures made as a political statement. If a full-scale war breaks out between Russia and the West, the situation will escalate into seizures.

Energy penalties

Companies from the United States and the European Union are prohibited from transferring petroleum/refining technologies or products to Russia, even if they come from outside the United States or the EU. This means that American and European companies in this sector can be completely excluded from the Russian market.

There are mitigation options: transfer business operations to a “sleeping company” model, or exit the market and liquidate the Russian entity. Contact us for assistance.

Aerial sanctions

More than 50% of the Russian aviation market is leased to foreign suppliers, which has an impact on them. American and European companies are not allowed to transfer products or technology for use in the aviation and space industries and are prohibited from selling spare parts and maintenance products to Russian airlines.

Air Travel Restrictions

Russia and the European Union have blocked access to each other’s airspace and banned national airlines from flying to each other’s destinations. Kaliningrad, Russia’s Baltic enclave, is now cut off from Russia by air, as is Serbia, as flying over EU airspace is now banned.

Access to Russia from Europe can instead be arranged by transiting through Helsinki (Finland), Baku (Azerbaijan), Istanbul (Turkey) or Abu Dhabi, Dubai and Qatar (UAE). Alternatively, road and rail checkpoints between Russia and the EU remain open, although delays are to be expected.


Russia/EU airspace closures

Technological sanctions

American and European companies are not allowed to transfer dual-use goods to Russia, including semiconductors, telecommunications equipment, encryption, lasers, navigation, aviation and maritime technologies. This can be mitigated by transferring these business operations to a “sleeping company” model, transferring business operations to another CIS country (Azerbaijan, Armenia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Uzbekistan or Ukraine ) or liquidate the business. contact us help.

Counter-penalties

Russia has issued counter-sanctions which also affect the normal business practices of foreigners in Russia. The central bank has introduced a temporary measure on stockbrokers transferring assets overseas, and foreign holders of Russian securities cannot exit or sell their positions.

80% of all foreign export credits must now be converted into Russian rubles. Russian (non-foreign) companies are prohibited from transferring or receiving money from their bank accounts held abroad; and they cannot grant loans to foreign companies. We recommend that you refrain from any securities transactions, check your foreign currency account and cash requirements, and be aware of potential exchange rate discrepancies and transaction delays.

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About Us

Briefing Russia is written by Dezan Shira & Associates. The company has 28 offices across Eurasia, including China, Russia, India and ASEAN countries, assisting foreign investors in the Eurasian region. Please contact Maria Kotova at [email protected] for Russian investment advice or assistance with market information, legal, tax and compliance issues throughout Asia.