Ukraine Crisis - Sanctions Overview
Background
All companies involved in the cross-border movement of goods and services must have a robust trade compliance program with comprehensive internal controls and processes for managing import and export compliance obligations. Businesses need to understand the applicable regulatory and commercial requirements involving the cross-border transfer of merchandise and services including those of U.S. Customs and Border Protection, the U.S. Department of Commerce, U.S. Department of State, U.S. Department of Treasury and equivalent regulatory agencies in foreign jurisdictions.
An effective trade compliance program must include export compliance training materials and a corporate-wide approach to support company efforts in managing risk. A company that does not have an effective trade compliance program with appropriate processes and procedures in place including comprehensive training of personnel and effective customer and vendor management faces the risk of significant monetary penalties, potential criminal proceedings, loss of export privileges, and reputational harm.
Moreover, companies must remain current and up to date on all rules and regulations implemented by regulatory agencies such as the recently imposed sanctions by the United States and other countries in response to the Russian invasion of Ukraine. Such changes may occur with little or no advance warning and must be adhered to.
Am I affected?
To establish the potential impact on your business, BDO’s global response team has prepared a set of key questions your organization may consider in the light of current developments:
-
Do you have operations in Russia, Belarus or Ukraine?
-
Do you conduct any activities with any Government of Russia, Belarus or Ukraine?
-
Is Russia, Belarus or Ukraine integral to your supply chain?
-
Do you know all of the end users of your products and where they are located?
-
Do you receive or conduct any payments from or to Russia, Belarus or Ukraine?
-
Do you facilitate movement of funds / goods / services to Russia, Belarus or Ukraine?
-
Do you produce, import, export or deal in any goods or technologies that are subject to sanctions or U.S. Export Administration Regulations?
-
Do you produce, import, export or deal in any goods or technologies that are considered dual-use?
-
Do you operate or plan to operate in the precious metals, petrochemical, airports, insurance, travel agents, aircraft, petroleum, oil or gas industries or the military or defense sectors?
-
Do you know the beneficial owners of the companies with whom you do business?
If you answered yes to any of these questions, you may be subject to compliance with new sanctions imposed since February 2022.
The Sanctions
What follows is a brief summary of the sanctions imposed on Russia and Belarus.
Banking & Finance
Financial sector sanctions on Russia and Belarus:
-
Transaction restriction for Central Bank of Russia and Belarus and major Russian financial institutions (VTB, Sberbank, VEB, Promsvyabank, Rossiya, etc.), including owned/controlled entities such as:
-
Asset freezes
-
Loan and credit arrangements restrictions
-
Correspondent banking sanctions
-
Sectoral and sovereign debt sanctions
-
-
SWIFT disconnection and restrictions for many Russian and Belarussian banks and their subsidiaries
-
Prohibition of provision of public financing for trade with and investment in sanctioned regions
-
Prohibiting provision of euro denominated banknotes to sanctioned regions
-
Deposit limit for nationals or residents of sanctioned regions
Imports
Restrictions on goods from sanctioned regions, such as:
-
Fish, seafood, and preparations thereof
-
Alcoholic beverages
-
Non-industrial diamonds
-
Restrictions and bans on all imports of crude oil from Russia
Additionally:
-
Restrictions on import of goods which originate in Crimea
-
Restrictions on import of iron and steel, and services relating to a relevant infrastructure sector in Crimea
-
Restrictions on services relating to tourism in Crimea
Energy
-
Restrictions and / or banning all imports of crude oil from Russia
-
New investment restrictions in the Russian energy sector
-
New export restriction on equipment, technology and services for the energy industry
-
Expansion of export controls on the Russian oil refinery sector posing limitations for the export, reexport and in-country transfer of critical oil refining equipment.
Global Mobility
Significant number of transportation and aviation restrictions, including:
-
Russian airlines banned from European airspace, UK, Canada plus others
-
Countries advising citizens not to travel to Russia (in part due to flight availability)
-
Blocking designations
-
Visa restrictions
Individuals, including Politically Exposed Persons (“PEPs”) and Oligarchs
Targeting of key individuals and entities — oligarchs, members of the Russian Duma, etc.
Major expansion of personal asset freezes:
-
Far-reaching designation of senior Russian individuals
-
Hundreds of members of the Russian State Duma (parliament)
-
Hundreds of prominent businesses people, oligarchs and entities
In addition to personal asset freezes, further measures introduced and expected targeting wealthy Russians:
-
Restrictions on the acceptance of any deposits from Russian nationals and residents or entities established in Russia
-
Bank account limitations for designated individuals
-
A new register of overseas entities is to be introduced in UK to stop the foreign owners of property from hiding their identity
Exports
Embargoes and Export Controls
-
Export restrictions for U.S. technology
-
There are broad technology sanctions banning export of U.S. technologies to Russia as well as more targeted sanctions at military end users and certain sectors of the Russian economy such as aviation
-
-
Maritime sector sanctions
-
Restrictions on export of maritime navigation goods and radio communication technology by Russia
-
-
Export ban on luxury goods to Russia and Belarus
-
Restrictions on the export, reexport or in-country transfer of luxury goods such as certain spirits, tobacco products, perfumes, skincare products, leather used in handbags and luggage, fur, fabrics and textiles, clothing, diamonds and other gemstones, precious metals, vehicles and antique goods
-
-
Embargos have been imposed on the non-government-controlled areas of the Donetsk and Luhansk oblasts of Ukraine.
Media
Sanctions directed towards several legal entities providing media information, including:
-
Sputnik
-
RT branches (RT English; RT UK; RT Germany; RT France; and RT Spanish)
Under the measures, the broadcasting and distribution of content produced by these outlets — via any means of transmission, including cable, satellite and internet platforms, amongst others — are prohibited within the EU and other regions.
Military
Sanctions primarily targeting the Russian defense, maritime and aviation sector
-
Prohibitions and / or restrictions on export of military goods and military technology to sanctioned regions
-
Prohibition of exports of sensitive technology including semiconductors, sensors, navigation, encryption, security, avionics, microelectronics, and aircraft components to sanctioned regions
-
Restriction on export of aviation and space goods and technology
-
Prohibition of technical assistance, armed personnel, financial services or funds, or associated brokering services enabling sanctioned regions to conduct military activities
-
Restrictions on export of maritime navigation goods and radio communication technology by Russia[1]
For the latest sanctions updates, we recommend visiting the below listed websites of sanctions issuing bodies internationally:
-
U.S. Department of Treasury - Office of Foreign Assets Control
-
U.S. Department of Commerce - Bureau of Industry and Security
How BDO Can Help
The current situation and further evolution of sanctions are highly dynamic and provide challenges to many international organizations. BDO can assist you with comprehensive support in the form of professional advice as well as required resources.
Internationally, enterprises must continuously monitor their operations to gauge the business impact of the evolving sanctions on a global scale, to avoid non-compliance with the direct or indirect sanctions and with it severe regulatory and reputational consequences. BDO can assist in identifying exposure and sanctions risk and can help implement practical solutions to mitigate those risks.
Exposure Review
-
Investors and shareholders
-
Lenders and banks
-
Direct and indirect customers
-
Supply chain analysis
-
Products and services provided (including dual use and component level)
Risk Assessment
-
Identification and analysis of high-risk relationships
-
Evaluation of internal controls and sanctions compliance program
-
Periodic screening and monitoring of third parties against consolidated sanctions lists
-
Identification and verification of beneficial ownership
-
Export compliance audits
Strategic Action
-
Implementing or updating of a sanctions compliance program
-
Engagement with regulators and enforcement agencies
BDO’s Sanctions Compliance Services
BDO’s global teams work with multinational industrial and manufacturing companies and financial services providers in the following areas relevant to sanctions compliance:
Sanctions Exposure Identification
BDO can help identify where the sanctions risks exist in your organization. Is Russia or Ukraine integral to your supply chain? Do you procure or sell technology subject to various export regulations? Do you know the beneficial owners of the companies with whom you do business? Do you manufacture products that exceed the de minimis for U.S. origin content? Do you purchase products from restricted blacklisted entities? There are myriad sanctions imposed by several nations that companies must now navigate when doing business internationally.
Export and Sanctions Compliance Audits
We have conducted numerous risk-based trade compliance audits and helped companies identify potential risk areas and develop practical, sustainable internal controls to address those risks. We understand the importance of a risk-based approach and right-sizing a compliance program.
Regulatory Guidelines and Technical Regulatory Guidance
We understand the regulator’s expectations, know where unidentified, significant risks may exist and are well-versed in the elements of an effective compliance program. Our experience allows us to generate reasonable recommendations for remediation as needed. We can evaluate compliance programs to identify gaps with BIS and OFAC guidelines, for example.
We have detailed technical regulatory knowledge, for example in determining Export Control Classification Numbers (ECCNs), conducting de minimis analyses for foreign products, and interpreting complex OFAC regulations, while also bringing to the table supply chain and logistics professionals, practice leaders and a former in-house perspective.
Periodic Screening and Monitoring
We have experience with systems used for name, geography, and item screening, and have experience implementing compliance enhancements through IT systems, including ERP systems. KYC (“Know Your Customer”) does not only apply to financial institutions. Companies operating in a multitude of industries and sectors must also know and screen the parties with whom they do business to ensure they do not engage with a blacklisted party.
International Supply Chain Experience
BDO has experience working with large multinationals, evaluating all aspects of the supply chain, from procurement to contract manufacturing, to logistics, warehousing, and delivery. BDO understands the complexities of a global supply chain operating in numerous continents and jurisdictions.
Trade Compliance Risk Assessment
The Bureau of Industry and Security (BIS) Guidelines provide details on the eight elements that BIS has determined are critical for an effective Export Compliance Program (ECP) for goods, software, and technology subject to the Export Administration Regulations. BDO can assess an entity’s export compliance program against the BIS Eight Elements of an Effective Export Compliance Program, identify areas with weak internal controls and recommend practical remediation.
Our assessments are tailored to the risk profile of our clients, and we will take into consideration the size of the organization; the strategic nature of items and possible end-uses, end-users and end-destinations; subsidiaries; customers; relationships with business partners; volume of imports/exports; and complexity of import/export processes.
We develop a tailored risk assessment strategy and gather information/data to identify the organization’s risk areas (e.g., use of international resellers and intermediaries, sales into higher-risk markets, product lines classified other than EAR99, online services, lack of KYC).
Design and Implementation of a Sanctions Compliance Program
Organizations can employ a risk-based approach to sanctions compliance by developing, implementing, and routinely updating a Sanctions Compliance Program (SCP) for their enterprise. An effective or "risk-based" SCP will be tailored to an organization’s size, products and services, customers and counterparties, geographic locations and modalities of business, while also incorporating and addressing core areas defined in the OFAC Sanctions Compliance Program Framework and the EU Guidance on internal Compliance Programs.
This includes:
-
Management commitment
-
Risk assessment
-
Transaction screening and internal controls
-
Testing, auditing and corrective action
-
Training
BDO is available to assist organizations in the development, enhancement, or independent assessment of an SCP. Having a risk-based and high performing SCP is critical in the prevention of sanctions violations and proving adequate diligence in circumstances where violations may arise.
Internal Control Assessment
BDO can review and test the organization’s existing compliance program, policies, procedures and related controls (collectively “internal controls”) to understand the requirements the company currently has in place, how identified risks are being addressed and any potential gaps. BDO’s internal control assessment looks at the detailed trade compliance activities and processes that occur in business cycles, such as sales and distribution, manufacturing, R&D, logistics, returns and repairs, etc. We have a proven, successful methodology that integrates entity level, business process and IT controls for a seamless, comprehensive approach in assessing a company’s internal control environment.
Sanctions Compliance Program Remediation
We have experience developing and implementing right-sized, effective and sustainable corrective actions to address gaps and vulnerabilities in compliance programs, and preparing voluntary self-disclosures to regulators when appropriate, frequently resulting in closure without further action by the agencies. We can help organizations prioritize corrective actions based the severity of risk of non-compliance.
Data Analytics
BDO can analyze large volumes of data and transactions to identify trends and red flags. BDO can connect data from various systems and analyze past transactions to determine whether potential violations have occurred. Using analytical techniques, BDO can analyze internal and external data to determine the effectiveness of screening. We can also help operationalize new data types from internal systems to develop a more robust screening program and fine tune screening algorithms to better identify sanctioned parties and detect potential violations.
Business Continuity and Crisis Management
Our crisis management and business continuity professionals work with leaders before, during and after periods of crisis and disruption. By facilitating a decision-making framework informed by military models, behavioral and cognitive science, and design, the team enables precise responses to the most difficult crises and ensures that the enterprise has the right tools to respond to both current and future incidents. Our team has deep experience with helping complex organizations design and implement successful crisis management and business continuity programs to address the crisis, mitigate the impact of unforeseen events. We can support your crisis communications program to help you effectively communicate to stakeholders and educate the first line of defense on better vigilance.
If you have questions about whether your organization is affected by recent sanctions on Russia and Belarus or would like to speak with a BDO professional to learn more about your specific situation, contact us today.
SHARE