Russian Sanctions: what they mean for you

Since 2014, the sanctions war between Russia and the West has generated much discourse, both in the media and in the business community. However, the nature and impact of these measures is often misunderstood. In this article, we aim to correct some of the most widespread misconceptions. We shall also reveal some of the opportunities that have arisen as a result of sanctions.

If I move to Russia, will the sanctions affect me?

You only need to comply with sanctions if you’re a Russian citizen, a citizen of a country that’s implementing sanctions, or if you’re an owner of a Russian business. It is generally easy to comply with sanctions, as they target very specific business entities and industries. Nevertheless, it’s important to have some idea of what the sanctions are if you fall into any of the above categories.

What is the difference between US and EU sanctions and how do they work?

Both the US and the EU have imposed sanctions on Russia. However, there are some important differences between the two sets of sanctions that you need to understand if you’re a foreign investor.

The US has imposed strict financial sanctions on Russia. These block international financial institutions from providing any financial or technical assistance to Russia. While US citizens are banned from granting loans to the Russian government, they can still lend to Russian corporations (within ‘the language of the law’).

The EU’s sanctions are less restrictive than American sanctions. The EU has focused its sanctions on a blacklist of specific business entities and individuals. It considers them responsible for undermining the territorial integrity of Ukraine and targets sectors of Russian industry that it has linked to the Ukraine crisis. The bloc has also implemented additional, stricter sanctions linked to business activity on the Crimean peninsula, including Sevastopol. Note that Canada, Australia, Switzerland, Norway and Japan have implemented similar sanctions to the EU.

The EU has been careful to ensure that it has made ‘every effort to minimise adverse consequences for the civilian population or for legitimate activities,’ as it stated in its sanctions report.

What does this mean? So long as you don’t do business with any Russian entity or industry that the EU associates with the Ukraine crisis, you should be able to start up your business in Russia without any problems.

Not sure whether you’re affected by the sanctions? Leave us your number and Wagner & Experts can give you more information.

What are the main industries affected by the sanctions?

As previously mentioned, some industries are more affected than others. Due to their role in the Ukrainian crisis, the financial, defence and energy sectors have taken a hit. In addition, the U.S. and EU specifically prohibit all deals related to the exploration and development of Russian deepwater and Arctic offshore projects. US sanctions have also targeted the tech industry because of suspected Russian hacking. Additional EU sanctions concentrated on the Crimea peninsula, in particular tourism and infrastructure. They prohibit the sale, supply, transfer, or export of goods and technology in several sectors from the southern ports.

How bad is the impact on the Russian economy?

Surprisingly, the sanctions war actually benefits foreign investors in several ways. Investment incentives for foreign businesses have increased and there are now gaps in the Russian market that you can exploit directly.

A prime example of this is the growth of the import substitution market and technological development in Russia. With foreign goods now harder to obtain, companies have started producing goods locally to replace those usually sourced from abroad. An industry that has greatly benefitted is agriculture. For instance, Russia has recently become the world’s leading wheat exporter. Furthermore, the current boom in Russia’s cheese industry is archetypal of the current opportunities. European dairy and processed products were banned in the sanctions war. This in turn encouraged Russians to source and produce them locally.

Thanks to government initiatives such as special investment contracts (SPICs) or regional investment projects, foreign investors can look forward to preferential treatment when they localise their goods production in Russia. In addition, many difficult procedures have been simplified in order to attract foreign personnel. In fact, it has become easier to invest in Russia since 2014, due to the Russian state’s efforts to increase foreign investment despite the decline in its relations with the West.

How hard is it to comply with Russian sanctions?

Each country that has implemented sanctions on Russia has its own specific rules determining how to comply with the sanctions. As a result, there’s no single set of rules to follow when working out how to comply with sanctions. Instead, you’ll need to review the sanctions placed by the country you’re representing or doing business with, and check whether or not you’re likely to breach their terms.

One thing that is vital to check is whether your company does business with any customers or third parties who are blocked by sanctions. This includes companies which have an ownership stake of more than 50% by a blocked person or entity.

You’ll also need to check whether or not your business operates in an industry that has been targeted by sanctions. If it does, you will need to find out whether you can get authorization to do business in this area. You’ll have to be very careful if you operate in an industry such as military goods, natural resources or nuclear energy.

Don’t have time to do all this yourself? Wagner & Experts can help out! Send us your number and we’ll help your business get up and running in Russia – while complying with the sanctions!

How long will the sanctions last for?

Although it’s hard to say with any certainty how long sanctions will be in effect for, it’s safe to assume that they’ll be here for a while. In September 2019, the US raised its sanctions on Russia, targeting US lending to Russia. The Department of State published a Notice placing new sanctions on Russia. This will likely remain in place for one year. Unfortunately, there is little evidence to suggest that the sanctions will go away anytime soon, but at least they only impact a few selected industries.

Conclusion

Sanctions often sound scary. However, the Russian government recognises this and has done its best to improve ease of doing business where it can. For many, sanctions have offered the chance to take advantage of gaps in the market. As long as you know how to cooperate with the sanctions or have someone to help you do so, your business in Russia will be successful.

At Wagner & Experts we have many years of experience dealing with foreign investment into Russia. Send us your details and we will help you to operate successfully in Russia whilst complying with sanctions. 

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