Russian Sanctions Complicate Banking Around the Globe (Clayton & McKervey)

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April 14, 2022 - Clayton & McKervey PC

This article by PrimeGlobal member firm Clayton & McKervey discusses how businesses should prepare for a scenario that results in farther-reaching sanctions as geo-political dynamics unfold.

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NATO countries have banded together to impose historic sanctions on Russia for their invasion of Ukraine in a display of strength and unity. These sanctions mean that companies currently cannot send payments to Russian banks and trying to get around this can result in significant penalties. While it may seem straightforward, these sanctions have complicated the geopolitical landscape of making international deals that extends beyond the borders of just Ukraine and Russia.  

The sanctions are meant to punish Russian banks, but unfortunately, many Ukrainian companies also use the same Russian banks. Businesses supporting vendors in Ukraine need to double-check if they use Russian banks on the sanctions list to avoid a violation. Failing to thoroughly check for a connection to sanctioned Russian banks can result in those funds being blocked by the Office of Foreign Assets Control (OFAC) which can be difficult to retrieve. 

Even though China is considered a Russian ally, they have not supported the country publicly to avoid becoming the next target of global sanctions. China has willingly complied with other US sanctions on countries like North Korea in the past to maintain their access to the global financial system. However, without consequences or sanctions on China, some experts are wary that China may help Russia behind the scenes as they did in Russia’s annexation of Crimea in 2014.  

China’s Foreign Ministry has vowed to maintain normal trade relations with Russia. For example, China has indicated a shift in its strategy that they may be willing to throw Russia an economic lifeline. Officials from the European Union suspect China will soon supply semiconductors and other technological hardware to Russia. Recently U.S. Treasury Secretary Janet Yellen said that secondary sanctions on China would be considered if China supplied military aid to Russia or if they assisted with evading sanctions through their banking system. Specifically, the China Development Bank and the Export-Import Bank of China are believed to be more protected from western penalties due to a lack of US business interests and should be monitored closely.  

Businesses should prepare for a scenario that results in farther-reaching sanctions as these geo-political dynamics unfold. Beyond China, other countries to watch include India, Israel, and the United Arab Emirates. Businesses will need to do their due diligence when working with any new partners to guarantee that they are not planning to associate with Russia to avoid contributing to breaching those sanctions, even if it is a secondary link. 

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Clayton & McKervey PC

Headquartered near the international border of the U.S. and Canada, Clayton & McKervey is a Detroit-based, full-service accounting and business advisory firm focused on global business. The firm’s clientele includes closely held, middle-market, growth-oriented companies. Since 1953, Clayton & McKervey has created a strong reputation, both domestically and internationally, with four types of clients, U.S. entities with operations in other countries, foreign entities expanding to the U.S., businesses with international growth plans and clients in need of transfer pricing service.

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