New sanctions on Russia and what it means for US companies and MNCs
New sanctions on Russia and what it means for US companies and MNCs | Insurance Business America
Professional Risks
New sanctions on Russia and what it means for US companies and MNCs
Lockton – “Ensuring compliance will be essential”
Professional Risks
By
Kenneth Araullo
The Biden administration has intensified sanctions against Russia with the announcement of over 500 new measures on Feb. 23, marking the second anniversary of Russia’s invasion of Ukraine.
These sanctions, targeting Russia’s financial, military, and energy sectors, pose significant implications for US businesses, especially those in the insurance industry. Companies must now navigate the expanded restrictions, which could affect transactions and the insurability of entities associated with Russian interests.
Alexis Tsapralis (pictured above), analyst at Lockton, outlined the specifics of the new sanctions in a recent article. The sanctions include freezing $5 billion in assets held by the Russian central bank and disconnecting select Russian banks from the SWIFT financial messaging system.
Furthermore, the sanctions impose import bans on Russian oil, gas, and coal, restrict investments in Russian energy firms, and apply export controls on high-tech goods and the diamond industry.
Following suit, the UK and EU have also enacted new sanctions against Russia. These actions underline the global stance against Russia’s ongoing aggression and the violation of international norms.
“Under the new sanctions, US entities are prohibited from completing financial transactions or conducting business with entities placed on the Office of Foreign Assets Control’s (OFAC) Specially Designated Nationals and Blocked Persons (SDN) list,” Tsapralis wrote. “As a result, US insurers are prohibited from transacting with sanctioned entities and are legally required to block assets, including insurance policies, for entities they insure that become sanctioned.”
Additionally, OFAC’s 50% Rule prohibits transactions with entities that are 50% or more owned by one or more blocked persons, adding another layer of compliance for US businesses.
The latest sanctions also target third-party intermediaries in countries such as China, Turkey, and the UAE that support Russia’s military actions or its economy, thereby extending the scope of entities that US insurers cannot cover.
“The scale of Western sanctions on Russia’s economy has severely limited the country’s ability to engage in international financial and business transactions. This new wave of sanctions comes on the heels of Russia’s increased military spending, which directly contributed to its 2.2% GDP growth in 2023, according to the IMF, despite the sanctions imposed by the US, UK, and EU since 2022,” Tsapralis wrote.
“As long as Russia continues its war in Ukraine and attempts to bypass sanctions, the US and its allies are expected to persist in tightening measures,” she wrote.
Risks in a more stringent environment
“For multinational businesses, ensuring compliance with the new sanctions will be essential. Risk professionals should coordinate with their counsel to ensure that they comply with OFAC’s sanctions programs, notably in the extended geographies of Turkey and the UAE,” Tsapralis wrote.
She maintained that US-based companies should collaborate with their insurers to develop and maintain strong, risk-based compliance measures. Multinational corporations, meanwhile, also need to assess the risks of engaging with companies outside of Russia that are connected to the Russian government or are subsidiaries of Russian enterprises.
“Multinational businesses should also engage in rigorous due diligence to identify the risk of their supply chains being implicated in violations of international law committed by Russia,” she wrote. “The US government also advises heightened human rights due diligence.”
MNCs are also urged to create and implement proactive strategies that include thorough due diligence, frequent communication with risk management partners, and a clear understanding of the factors influencing the sanctions programs of the US, UK, and EU.
The challenge extends to supply chains, where businesses must identify and mitigate risks related to potential violations of international sanctions or laws. Tsapralis also recommends heightened due diligence on human rights to align with US government advisories.
“Among other actions, organizations should ensure they capture and integrate pertinent information, conduct regular due diligence screenings, and adhere to OFAC’s 50% rule. Businesses should also thoroughly evaluate their global supply chains to identify potential exposure to sanctions programs and to anticipate how future sanctions may affect their operations,” she wrote.
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