What Russian Sanctions Mean For Your Business

Sanctions and counter-sanctions ratcheted up last week in the increasingly tense standoff between the West and Russia over Ukraine. Following the annexation of Crimea by Russia and its alleged support for rebels in eastern Ukraine, Canada and other governments issued successive proscriptions against doing business with Russia. In reply, Russia barred imports of Western food, including Canada's for a year. It is complicating further sanctions, such as barring European airlines from transiting Russian airspace.

What's changed is that western sanctions against Russia are spreading beyond the containment of individuals such as Ottawa's "list of designated persons," a roster of politicians, warlords and other influential people. Now the list is sanctioning companies such as an aviation services firm, some banks, and an airline. Canada proscribes trade between Russian firms and 107 individuals and 21 entities. Ottawa has been among the most vociferous nations in retaliating against Moscow's hand in destabilizing Ukraine, so it's possible that more sanctions will follow.

The questions that SMEs face is how to stay abreast of sanctions, avoid contravening them and what to do if they breach them inadvertantly. John Boscariol leads the international trade and investment law group at McCarthy Tetrault. He says it's vital that Canadian firms, no matter how small, screen their transactions to make sure they're not trading with sanctioned individuals and companies.

...companies are forced to consult lists of proscribed groups or face penalties. Combined with sanctions against other countries—Canada currently has sanctions or export controls aimed at 22 nations, including Belarus, Sudan and Zimbabwe—trading abroad has become a minefield. Boscariol says that worldwide, there are more than 2,000 companies and individuals are listed in sanctions in two dozen Canadian programs. And even small exporters, he says, need to be aware of them all.

The consequences are severe. The Canadian Border Services Agency (CBSA) monitors all export transactions. If it finds that you've been breaching a sanction it may detain and even seize your shipment. You may have to pay for up to the full value of the goods. The Mounties may also get involved and you could face criminal charges. "If the RCMP or CBSA discover a contravention," Boscariol says, "you'll want to co-operate and insist it was entirely unintentional."

It gets worse. If you do business in the U.S., European Union, Australia or Japan, you'll need to consult their sanctions lists as well before shipping goods to Russia or other sanctioned nations. The Americans may file civil charges as well as criminal ones if you do business south of the border as well as trade with forbidden Russian entities. Plus there is inevitable reputation damage—no one wants to see news stories about how their company was selling to people who may have played a role in the downing of a Malaysian airliner.

Boscariol adds that it isn't enough to rely on the American sanctions list as being somehow comprehensive. The Harper government has actually been far harsher and more ambitious in sanctioning Russia than any other country.

Unfortunately, there is no single, comprehensive sanctions list you can look up—even among the Canadian sanctions programs. It's split over numerous programs. Although the last federal budget called for consolidation of sanctions lists, you still have to comb through different programs. You need to screen for transactions, counterparties, buyers, sellers, vendors, creditors, agents and it means understanding who owns the companies you're dealing with, Boscariol says. "If it's a small numbered company, understand who owns it. It won't be a valid excuse to simply say, 'I didn't know this company was owned by a black-listed company.' "

If you should land in trouble, even if the Mounties and CBSA haven't detected your transgression, it's best to contact them immediately, Boscariol says. "There may be an opportunity to come forward voluntarily and fix whatever went wrong, and demonstrate to the authorities that it won't happen again." If the authorities discover a contravention and you haven't already fessed up, you'll want to co-operate and insist it was entirely unintentional.

So how can you avoid going wrong? You can study the many different sanctions lists yourself, or you can use the services of screening services... Boscariol warns that any screening company you employ must test against all Canadian lists as well as U.S. and other foreign ones.

You may end up deciding it's just too burdensome to export to Russia or other allegedly dodgy nations. "It may not be worth it to do business with Russia if an SME doesn't have the compliance capacity," Boscariol says.

Just remember, you can't say you haven't been warned.

This has been excerpted from 13 August 2014 article by PROFITguide.com.