John Whelan: Irish exporters will need more compliance guidance over Russian sanctions

Russia's black-listing effectively means a write-off for global companies of at least €150m on delivered goods

Mon, 07 Mar, 2022 - 17:07

Companies that do business directly or indirectly with Russia are struggling due to the wide-ranging sanctions imposed on the country for its invasion of Ukraine.

The sanctions by nations around the world are the most severe ever to have been imposed in this co-ordinated manner and are having an immediate extra-territorial impact on businesses globally.

The black-listing of most of the Russian banks and their affiliates, combined with kicking them out of the SWIFT interbank payment clearance system, effectively makes it impossible for Irish exporters to get paid for goods and services sold to Russia over the past three months.

It is estimated that this means a write-off of at least €150m on delivered goods, with potentially the same amount lost on goods-in-transit, caught in the shipping morass.

However, there may be windfall gains for Irish importers, who last year imported €600m in goods from Russia - ranging from fertilisers, and bulk wood products, to electronics and telecoms items - as the sanctions on the banking system will mean they cannot pay for goods received.

Irish services exports to Russia have surged in recent years, estimated at €3.2bn last year. This includes aircraft leasing, as well as the IFSC activities of asset management, custody and trustee, insurance and legal services, and will require wide-ranging review to ensure compliance with the sanctions.

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The sanctions prohibit selling, leasing, or providing maintenance services in connection with any aircraft for use in Russia, with a carve-out for existing contracts concluded before February 26, 2022.

However, as it also extends to a prohibition on providing insurance, it will have the effect of grounding the aircraft no matter when the contract was signed. The implications for the Irish aviation industry, with an estimated 600 aircraft leased to the market, are significant.

The White House has also imposed licensing restrictions on any country that does not join in the sanctions regime, which effectively impedes many Irish companies who use US origin software from supplying or servicing world markets, including China and India, who have not consented to the sanctions.

For Irish businesses still recovering from the pandemic, the economic impact of the Russia-Ukraine crisis will be upsetting, depending on the extent of the conflict and the duration and scope of the sanctions imposed.

While the new sanctions act as a sword against Russia and a shield for Ukraine, they pose a minefield for Irish companies engaged in international business. A misplaced step could lead to civil or criminal enforcement by global agencies responsible for monitoring US, EU and UK sanctions and international financial transactions.

Irish businesses need more guidance from government agencies as fast-moving sanctions roll out.