How Russian companies avoid international sanctions and what the Romanian business environment risks in relations with these companies
The introduction of successive packages of economic sanctions against Russia is prompting some Russian companies or businessmen to find ways to avoid the embargo in order to continue their activities or even to survive.
According to an analysis by the Corporate Intelligence Agency, Russian firms have stepped up their efforts to find ways to stay in business by moving operations to jurisdictions where they can do so without fear of being sanctioned or having their access to money blocked.
In recent weeks, money transfers, cryptocurrency transfers and real estate purchases have been identified in Turkey, the UAE and other states or jurisdictions that have taken a neutral stance on the war in Ukraine, which will make due diligence procedures already in place in EU companies more difficult.
"According to the information we have, since the outbreak of the war in Ukraine, more than 400 companies have been set up in a single Romanian county located in the border area or in economically relevant areas, most of them with Ukrainian citizens as shareholders. At the same time, the shareholders transferred large sums of money to accounts opened in the names of these companies. Given the ease with which a commercial company can be set up today, we believe that these may include companies in which the founders appear by name, but the real beneficiaries may be citizens of Russian origin on sanctions lists," says Gabriel Zgunea, CEO of the Corporate Intelligence Agency, warning that this phenomenon will spread in the coming period.
"Knowing the approach of local companies regarding the <> or <> procedures, we are sure that there will be situations in which Romanian companies will unintentionally end up conducting business operations with entities in which the UBO (ultimate beneficiary owner) may be citizens or companies from the Russian Federation".
Among the most common options for avoiding sanctions are:
- avoid the embargo by transferring transactions to the names of citizens/companies in EU jurisdictions or traditional partner countries (Norway, Switzerland, etc.);
- the establishment of entities in other countries that have chosen not to apply economic sanctions against citizens/companies from the Russian Federation (China, most African countries, Turkey, Israel, Arab countries, etc.);
- setting up companies in off-shore jurisdictions which, in turn, may be shareholding in companies in the above-mentioned countries, in the Swedish system, etc.
What risks Romanian companies are exposed to
Representatives of the Corporate Intelligence Agency believe that this situation will not be temporary, the consequences of the current Russian-Ukrainian conflict will be felt for years to come. Also, those concerned will no longer wait for an exceptional situation, such as the current conflict, but will try to secure their operations now by transferring them to safe jurisdictions or to persons apparently unrelated to the real beneficiaries.
Under the EU Treaties and the Restrictions and Sanctions Directives, a company registered in the European Union is prohibited from circumventing the embargo regime by using another entity, even if it is registered outside the EU, or even giving instructions to do so. And the list of sanctions for persons/entities in the Russian Federation has been in existence for a long time, having been updated recently after the outbreak of the Russian-Ukrainian conflict.
Thus, in the context in which Romanian companies have business relations with entities on the sanctions list, even unknowingly, they can be held liable by the Romanian authorities, in accordance with the legislation in force, the authorities applying the principle of law, according to which, "ignorance of the law does not absolve you from liability".
As the list of sanctions is amended (weekly or even daily), EU companies will step into a "minefield" in terms of the risks they expose themselves to by ignoring (intentionally or unintentionally) the measures in place and by failing to take steps to get to know their business partners. They will not only be affected in terms of sanctions by the states where they operate, but also in terms of reputation, which affects the value indicators for listed companies. Compliance departments have limited resources to know the beneficial ownership of non-EU entities, which makes them vulnerable in the medium and long term.
