Sanctions risk may come as a shock to businesses

A specialist says that tools available for verifying the identity of a client who is subject to anti-Russian sanctions are limited.

When did you last check whether a client of yours was on an anti-Russian sanctions list?

For businesses, the sanction legislation concerning Russia is key. The Finnish Foreign Ministry offers help in interpreting it and lists instructions for businesses on its website. The high volume experienced by the Ministry’s sanctions-related advisory service is a sign of the increased number of inquiries about sanctions.

Christina Forsgård, founder of the Netprofile consultancy, has investigated clients’ potential links with Russia this year.

“The law must be obeyed, but investigations are almost impossible if a Russian applies for citizenship of another country and operates from there. Businesses are in a really difficult situation,” she comments.

The sanction legislation requires businesses to establish who the controlling shareholders of its client companies are. It should then be possible to determine whether that shareholder is on the EU or UN sanction list.

“If you ask a business for documentation about its controlling shareholders, there is no guarantee you’ll get the correct documents. The unfortunate aspect of the matter is that people evade sanctions, which makes us powerless. You can’t know anything for certain. You just have an uncertain feeling that questions whether everything is OK. No matter how much work you do, everything could go wrong.”

No more trust

We previously reported on the tools businesses have at their disposal to investigate sanctioned businesses and private persons. One of them is the EU’s Sanctions Map website.

Forsgård says that the sanction legislation and the difficulty of verifying sanctioned companies and individuals significantly hinders the establishment of new client relationships.

“All Finnish businesses are in a situation where they have to know that their clients are not subject to sanctions. It’s tough, because the efficiency of Finnish society is based on trust. We trust someone when they say where they come from and what they do. Now we’re living in a totally different world than the one we were used to.

Slush takes precautions

The organizers of start-up business event Slush at the end of November have taken precautions against the Russian risk. The Slush communications department says that the event does not collaborate with Russian bodies or issue start-up or investor passes to companies headquartered in Russia.

“To buy a start-up or investor pass, the buyer must fill out an application. We review applications individually, and a business only gets its start-up or investor pass when we have approved its application. However, guests from all countries are warmly welcome to visit Slush,” Hilla Uotila from the event’s communications department says.

Businesses required to take initiative

A recent article by the legal firm Lexia discusses businesses’ responsibilities in conducting sanction-related inspections. The responsibility grows significantly when a business expands internationally.

“When a business trades across borders, it must establish whether sanctions apply to the country it trades in. It is important to establish whether the company is permitted to export goods to a country. It should also verify where goods may be further shipped. Even intermediate shipping through a sanctioned third country is prohibited.”

The firm says that businesses have heightened responsibility for ensuring the business they conduct does not lead to breaches of sanctions.

“Businesses must take the initiative and be active in investigating and documenting the sanction situation. Businesses are required to act in good faith, and they must act carefully to avoid breaking the law when they trade. In practice, this can mean that if a business has the slightest suspicion that the products it sells are ending up in a sanctioned country or with a sanctioned person, the businesses have a heightened responsibility to investigate the situation.”

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