Alerts & Updates 1st Mar 2022
The Russia – Ukraine conflict has predictably triggered swift and significant reactive measures from across the globe. Admittedly, some these sanctions were planned (and implied) beforehand and rolled out swiftly to have the maximum impact.[1]
While these sanctions have been imposed by a few countries (USA, EU, UK) against Russia (and Belarus, in some instances), given the global flow of trade and investments these will have pervasive trade ramifications across the globe. Indeed, the unprecedented and far-reaching nature of these sanctions is best illustrated by Switzerland eschewing its tradition of neutrality to enforce the EU’s sanctions.[2] This alert briefly assesses this measure and the possible implication for Indian industry.
The Sanctions are Intended to Isolate Russia from the Global Trading & Financial System
Denial of Access to the global banking system: Russia has approximately USD 630 Billion in global banks or in Russian banks with a presence in the sanctioning countries. Russian banks’ access to the Society for Worldwide Interbank Financial Telecommunication (SWIFT)[3] System will be curtailed. While the banking entities are still to be named, effectively, this will hamper the ability of anyone with an account (especially the Russian Government) from making foreign currency remittances.
Private Entities and Banks targeted by SDN Listing: The above actions came in addition to already existing sanctions recently announced by the above countries, such as USA adding multiple Russian parties to its Specially Designated Nationals and Blocked Persons List (SDN List)[4]. Entities listed under this program usually have their assets blocked, and US persons are generally prohibited from dealing with them. Consistent with the broader theme of curbing Russia’s banking channels, some major private and state-owned banks (and their subsidiaries) are also included in this list.
Individuals Targeted by Sanctions: Other actions include freezing assets of key Russian personnel and limiting their ability to trade or transfer/receive funds. This includes a commitment from USA, UK and EU to implementing sanctions and enforcement mechanisms on additional Russian personnel close to the Russian government including President Vladimir Putin, Foreign Minister Sergey Lavrov, along with various other officials and families. The objective will be to identify and freeze the assets they hold in these jurisdictions.[5]
While India’s involvement in the crisis has been limited so far, the rising rate of sanctions could be a cause for concern given Russia’s importance as a military and economic partner for India over the last forty years. A few key areas of interest for India, which could see an impact from the burgeoning list of sanctions, is provided below:
Defense
Oil and Gas
Steel and other metals: There is a two-fold impact on the steel sector
Auto Sector
It is important to bear in mind that the Russia sanctions are still evolving in direct reaction to the situation in Ukraine. Many sanctions have been announced but the nuances of implementation are expected to follow.
In the meantime, the Indian government is also expected to undertake mitigating measures to protect trade with Russia.[12] Indian banks also continue to await directions from the government on how to deal with Russian banks and related transfers.[13] Already, India’s top lender (SBI) has announced that it will not process any transactions involving Russian entities subject to international sanctions in compliance with US and EU regulations.[14]
There is a possibility that the hostilities on the ground between Russia and Ukraine may end if ceasefire terms are negotiated, though at the time of preparing this alert – Russia’s mobilization and shelling activities continue unabated.
However, two things are clear: the blocked funds of USD 630 billion will provide a pool for reparation payments, and the sanctions will continue (and increase) until Russia exits Ukraine.
We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:
Suhail Nathani, Managing Partner – Email – suhailnathani@elp-in.com
Ambarish Sathianathan, Partner – Email – ambarishsathianathan@elp-in.com
[1] https://timesofindia.indiatimes.com/business/india-business/explained-how-russia-has-been-preparing-for-a-swift-ban-since-2014/articleshow/89905395.cms
[2] https://www.bloombergquint.com/onweb/swiss-break-with-historic-neutrality-to-enforce-russia-sanctions
[3] https://www.bbc.com/news/business-60550610
[4] https://home.treasury.gov/policy-issues/financial-sanctions/specially-designated-nationals-and-blocked-persons-list-sdn-human-readable-lists
[5] https://www.usnews.com/news/national-news/articles/2022-02-25/u-s-agrees-to-freeze-assets-of-russian-president-vladimir-putin
[6] https://www.businesstoday.in/latest/world/story/how-will-sanctions-on-russia-impact-indias-defence-deals-with-moscow-324113-2022-02-27
[7] https://www.financialexpress.com/economy/western-sanctions-on-russia-to-have-marginal-impact-on-indias-trade/2445084/
[8] https://www.hindustantimes.com/india-news/russia-sanctions-may-not-hit-indian-trade-101645813222884.html
[9] https://www.livemint.com/news/india/india-seeks-alternatives-for-russian-coking-coal-imports-11645814163205.html
[10] https://economictimes.indiatimes.com/news/india/sanctions-may-boost-local-steel-engineering-goods-specialty-chemical-companies/articleshow/89811032.cms
[11] https://www.businesstoday.in/latest/economy/story/russia-ukraine-war-auto-sector-braces-against-rising-fuel-and-commodity-prices-323817-2022-02-24
[12] https://timesofindia.indiatimes.com/business/india-business/india-explores-setting-up-rupee-trade-accounts-with-russia-to-soften-sanctions-blow/articleshow/89826929.cms
[13] https://economictimes.indiatimes.com/industry/banking/finance/banking/indian-banks-await-government-orders-on-dealing-with-russian-lenders/articleshow/89882187.cms
[14] https://timesofindia.indiatimes.com/business/india-business/sbi-stops-handling-trade-with-sanctioned-russian-entities-sources/articleshow/89906512.cms
As per the rules of the Bar Council of India, lawyers and law firms are not permitted to solicit work or advertise. By clicking on the "I Agree" button, you acknowledge and confirm that you are seeking information relating to Economic Laws Practice (ELP) of your own accord and there has been no advertisement, personal communication, solicitation, invitation or any other inducement of any sort whatsoever by or on behalf of ELP or any of its members to solicit any work through this website.