Ask The Expert: Supply Chain Security and the Russia/Ukraine conflict
As modern warfare evolves, it’s clear that the Ukraine/Russia conflict…
But what does this mean on a day to day basis for supply chain management? With a particular focus on UK supply chains, Andrew Hood, partner, international trade, and Miguel Vaz, partner, regulatory and trade, at European law firm Fieldfisher, offer insight for companies wrestling with the day to day implications of this complex challenge.
While UK sanctions have been in force against Russia since its annexation of Crimea in 2014, the first UK sanctions in response to Russia’s current military action against Ukraine came into force on 22 February 2022, when the UK announced asset-freezing measures on five Russian banks and three individuals.
In the days running up to and subsequent to Russia’s invasion of Ukraine on 24 February, additional sanctions have been introduced.
The extent and severity of sanctions imposed by the UK, EU and US (and others, including Canada, Japan, Australia, South Korea and Taiwan) have been ratcheted up to cover a swathe of sectors and types of transaction, with further measures expected.
Sanctions do not stop you doing all business with Russian suppliers or companies, but they do require businesses to consider and understand the rules and risks to avoid being caught out.
UK companies and individuals must comply with UK sanctions legislation (wherever they conduct their activities) and non-UK companies that undertake activities within the UK must also comply.
EU sanctions apply to all companies incorporated in a Member State and EU nationals, including branches of EU companies in third countries and non-EU companies doing business in the EU.
US sanctions tend to be much broader. While mirroring the UK/EU approach, the “long arm” jurisdiction of US sanctions means they can also apply to any transactions involving the US dollar or data routed through US servers, for example.
A business with a mix of employee nationalities and subsidiaries in different jurisdictions could therefore find itself caught by a combination of sanctions regimes.
We should all be aware of the situation in Ukraine and the resulting potential for broader cyber attacks coming from Russia – the US government have told organisations to put “shields up.” Beyond understanding the specific threats you and your supply chain face, the key thing is to continue to focus on cyber security fundamentals rather than panic in response to the potential threat.
Different countries and organisations have imposed varying restrictions on Russia. The main common measures implemented by the UK, EU and US to date (as of 7 March 2022) that may affect supply chains include:
As well as the obvious impact on sourcing material or supplying customers, trade routes through and around Russia have been disrupted, meaning it may take longer for some internationally-traded products to reach their destinations.
Companies with outstanding payments to and from Russian suppliers or customers may also find they are unable to send or receive sums owed.
For companies with staff in Russia, urgent steps will be required to ensure you can continue to pay salaries.
To avoid being caught by sanctions, UK companies, whether they have obvious connections with Russia or not, are advised to consider whether:
If you’re concerned about the impact of this crisis on your business, get in touch to talk with our team of experts.