Advice for entrepreneurs cooperating with partners in Russia and Belarus

  • Advice for entrepreneurs cooperating with partners in Russia and Belarus

Published: 03.03.2022 Add Events
The financial sanctions imposed by the European Union and the United States against Russia are highly significant and, depending on developments in Ukraine, may become even broader, affecting Latvian and Baltic entrepreneurs who have business partners in Russia and Belarus. To help entrepreneurs navigate the changing sanctions environment and avoid violations that could result in cancelled transactions, frozen assets or even criminal liability, Citadele Bank has prepared advice for entrepreneurs who wish to continue cooperating with partners in Russia and Belarus.
“Given the broad impact of the sanctions, it is clear that for companies that have previously cooperated with partners from Russia or Belarus, these business relationships may become considerably more difficult or, in some cases, even impossible. If a business is connected with Russia, Belarus or any other country subject to sanctions, the bank may ask for additional information about individual payments or the business activity as a whole, as well as request information about business partners in Russia and Belarus, their owners and beneficial owners, the goods they manufacture and the services they provide, and the final recipients of those goods. Since banks must also comply with international, national and US Office of Foreign Assets Control (OFAC) sanctions in all currencies, the bank reserves the right to terminate cooperation with customers subject to sanctions or where there are reasonable grounds to suspect that they are violating or circumventing sanctions. It is important to work transparently, with entrepreneurs and banks cooperating, because mistakes resulting in violations of international sanctions may lead to funds being frozen and, in some cases, even criminal liability,” says Uldis Upenieks, Member of the Board of Citadele Bank responsible for compliance matters and Co-Chair of the Compliance Committee of the Finance Latvia Association.
Keep up with developments
Some types of sanctions, such as targeted financial sanctions, are directed against specific natural or legal persons, while so-called sectoral sanctions target specific economic sectors, such as categories of goods and services. Companies must fully comply with these sanctions and ensure that Your partner company, its board members and beneficial owners are not listed on sanctions lists.
People sometimes ask why the bank has cancelled a transaction if the business partner is not included on a sanctions list. European Union sanctions are applied according to the chain principle, which means that even if a business partner is not directly included on the list of sanctioned persons, it may be the parent company of a sanctioned entity, or a person subject to sanctions may be a senior employee or board member of the company. In other words, sanctions also apply if the sanctioned person directly or indirectly controls Your business partner or is its owner.
Official sanctions lists are available at:
  1. https://www.sanctionsmap.eu/#/main
  2. https://sanctionssearch.ofac.treas.gov/

On 1 March 2022, the Ministry of Foreign Affairs, in cooperation with the Financial and Capital Market Commission (FCMC), provided information at a press conference about the sanctions imposed against Russia in connection with Russia’s large-scale military aggression against Ukraine. The recording is available on the FCMC website

Know your customer

To avoid sanctions violations, it is extremely important to know your customer. This means that You must investigate the owners, board members, beneficial owners and representatives of your business partner. First and foremost, this will help You work preventively and ensure that the relevant company is not a direct or indirect sanctioned entity.

You must know the main customers and partners of your business partner. For example, if You choose to use the services of an intermediary based in Russia, its website may list a company included on a sanctions list as one of its main partners. Such situations must be considered risky, because when assessing who may be subject to sanctions in the future, the partners of persons currently subject to sanctions are examined first. In addition, by supporting the partners of persons subject to sanctions, You indirectly support the persons included on the sanctions list as well. It is therefore important to investigate as long a supply chain as possible in order to avoid cancelled transactions or frozen assets.

Consider your exit strategy

Sanctions are constantly changing, and they may be affected by decisions adopted by both the EU and the United States. This means that even if your partner or sector is not currently included on a sanctions list, there is no guarantee that this will still be the case tomorrow because of political decisions. Therefore, when signing an agreement or any contracts with organisations from countries subject to sanctions, it is important to consider provisions allowing the contract to be cancelled unilaterally if direct or indirect sanctions are imposed on the business partner.

Be open and transparent

Compliance with sanctions is binding on both banks and companies, and liability for sanctions violations applies to both banks and companies. Therefore, there will be situations in which banks seek to reduce risks preventively and contact a company before processing a transaction to obtain additional information. Questions usually concern the nature of the business, supply channels, business partners and the sources of products and services used in production.

Experience shows that business relationships with Russia and Belarus also involve certain “red flags”. One of them is chains of intermediaries that use shell companies to conceal the involvement of sanctioned persons in transactions and evade sanctions. It is therefore extremely important to provide information about your business partners and planned deliveries. You may also have to provide explanations when regular payments are made to accounts in third countries. Cooperation with companies owned by the governments of Russia or Belarus always carries the risk that a government representative will be added to a sanctions list.

To ensure faster processing of payments, always include complete and transparent information in the payment details. For example, instead of writing “Invoice No. 1234”, write “Invoice No. 1234 for the purchase of oil from [partner].” It should also be noted that the full physical address of the business partner, i.e. the payment recipient, must now be provided for all payments to bank accounts in Ukraine. Payments without an address are not processed. In any case, before initiating a transaction, it would be useful to obtain as much information as possible about your partners so that you can answer the bank’s questions if necessary—this will significantly facilitate the fast processing of payments.

“Given the rapid developments in the area of sanctions, Citadele is currently not processing payments to or from Russia in Russian roubles (RUB). Payments to and from Russia in any other currency will be carefully reviewed both from the perspective of whether sanctions apply and whether the payment can be executed. This process will certainly take longer than usual. The bank will not make a payment if we are not certain that it complies with sanctions. We recommend that clients manage their business risks, as the bank cannot guarantee that payments to Russian banks will be executed. The same risks and approach apply to payments to and from Belarus,” adds Upenieks.

Hiring a sanctions coordinator/specialist

If a company is significantly connected with Russia or Belarus—for example, if it has long-term business relationships with partners from that country or extensively uses goods or services from Russia or Belarus—it should consider hiring a sanctions monitoring expert or an employee who specialises in sanctions and can navigate the changing situation. This does not necessarily mean hiring an external specialist full-time; the company may use someone who has already worked for the company for some time and understands its operations and business activities in Russia or Belarus.

By educating and training this employee, the company will not only be better able to manage sanctions-related risks and navigate the changing situation today, but this will also be an important signal to banks that wish to cooperate with You in the long term while complying with sanctions-related and statutory requirements. If there is a long-term plan to develop a business through Russia or Belarus, delegating one employee to monitor developments and communicate constructively with the bank is an important prerequisite for establishing a successful economic partnership with our neighbouring country in the current geopolitical situation.

About Citadele Bank

Citadele’s mission is to modernise the banking sector and provide clients and businesses throughout the Baltics with more opportunities.

Alongside traditional banking services, Citadele offers its clients a range of services based on next-generation financial technologies: from a modern app, contactless payments and instant payments to being the first in the Baltics to offer the option of opening an account with a selfie, paying with a ring and making payments to mobile phone numbers.

Citadele is the second-largest bank in Latvia by assets. The Citadele Group is managed from Latvia. Its subsidiaries and branches operate in Latvia, Lithuania and Estonia.

Additional information:

Head of Corporate Communications
AS “Citadele banka”

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