6 months from Ukraine invasion… Regulation expert commends ‘politically successful’ sanctions against Russia

Nearly six months after Russia’s invasion of Ukraine, and the resulting retaliation from Western nations, primarily in the form of sanctions against Russian oligarchs and assets, industry expert Dr Henry Balani speaks out on how the situation has changed, how successful said sanctions have been, and what’s in store for the future.

When first introduced, Dr Henry Balani, Head of Industry and Regulatory Affairs at Encompass Corporation, publicly spoke about the logistical and technical challenges of imposing sanctions against Russia. This time, he reflects on how the situation has changed…

“Sanctions against Russia are not going away any time soon. Politically, they have been seen as a success by the public in Western countries, in that they are regarded as punishing the Russian elite.

Additional sanctions will continue to be enacted as the war in Ukraine grinds on. The pace has been unprecedented – the number of restrictive measures imposed on Russia by the UK since the war started in February of this year is on pace to equal all actions since 2014. The challenge now becomes one of enforcement – and banks are at the forefront of implementing the sanctions regime. The complex structures used by Russian oligarchs to obfuscate their ownership continues to represent a challenge. Ultimately, if banks are not able to enforce these sanctions – by identifying and freezing financial transactions – they will bear the brunt of the public backlash.”

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As the Russian invasion of Ukraine continues, The Accountant and International Accounting Bulletin teams hear the latest industry reactions on the financial sanctions imposed on Russia.

Stephen Hamlet, CEO and Chair, Bruce Saward , Russell Bedford

In response to the unfolding humanitarian crisis in Ukraine over the past week and as a gesture of solidarity with Russell Bedford RCG, a network member firm based in Kiev, Russell Bedford International has made an initial donation of £10,000 to World Central Kitchen (WCK), with board directors and individual member firms making further donations. The final total will be reported as part of the network’s corporate social responsibility campaigns. A not-for-profit organisation currently operating on the frontline, WCK is serving thousands of fresh meals to Ukrainian families fleeing their homes and those who remain in the country.

In support of refugees escaping the violence, WCK began serving hot, nourishing meals in Poland and now have operations at eight border crossings, as well in Przemyśl—a city receiving refugee families.

On 2 March 2022, working with the World Food Programme, José Andrés (Founder of WCK) crossed into Krakovets to deliver food on the Ukrainian side of the border. WCK is now looking into the possibility of delivering meals each day to families in Ukraine who are waiting in line to cross the border across the eight entry points.

While WCK’s Relief Team continues to explore the safest and best way to provide meals beyond the entry points in Ukraine, they are currently providing remote support to restaurants inside the country, cooking meals for anyone in need. Currently, WCK meals are being distributed in five Ukrainian cities, including in Lviv.

In addition to this donation, the network is encouraging Russell Bedford members around the globe, who may feel helpless as they look on from afar at such devastating human suffering, to support organisations such as WCK and others, who are doing their utmost to provide comfort and support to those in desperate need at this difficult time.

Russell Bedford chair, Bruce Saward said: “It has been heart-breaking to watch the unfolding devastating events in Ukraine over the past week. My thoughts are with our colleagues at Russell Bedford RCG in Kiev and with all Ukrainians, including those who have made Ukraine their home, and whose lives have now been turned upside-down. None of us have any real insight into how this crisis will unfold. However, we hope and pray for a prompt cessation of hostilities and a return to peace. In the meantime, the network’s donation to WCK is a small way in which we can assist in practical terms.”

Russell Bedford CEO, Stephen Hamlet added: “Speaking with our Kiev member firm, it is difficult to hear first-hand the extent of the situation in Ukraine at this time. We as a network are committed to supporting worthy causes, as part of our corporate social responsibility program, and it is a privilege to offer our donation to WCK, who are offering essential, lifesaving support to those in need at this time. Our thoughts and prayers remain with our colleagues in Kiev and to all affected by the devastating situation in Ukraine.”

Liza Robbins – CEO, Kreston International 

Kreston condemns the war in Ukraine. We are deeply troubled at the terrible impact on innocent people in Ukraine, Russia and Eastern Europe.

Kreston does not have a Russian member firm.

Kreston is heavily involved in supporting our 140 Kreston Ukraine colleagues. Aside from a significant fund-raising initiative for our firm, we have set-up one task-force to identify colleagues who can/will leave Ukraine and another task-force to coordinate the employment/housing/schooling/support offered by Kreston European and UK firms and their clients. We are organising a “Kreston meet and transport” initiative at Ukrainian borders. We have meetings with Kreston Ukraine every other day. Kreston has openly invited all international groups to join us to share knowledge and logistics in our efforts to help our displaced our colleagues.

Accounting firms play a critical role in ensuring relevant economic measures and sanctions are applied effectively and we are supporting our firms to do so. 

Andrew Leck, CEO MSI Global Alliance

MSI Global Alliance has both a law member and an accounting member in Russia. We continue to monitor the situation and are currently in active discussions with our member firms to determine the next steps.   

MSI has a legal member firm in Ukraine. A large number of MSI member firms have offered support including offers of transportation, hospitality and work. We are in close contact with our member firms in the Ukraine and in neighbouring countries which are providing us with a list of priorities for support and which we are sharing with our members. Together with our members, we have created a Ukraine helpdesk on our website (https://www.msiglobal.org/newsandknowledge/msi-members-provide-helpdesk-support-to-ukrainian-citizens/) and compiled country by country guides on current support measures in place to help refugees from Ukraine.

Keith Farlinger, CEO, BDO

The humanitarian crisis in Ukraine continues to dominate our thoughts and actions.

Our priority continues to be the safety of our colleagues and their families in Ukraine. Our focus is providing financial assistance, transportation, accommodation, safe passage, where possible, and ongoing employment for when they’re ready. BDO firms across the world have come together to support our colleagues and find solutions to help mitigate the immediate humanitarian crisis that is engulfing the region.

Our focus on carefully coordinated support for our people needs to be backed up by carefully considered policy:

  1. No BDO firm will work with any sanctioned Russian and Belarussian entities including the Russian and Belarussian Government, Russian and Belarussian state-owned enterprises and sanctioned individuals as a consequence of the ongoing situation in Ukraine.
  2. BDO does not have a network firm in Russia. The former Russian member firm operates entirely independently under the name of Unicon.
  3. BDO is removing BDO Belarus from its global network. We will work to support our clients in fulfilling our legal obligations and commitments. These changes are effective immediately. Implementation may take longer as we need to ensure an orderly transition. We will discharge our professional responsibilities and obligations to all relevant parties.

Since the outset, we have stated that we deplore the violation of international law and military aggression in all its forms. That continues to be our position and we hope that the loss of life and livelihood soon ceases and that all parties come together to establish an enduring peace.

BKR International, CEO, Tim Morris

BKR International is closely monitoring the situation in Eastern Europe and the evolving sanctions situation regarding Russia. BKR will comply with all relevant sanctions. The position of our independent Russian member firm is under regular review and is dependent on the situation. Individual members have been assisting to relieve the situation in Eastern Europe, and using local contacts more plans are being developed.

Moore Global, CEO Anton Colella: Moore Global has taken steps to end its relationship with the two member firms in Russia.

Members of the Moore Network have responded independently, mobilising to help colleagues in Odessa and Kyiv, from offering travel and accommodation assistance, to donating money and essentials.  We have also launched the Moore Global Emergency Relief Fund, allowing our members to donate directly to help our colleagues and their families in Ukraine. 

Mark Koziel, President and CEO, Allinial Global

At Allinial Global, we continue to monitor developments in Ukraine and Russia. Complex situations like this require nuanced thinking, and we believe our members will be better served if we respond thoughtfully and deliberately. As a first step, we created an online Ukraine/Russia Help Desk where members can ask questions and share information about sanctions impacting their clients or country, and we will continue to make adjustments as the situation evolves. Above all, we remain committed to our mission of helping independent firms work together to better serve their clients, and we will do everything we can to create an environment that supports cooperation and collegiality.

Steve Heathcote, CEO, PRIMEGLOBAL 

PrimeGlobal opened its Technical Conference in Budapest with mixed emotions. While the association and its members are pleased to be back meeting in-person after such a long time apart, it cannot be ignored that just across the border to the east, the Ukrainian people are desperately fighting a war against an unwelcome aggressor. 

PrimeGlobal’s Chair of the Board, Mark Worsey, opened the conference with an important statement that PrimeGlobal strongly condemns Putin’s aggression and attack on Ukraine. This statement was followed by a 1-minute applause for reflection and to show solidarity with the Ukrainian people and condemnation of the Russia’s aggression.

Over the last few weeks it has been heart-warming to see that PrimeGlobal members across the world have rallied to support Oxana Kuzyura, Managing Partner of Kyiv member firm Laudis Legal & Accountancy. PrimeGlobal will continue to support the Laudis Legal & Accountancy team, both through this crisis and in the aftermath, by helping member firms make sanctions effective and promoting humanitarian support.

PrimeGlobal commits to prioritising steps which will have an immediate impact.  However, long lasting impact will be achieved by the actions PrimeGlobal member firms take. The association trusts the integrity of all its independent member firms across Europe, and the rest of the world, to avoid doing business that could support the war. 

Steve Heathcote, PrimeGlobal CEO, reminds members that there is strength in unity and friendship, and during these times of crisis, these bonds are more important than ever. As a global association, PrimeGlobal supports Ukraine and demands a return of peace as soon as possible.

Through PrimeGlobal’s news, events and thought leadership, members have access to key insights and global updates. Visit the PrimeGlobal Supports Ukraine hub to access resources and information, including support to help member firms assess client bases and support sanctions.

RSM: Russia/Ukraine crisis likely to pause future M&A activity

New figures published today by the Office of National Statistics have revealed a fall in both inward and outward deal values and volume in Q4 2021, with a slight increase in the value of domestic deals.  

Outward M&A values saw the biggest fall to 3.4bn in Q4 from 32bn in Q3, which is largely due the 29.8bn acquisition of Alexion Pharmaceuticals INC by AstraZeneca in Q3. The inward M&A values decreased to 10.9bn in Q4 from 12.4bn in Q3; while domestic deal values increased to 2.9bn in Q4 from 2.3bn in Q2.

In total, there were 77 completed deals in December 2021, down from 150 in September 2021 and the lowest level since the height of the pandemic in May 2020 where only 58 deals were completed.

Kirsty Sandwell, partner and head of transactions at RSM said: ‘The M&A market has been in a bubble over the past year, and these figures suggest the bubble has finally burst. The consistent run of high M&A activity is unlikely to be sustainable, and it looks like the industry is taking a much-needed pause for breath. 

‘Ultimately, the deal environment needs certainty in order to flourish. The uncertainty surrounding the Russia/Ukraine conflict and the rise in oil and gas prices, presents headwinds for the deal environment which means M&A activity is unlikely to rebound quickly.

‘As witnessed after the Brexit referendum, buyers tend to halt deal activity until potential implications become more apparent, so it’s likely companies will take a similar approach in the coming months. There are many investors and advisers that have never lived or worked against a backdrop of inflation and rising interest rates, which adds to the macroeconomic uncertainty. This will naturally breed some caution as the community gets to grips with the new normal. ‘It’s likely tech M&A activity will be relatively unaffected during the current crisis and will drive overall M&A figures. With oil and gas prices on the rise, this may even lead to a focus on renewables and related infrastructure, meaning buyers could turn to domestic deals instead.

Hargreaves Lansdown: Corporate world builds up fortress to isolate Russia from the international business community

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown says: “The corporate world is building up a fortress to isolate Russia from the international community. Companies around the globe are responding to Russia’s firepower with ice cold approach, freezing out Moscow from transactions, ditching financial investments worth billions. Following BP’s lead to pull out of its Russian oil partnership with Rosneft, Norway’s Equinor cancelled its investments and Shell is also abandoning its multi-billion dollar investments in Russia. The FTSE 100 has opened up in early trade, which could be seen as a vote of approval for this wave of corporate censure, with BP and Shell gaining on the open.

The US entertainment industry is now shutting out Russians from the big screen, with big blockbuster films put on hold. Warner Bros has pulled The Batman from cinemas across Russia and Walt Disney is pressing pause on premieres in the country. These moves by big movie names won’t cause financial pain to ordinary Russians, but being left out in the cultural cold will increase the country’s isolation from the West.

As some of the biggest beasts in the corporate world raise their hackles in response to Russian aggression, more companies are expected to follow suit. Concerns that Russia could retaliate by weaponising its energy exports are keeping the price of oil and gas elevated, with Brent crude still trading above $100 a barrel and UK natural gas prices at 244p a therm early on Tuesday. As the global shipping giant Maersk eyes sanctions and prepares to comply, a disruption of shipments from Russia in terms of cargo booking cancellations could send energy prices higher in the short term, without Russia turning off the taps.

It is clear that already the financial penalties being imposed has started a run on Russian banks. It’s not just ordinary citizens queuing round blocks to pull out cash, international customers are pulling out their money fast, with warnings from the European Central Bank that Russia’s biggest state-controlled lender Sberbank could collapse after shares plunged by as much as 74%.

With assets of CBR set to be frozen around the world, it will hamper Moscow’s ability to dip into its foreign currency reserves, part of the war chest it had built up, to try and insulate the country from the worst of the economic punishments. Desperate efforts by The Central Bank of Russia to stop the flight from the rouble by hiking rates by an eye watering 20% have had a limited effect, with the currency gaining some ground but bumping along at record lows.

As Russians watched their currency go into freefall, there has been a surge of purchases of Bitcoin denominated in roubles, as some speculators scramble to insulate themselves from the crisis. Bitcoin has risen 14% since sanctions were imposed and is clearly facing local demand in catastrophic times, but these are small pockets of demand as more widely across the world, Bitcoin hasn’t been the equivalent of digital gold which crypto fans had hoped for.

Because of its fixed supply Bitcoin had been hyped as a potential safer haven in times of higher inflation and market volatility, but crypto assets have been shown to be highly sensitive to the fortunes of the stock market and were propelled higher in an era of ultra cheap money. As conflict in Ukraine looks set to be yet another inflationary driver, there is fresh speculation that central banks could be forced into more unexpected monetary policy moves, with an acceleration of rate hikes potentially on the cards. With huge uncertainty around how deep the Ukraine conflict could go and what ripple effects there could be in financial markets, crypto assets are likely to continue to be highly volatile.”

SmartSearch on UK’s economic sanctions

Following the announcement by UK prime minister Boris Johnson that the UK will implement the “largest and most severe package of economic sanctions that Russia has ever seen” following the invasion of the Ukraine, SmartSearch managing director Martin Cheek said: “These sanctions are far-reaching, and the government clearly intends that Russia should suffer financially as a result of its invasion of Ukraine.“However, if these sanctions are to be fully effective then it is essential that all regulated sectors in the UK play their part by undertaking effective due diligence to ensure that anyone on a sanctions or politically exposed person’s (PEP) list is highlighted.

“Unfortunately, it will be impossible for companies that still use old-fashioned manual checking methods to do this. By contrast, those companies that have invested in electronic verification will be able to ensure within seconds that they are accurately identifying their clients and screening them against global sanctions and PEP lists.

“As new sanctions are introduced against Russia, the SmartSearch platform is able to provide immediate updates to the sanction and PEP screening lists when there are changes. Also, monitoring means any existing relationships on sanction or PEP lists can be flagged via alerts without a new search being required, and new clients screened through the system will be flagged if they are among the newly sanctioned people and entities.

“The current situation illustrates vividly the importance of electronic verification, and underlines why it should be made mandatory for regulated sectors instead of being optional.”