Tom Stocker and Stacy Keen

On the year anniversary of Russia’s invasion of Ukraine, the focus has rightly been on the loss of life and destruction of cities, towns, and homes in Ukraine.

The main response of the United Kingdom and the NATO allies has been to support Ukraine with military equipment, financial assistance and the imposition of round after round of economic and trade sanctions.

The intention of these sanctions has been to cut Russia off from western equipment, services and finance with the objective of reducing its military capabilities and harming the economy so that Russia cannot continue to fund the war. Unfortunately, Russia appears to have been able to turn to other countries for support while relatively high oil and gas prices, partly caused by the sanctions, have sustained its economy for now.

Economic and trade sanctions have become a weapon of choice to address geopolitical conflict. They appear to governments to be an easy and quick option to be seen to be responding to events in a tough manner. The problem for businesses is that the Russian sanctions have often been imposed with no consultation, little warning and immediate effect.

The sanctions imposed are highly complex and subject to regular change. In the last year, there have been 17 statutory instruments amending and adding to the UK Russian sanctions. It has been exceptionally challenging for businesses to keep up to date. This has placed a significant burden on businesses given that the consequences of breaching sanctions are criminal.

Some politicians say that businesses should simply exit all Russian related business. Such sentiments fail to recognise that, unless the sanctions directly apply to the particular transaction in question, contractual obligations cannot be terminated without following notice provisions and often only with cause.

Regulators responsible for issuing guidance and authorising otherwise restricted trade have also struggled to keep up, with guidance being issued several weeks after laws have come into force and licensing processes taking many months. These regulators have simply not been given sufficient resources to discharge the responsibilities that have been placed upon them. There are signs that they are beginning to catch up but there is a long way to go.

The result has been a significant cost to businesses with any Russian related touchpoints. Many UK and western companies have sought to exit Russia and Russian contracts but this has resulted in goods and technology stranded in Russia due to a lack of well thought through divestment provisions in the sanctions.

Going forward, the lessons for businesses are to prepare for the imposition of wide ranging and complex sanctions against countries which the Foreign & Commonwealth Office may currently be encouraging business with. There is a need to assess and prepare for geopolitical risk. Steps such as not being overly exposed financially to a high-risk jurisdiction, and ensuring contracts have sanctions clauses allowing for the suspension of performance in the event of sanctions being imposed, even if those sanctions do not directly affect the contractual performance, are advisable.

Tom Stocker is a partner, and Stacy Keen is a senior associate at Pinsent Masons