The True Impact of Russian Sanctions

Sanctions are designed to be a form of punishment on a country, an effort to force its leaders to halt whatever undesirable course of action they are currently taking. It is, in effect, financially choking a nation into submission — either by limiting its access to finances or freezing the assets of high-profile individuals in the hope they will use their influence to bring about change.

The concept of sanctions is nothing new. In fact, it has been used for centuries, with the first known application taking place in 432 BC. However, they are becoming much more prominent in recent years, as governments use them as an alternative to physical warfare.

Like most unilateral actions, sanctions can also have unintended knock-on effects when it comes to ordinary citizens. People who are not responsible for, or are often against the actions of their leaders end up being caught in the crossfire and having their lives disrupted — both on a professional and personal level.

As Western powers unleash the “worst ever” round of sanctions on Russia following its invasion of Ukraine, we examine what this means for Russians themselves and those who have business connections with Russian citizens.

What is Happening with Russian Citizens?

We are already hearing stories of ordinary Russian citizens being caught in the crossfire of these financial restrictions. Some are being asked by banks and credit providers to confirm their identities and risk having their accounts closed or frozen even if they have a name that sounds Russian.

Academics from the country are also seeing collaboration opportunities withdrawn and universities are being asked to perform due-diligence on who they work with. This is despite Russian academics voicing criticism about their government’s actions, often at great personal risk.

The Impact on Russian Students

Russian students in the UK are already facing uncertainty. British private schools have been warned by the government not to accept fees from Russian banks or individuals that are subject to sanctions. Meanwhile, every Russian national living in the UK has been banned from having more than £50,000 in British banks. The consequences of non-payment is that the students could end up being asked to leave and have their contracts torn up.

While the sanctions are clearly designed to put maximum pressure on those close to President Putin and the country’s financial infrastructure, the reality is that ordinary citizens could now find themselves unable to support their student children. Many of them are unlikely to have foreign bank accounts, and instead rely on Russian institutions — which have now been barred from making transactions.

What Happens if a Business Has Russian Investment?

Day-to-day trading for companies that have Russian money invested in them is largely unaffected as things stand. The problem lies when these businesses try to distribute earnings or dividends to their shareholders.

With the vast majority of Russian banks being hit by the sanctions, and being removed from the SWIFT financial messaging system, sending funds to Russia is just as difficult as receiving it. This could prove to be a major headache for companies if the situation continues.

The Effect on Businesses that Trade with Russia

Companies that have ties with Russia are now under immense pressure to withdraw completely from the country. Businesses from all areas of industry, from technology and fashion, to energy and consulting have announced plans to scale back their operations or remove themselves entirely.

The process of doing so, however, will be anything but straightforward. This is because the Russian government has banned foreign investors from selling their assets. Other investors are just playing a waiting game as they are afraid that offloading their Russian interests could contravene the sanctions.

Finding a buyer for these assets is also proving difficult, with even potential suitors not wanting to make moves due to potential reputational damage and the possibility of violating the restrictions. There is a lot of uncertainty at the moment, and it could be some time before things become more clear.

How Berkeley Rowe can assist

The unintentional knock-on effects of the economic sanctions imposed on Russia are vast. If you are being affected by them, Berkeley Rowe is here to help. We can provide specialist legal advice on a wide range of matters and will work tirelessly to provide some much-needed clarity and peace of mind in what is undoubtedly an uncertain situation.