Citadele Bank (Latvia)

Citadele’s Advice for Business Owners Working With Partners in Belarus

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The financial sanctions imposed by the European Union and the U.S. against Belarus are some of the strictest ever enforced against a country in the European region, and they unavoidably impact many companies in the Baltics with business partners in Belarus. These partnerships are often made significantly more difficult or impossible.

Bearing in mind that adherence to sanctions and potential breaches are binding for both banks and business owners, Citadele has prepared guidelines for business owners who are willing to continue  working with Belarussian partners. We will help with navigating the changing sanctions and avoiding a breach, which could result in annulled transactions, frozen assets or even criminal prosecution.

“The process of adhering to sanctions may be very challenging, as there are different types of sanctions, and almost every administrative situation is different. If anyone believes that the sanctions against Belarus are their own local problem, they would be mistaken. No country is isolated, collaborating with goods and services providers from nearby and further afield countries, and in this case there are many businesses in Latvia impacted by the sanctions, whose implementation has in some cases impacted an extremely significant portion of the business. In certain instances, operations may even have to be ceased altogether. It is important to be transparent and for banks and businesses to work together, as errors which result in the breach of international sanctions may lead to frozen assets or even criminal prosecution,” explains Uldis Upenieks, Citadele Bank Board Member and Chief Compliance Officer, and Co-chair of the Compliance Committee for Finance Latvia.

Keep up with developments

Some type of the sanctions — such as targeted sanctions — are aimed at named individuals or legal entities, while so called sectoral sanctions are aimed at specific sectors of the economy, such as categories of goods and services. Businesses must adhere to these sanctions in full, meaning that it is not sufficient to ensure that your partner company or its board members or beneficial owners are not named on the sanctions lists. It is important to be informed on whether the goods and services they provide are impacted by sectoral restrictions, as goods from a sanctioned sector being imported into the European Union can be classified as a serious crime, potentially leading to a prosecution and a prison sentence of between 4 and 8 years in some jurisdictions. The same applies to export limitations set by EU sanctions.

People sometimes ask why the bank has cancelled a transaction if the business partner is not on the sanctions list. EU sanctions are applied according to a chain principle, meaning that, even if a business partner is not directly on the list of sanctioned organisations, they may be a sanctioned entity’s parent company, or a sanctioned person may be a highly-ranking member of staff or on the company’s management board. Namely, sanctions also apply if the sanctioned person directly or indirectly controls or owns your business partner.

The official lists of sanctions are available here and here.

Know your customer

To avoid breaching sanctions, it is vitally important to know your customer. This means that you must do a research on your business partner’s owners, board members, true beneficiaries and representatives. Firstly, this will help you work preventatively and ensure that the business in question is not a direct or indirect subject of the sanctions.

You should be aware of the main customers and partners of your business partner, especially if this partner is located in a higher sanctions’ risk country. For example, if you choose to use the services of a Belarussian intermediary, their website may list as one of its main partners a factory that is on the sanctions list. These situations must be evaluated as risks, as the partners of the subjects of current sanctions are evaluated first when reviewing subjects to future sanctions. Furthermore, by supporting the partners of those subject to sanctions, you are indirectly supporting those on the sanctions list. It is therefore important to research as long of a delivery chain as possible to avoid cancelled transactions or frozen assets.

Consider your exit strategy

The world of sanctions is constantly changing, and they can be impacted by both EU and U.S. decision-making. This means that even if your partner or sector is not currently on the sanctions list, there is no guarantee that it will remain so tomorrow due to political decisions. Therefore, when signing an agreement or any contracts with organisations from sanctioned countries, it is important to consider disclaimers allowing for unilaterally cancelling an agreement in the case of direct or indirect applicability of sanctions on the company.

Be open and transparent

Adherence to sanctions is binding for both banks and businesses, and responsibility for breaching sanctions applies to both banks and businesses. Therefore, there will be situations when banks will preventatively try to reduce risks, and will contact a business for more information before processing a transaction. Questions are usually about the nature of the business, delivery channels, business partners and the source of products and services used in manufacture.

Experience shows that partnerships with Belarus have a certain type of red flags. One of these is chains of intermediaries which use front companies to hide the involvement of sanctioned persons in transactions to avoid sanctions. It is therefore crucial to give information on your business partners and planned deliveries. You may also have to issue clarifications if regular payments to accounts in third countries are made. Partnering with businesses belonging to the Belarussian government always comes with risks that a government representative will be included in the list of sanctions.

To ensure that payments can be processed faster, 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 timber from [partner].” It would be good practice to acquire information on your partners before beginning a transaction so that, if necessary, you can answer the bank’s questions, which will make the fast processing of payments much easier.

Hire a sanctions coordinator/officer

If your business is substantially linked with Belarus, for example, you have a long-term partnership with partners from this country, or your company has a large emphasis on goods or services from Belarus, you should consider bolstering your ranks with a sanctions officer or an employee who is a sanctions specialist and can navigate the changing environment. This doesn’t necessarily mean that you would have to hire a full-time external specialist; you could use someone who has been working at the company for a while and who is knowledgeable in the company’s operations and economic activity in Belarus.

By educating and training this person, your company will not only be able to better manage sanctions risks and navigate the changing world of today, but you will also send a powerful signal to banks who want to work long-term while respecting regulations set out in sanctions and law. If you have a long-term plan of developing your business through Belarus, delegating one person for monitoring updates and communicating constructively with the bank is an important prerequisite for developing a successful economic partnership through our neighbouring country in today’s geopolitical environment.

Recording of our webinar on the sanctions against Belarus and other useful links

To inform Citadele customers on the impact of Belarussian sanctions on financial services, Citadele organised a webinar titled The Impact of Sanctions Against Belarus on Financial Services on September 24th. The webinar was opened by Uldis Upenieks, Citadele’s Chief Compliance Officer and Co-chair of the Compliance Committee for Finance Latvia, and the presentation was given by Saiva Krastiņa, Citadele’s Sanctions Officer. The recording of the webinar is available here.

Other useful links: