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Ukraine and the business risk barrage

By Ross Archer, Director of Public Policy for the Global Advocacy Team, Association of International Certified Professional Accountants, representing AICPA & CIMA

Russia’s invasion of Ukraine has profound humanitarian and political consequences. The largest land war in Europe since World War II is moving world leaders to consider actions never before taken, such as economic sanctions on Russia that are unprecedented in their severity.

Businesses must navigate short- and long-term risks to comply with sanctions, mitigate supply chain disruptions, combat money laundering, and help organisations adjust to the mandates of the sanctions over time. Accounting professionals play a key role in managing the barrage of risks businesses are facing.

Compliance is critical

The announcement of sanctions is just the first step in making them a reality. To have any effect, sanctions must be backed up by concrete actions from businesses and organisations. Many questions arise: “What do sanctions mean for my business? What new systems and processes need to be created? Are we in compliance?” Accounting professionals help business leaders answer these questions to strengthen their businesses and fulfil the profession’s obligation to serve the public interest.

First, finance professionals continually monitor sanctions as they evolve. Second, they provide counsel to business leaders and create internal processes that drive compliance based on their understanding of the sanctions. Third, they help gauge compliance with audits and internal reviews.

Together, these skills are what businesses need to act in the short term, and successfully navigate compliance risks, from divestments to asset freezes, over the long term.

Strengthening supply chains

Consumerism and product choice are hallmarks of the US economy and culture. The pandemic revealed for the first time in a generation the fragility of the supply chains undergirding those dynamics.

The crisis in Ukraine represents new challenges. The breadbasket of Europe — Ukraine — is now unable to supply the world with wheat. The war also has displaced some Eastern European information technology workers who work remotely writing code for US tech companies. The flow of energy and other commodities is disrupted for the foreseeable future.

Accounting professionals help businesses and organisations identify and quantify supply chain issues so businesses can create plans that adjust to these historic shifts. For business leaders, asking the right questions and approaching supply chain problems strategically under the guidance of accounting professionals will pay off in the long run.

Prevent money laundering

One thing is clear: Both the Russian government and Russian individuals affected by sanctions may seek to get around or undermine those penalties. This increases the risk of money laundering.

Accounting professionals are on the front lines of developing strategies and procedures for detecting and reporting money laundering. For example, in the UK, accounting professionals are trained to fill out a Suspicious Activity Report (SAR) whenever money laundering is suspected. And, for years, accounting professionals have helped combat money laundering related to terrorism. This real-world experience has helped many hone their skills; those lessons are being applied today.  

The long game

The disruptions caused by Russia’s invasion may not end anytime soon. Government sanctions could be ongoing and may spread to new areas of the Russian economy. Organisations will continue to respond by divesting from Russia or backing away from operations there.

Accounting professionals are working within world governments and global companies, creating processes that assist in compliance with sanctions, and drive compliance via audits and internal review systems. Their focus and skills are essential to helping organisations adjust and act responsibly.

Supporting legislation

The war led to the expedited passage in March of the Economic Crime (Transparency and Enforcement) Act 2022 in the UK. New legislation has enhanced the sanctions regime; those acting for clients, more than ever, must ensure they are aware of and work within sanction requirements. There is no longer a defence that the representative “did not know or have reasonable cause to suspect” they were acting for a designated person or entity. This shift in approach has heightened the risk for accounting professionals to get these checks right.

The Office of Financial Sanctions Implementation (OFSI) can publish reports on those who breach sanctions regulations, even when a financial penalty has not been issued. This could lead to significant reputational damage to a business if named.  

The register of overseas entities created by the act requires organisations from abroad who own property in the UK to register all beneficial owners with Companies House. Enhancing public registers of true ownership will improve transparency and could deter money laundering through the use of complex shell companies.