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The private sector plays a key role in the implementation of sanctions, but they are wandering over an unknown territory without sufficient guidance from the government, witnesses have told the UK Treasury Committee.
Sanctions experts urged the UK Treasury Committee to leverage the capability of the private sector in the implementation of the sanctions against Russia, and provide them with more details as they are facing an unprecedented challenge.
The UK, in collaboration with Western allies, has imposed a number of sanctions on Russia, initially aimed at deterring the country from escalating the situation in Ukraine, and now to force Russian troops out of Ukraine.
These sanctions include, asset freezes, a prohibition to deal with Russian central bank reserves and banning of Russian banks from the SWIFT international messaging network.
The implementation of these measures lies with the private sector, but the speed, scale and the way those sanctions have been adopted raise a number of challenges.
Uncharted territory
Although some of these measures have been applied in various cases before, the overall sanctions package imposed on a country like Russia has led the UK to an “uncharted territory”, the Treasury Committee was told on Monday (March 7).
Russia is different from all the other countries sanctioned before, not only because of the extent to which it is integrated with the West but also because the United States and European countries have never used sanctions in this way against another G20 country.
“We have only used similar types of sanctions against jurisdictions such as Venezuela, Syria, Iran, North Korea when you are looking at the targeting of central banks,” said Justine Walker, head of global sanctions and risk at the Association of Certified Anti-Money Laundering Specialists (ACAMS).
At the same time, the scale and impact of the sanctions are expanding beyond Russia and Ukraine, which meets with an unprecedented response, she added.
Sanctions on the hoof
According to Walker, G7 counterparts have not been prepared to cope with the speed and the scale of issuing the measures.
The only exception is the United States, which has a history of managing sanctions and could react in a speedy manner, for instance by issuing guidance and licences at the same time as the sanctions were released.
However, the remaining countries by and large were not prepared for the situation and could not yet provide sufficient guidance as to how the private sector should implement their measures.
At the moment, there is no comprehensive trade ban with Russia and it remains unclear what is within and what is not captured by the sanctions.
Without clear guidance and details, the private sector will not be able to successfully implement the measures, said Tom Keatinge, director of Centre for Financial Crime and Security Studies at the Royal United Services Institute (RUSI), urging the government to ramp up capacity and guidance as fast as possible.
"It is not the government implementing sanctions, it is the private sector" and they need precise details to ensure compliance, he stressed. “You can’t make up sanctions on the hoof, because you are relying on the private sector to implement them.”
As the precise legislation is unclear in some scenarios beyond certain asset freezes, the compliance committees “are working very much in the dark”, Walker added.
The ambiguity of the situation leaves the private sector paralysed, which has started to redline all cooperation with Russia, at least temporarily, Keatinge stressed.
This means that some companies are going above and beyond what sanctions rules require of them.
Soft sanctions
Although the lack of clarity in regulation could be one factor in the over-compliance of private companies, consumers have grown more conscious of where they spend their money and many companies are getting external public pressures to boycott Russia.
In that sense, environmental, social and governance (ESG) and ethical considerations may also play a part in large international companies pulling out from Russia in unprecedented numbers.
These types of voluntary actions, also called soft sanctions, are very important, the Treasury Committee heard, as they increase the magnitude of the sanctions’ economic impact on Russia and send a strong collective message.
“The harm for individuals is something that governments can’t control, but in terms of messaging, and collective messaging, … I have never seen a scenario like this …where we have this level of soft sanction response,” Walker said.
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