Are sanctions against Russia working?

Sanctions against Russia over the war in Ukraine could be in place for years, but as the war in Ukraine rages on, how will we know if they’re having an impact?

Photo: AFP

It’s almost 100 days since parliament unanimously passed the groundbreaking Russia Sanctions Act, in response to Vladimir Putin’s war in Ukraine, but companies’ efforts to sever ties with Russia are dragging on. 

“Some companies remain in Russia because it’s very difficult to exit,” says sanctions specialist Sarah Salmond, partner at law firm Minter Ellison Rudd Watts. 

Some can easily pull out of the Russian market, but a number of businesses have ongoing relationships. 

“They might have a distribution network in Russia, they may have investments, they may have a physical presence in Russia, and it’s not possible to wind that down instantly.” 

According to media reports, sanctions imposed by Western countries and the exodus of more than 1000 multinationals are starting to bite hard in Russia. GDP is expected to decline by double digits and inflation is forecast to hit 20 percent by the end of the year.  

The sanctions also come at a cost to the governments, banks and companies involved, and Salmond says the number of New Zealand entities caught up is surprising. 

She explains to The Detail the sanctions are likely to be in place for many years and it will be at least a generation before ties with Russia are restored,. 

New Zealand’s impact is small by global standards, but complicated. 

“There’s a constantly moving set of rules that corporates need to comply with, so they constantly need to tinker with what they’re doing,” Salmond says. 

For example, a Kiwi fund with investments in Russia may have wanted to exit the market once Russia invaded Ukraine. It’s become increasingly difficult, Salmond says, because Russia’s imposed capital controls which have stopped people getting the money out. 

Then there’s the difficulty of finding a new investor who wants – and is allowed – to buy the securities or shares. 

“It’s been an ongoing process for New Zealand corporates with those investments to work out can we divest, and if we do how will we do that?” 

Salmond describes the ‘oligarchs taskforce‘, which is one of a number of joint ventures between countries imposing sanctions. It’s work normally done by the United Nations, but it’s been unable to step in because Russia has vetoed action. 

The costs and resources involved in implementing sanctions are substantial, Salmond says. The Ministry of Foreign Affairs and Trade, for example, has increased its sanctions team from one to 100. 

“You’ve also got officials at the Financial Markets Authority looking at this, the Reserve Bank. You then have every bank that has a sanctions compliance team, which is spending a huge amount of their time doing sanctions, legal teams with many of the big import and export companies and insurance companies. 

“There’s a lot of money being spent on this.” 

Salmond says the sanctions are constantly being tweaked and revised, and Kiwi companies which continue to do business with Russia could take a much bigger hit from the US if it decides on a secondary sanctions regime. 

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