Politics, Sanctions and £1m fines
As Russian President Vladimir Putin orders troops into Eastern Ukraine, the UK and US have stated that they will respond with “a barrage of sanctions” – Johnson, and a “severe economic response” – Biden.
Sanctions are one of the tools used by governments to implement their foreign policy, restricting the trade of goods and services. They can be implemented quickly, often as an alternative to less peaceful steps.
It is currently the situation with Russia and Ukraine that is creating threats of new and stronger sanctions on Russia and her affiliates, international politics creates a steady stream of new sanctions.
But what has the posturing of the US & UK governments in response to Russia’s activities got to do with Accounts Payable and the Procure-to-Pay cycle?
- This January, the UK Government passed regulations allowing stronger sanctions against Russia to be available immediately.
- Last year, the UK Government recently introduced legislation permitting fines of up to £1 million for sanction breaches
With the increasing risk of prohibited trade caused by sanctions, organisations need to plan accordingly, to protect themselves from the potential impact on their revenue. Knowing the exposure to sanctions in the supplier base is the first step towards this planning.
The speed at which sanctions can be imposed is increasing. This makes it vital for buying organisations to be vigilant with their sanction checking. If checks of suppliers against global sanctions lists are infrequent, you will be exposed to the risk of purchasing from a sanctioned entity.
The responses to our most recent survey, show that checks of suppliers against sanction lists are mostly conducted at supplier onboarding. Ad-hoc and then annually are the next most common frequencies, leaving organisations exposed to risk for prolonged periods of time.
Finally, supply chain interruptions caused by sanctions will bring significant costs. For example, sanctions placed on Russia due to its conflict with Ukraine may cause Russia to retaliate and restrict its supply of gas, fertilizer, and metals. Other sanctions already prohibit the purchase of consumer packaged goods from specific countries.
Whether with direct suppliers, or with suppliers further up your supply chain, higher costs and limited access to raw materials will lead to an increase in your supplier spend, or, in the worst-case scenario where alternative suppliers can’t easily be found, your supply chain will break.
And whenever alternative suppliers need to be sourced, often at short notice, these too need to be sanction checked to avoid penalty – a step that is often omitted in the interests of time, or under the pressure of ensuring the supply chain does not break. Most businesses acknowledge that there will be suppliers in their master supplier file that have not been checked for inclusion on any sanction list, one-time suppliers, for example.
To avoid the risks of fines and reputation damage caused by purchasing from a sanctioned supplier, and the risk of supply chain interruption caused by rapidly imposed new sanctions, it is essential that your entire supplier base is checked daily against an industry-leading international sanctions database.
As part of its Supplier Risk Intelligence platform, FISCAL provide a solution that continuously checks all suppliers in the Master Supplier File against the leading international sanctions database, alongside many other supplier checks. Contact FISCAL if you would like to hear how we can do this for you as part of your procure-to-pay risk protection.