EU-Russia Sanctions: Can I Still Get Paid?
Receiving payment may be more difficult than you think. Here are some things to think about before signing a contract.
The EU Council voted to impose a sectoral ban on financing the Russian Federation, its government, and its Central Bank.
The EU sanctions package is intended to target banks that finance the Russian military and other actions in those regions, to target the Russian state and government's ability to access the EU's money and financial markets and services, and to restrict funding of escalatory and aggressive measures.
What impact does the SWIFT restriction have on Russian and Belarussian banks?
The restriction inhibits seven Russian and three Belarussian banks from utilising SWIFT to make or receive foreign payments.
SWIFT is not allowed to be used by seven Russian banks and three Belarussian banks. SWIFT is a messaging service that greatly simplifies the flow of information between banks and other financial organisations. SWIFT links around 11 000 businesses throughout the globe.
As a consequence, these banks are unable to get foreign currency (a transfer of foreign currency between two banks is often conducted as a transfer overseas through a foreign intermediary bank) or move assets abroad. This has a detrimental impact on the Russian and Belarussian economies.
Technically, banks might conduct international transactions without SWIFT, but it would be costly, difficult, and would need mutual confidence between financial institutions. It transports payments back to the days when each transaction was confirmed by phone or fax.
In actuality, what do the sanctions imposed on Russia's National Central Bank mean for businesses?
The European Union has outlawed any transactions with the Russian Central Bank concerning the administration of the Russian Central Bank's reserves and assets. Because of the central bank asset freeze, the central bank no longer has access to the assets it has kept in EU central banks and private entities.
Russia's overseas reserves were at $643 billion (€579 billion) in February 2022. Having foreign currency reserves, among other things, helps to keep a country's own currency's exchange rate constant.
It is anticipated that more than half of Russia's deposits are frozen as a result of the embargo on transactions with the EU and other nations. Other nations (including the United States, Canada, and the United Kingdom) that hold a portion of Russia's foreign reserves likewise enforced the restriction.
As a result, Russia is unable to utilise this buffer of foreign assets to supply liquidity to its banks, so mitigating the consequences of other sanctions. Even Russia's gold stockpiles look to be more difficult to sell as a result of international sanctions impacting Russian enterprises.
The sale, supply, transfer, and export of euro-denominated banknotes to Russia has also been forbidden by the EU. The goal is to restrict access to cash in euros by the Russian government, its Central Bank, and natural or legal persons in Russia in order to prevent sanctions from being circumvented.