Russia and Ukraine: what does this mean for Australian businesses?
The Russian-Ukrainian conflict may seem remote from Australia, but it can affect the management of Australian businesses in many ways. This article focuses on three key questions and discusses actions companies can take.
Avoid Sanctions Breaches
The Australian government has announced sanctions against Russia and the Ukrainian regions of Crimea, Donetsk and Luhansk. The sanctions come after Russia began a ground and air invasion of Ukraine in late February. The sanctions prohibit the export and import of a range of key goods and services, including:
- products used for oil exploration
- military/weapon products
- investment in state-owned Russian banks (specified by DFAT)
- companies and individuals providing oil exploration or military services.
Significant penalties are in place for Australian businesses or individuals who breach the sanctions. A company can be fined $2.22 million or three times the value of the transaction. Individuals can be fined $555,000, three times the value of the transaction, or jailed for up to 10 years.
Companies can take a number of steps to avoid penalties:
- identify if any of your contract counterparts, business partners, financial institutions or other members of your supply chain are on the consolidated list
- identify any existing contract or activity relating to Russia, Donetsk or Luhansk
- conduct a review assessing exactly how your products and services are used in Russia
- review the cancellation and force majeure clauses of your existing contracts.
If you have any questions regarding sanctions compliance, you can contact the Australian Sanctions Office. You can also apply for an exemption or penalty permit through the DFAT website.
The most recent sanctions for Russia will come into effect on April 25, while the sanctions for the Ukrainian regions of Donetsk and Luhansk will come into effect on March 28.
Manage reputation during conflict
Another question companies are considering during the conflict is whether they should continue doing business in Russia. Last week, Federal Treasurer Josh Frydenburg called on pension funds to review their investment portfolios and consider moving investments outside of Russia. Australia’s two largest funds, AustralianSuper and Australian Retirement Trust, have both pledged to sell their Russian investments. Australian Retirement Trust said it would offload its Russian equity portfolio and asked its investment managers not to make any new investments in Russia, Ukraine or Belarus. Australian surfwear company Rip Curl also announced last week that it would temporarily stop supplying its products to Russia. The company was acquired by the ASX-listed Kathmandu Group in 2019. Kathmandu has a network of distributors in Russia.
The decision whether or not to cease operations in Russia is ultimately up to each company. However, some key questions businesses can ask themselves include:
- What potential risks could there be for the company as this conflict continues?
- Could there be other Australian sanctions?
- Could there be sanctions outside of Australia that affect operations or investments in Russia?
- What do shareholders, customers and stakeholders think of the issue?
Support workers during the conflict
A final issue companies face in responding to the dispute is how to help affected workers. Australia’s largest games company, Aristocrat Leisure, recently announced that it would evacuate its 1,000 employees to Ukraine following the Russian invasion. The company helps its workers to resettle in Poland and in towns further away from the conflict.
Some possible actions companies can consider to support affected workers include:
- regular checks to ensure staff safety
- pay staff salaries in stable currencies such as Euro or US Dollar
- assist in resettlement where possible;
- consider alternative payment options in case of cash flow problems with Ukrainian banks.