It’s easy to think of political risk as something businesses encounter only when they go overseas; however, according to a group of experts at the 41st annual World Trade Day in Denver, due to increasing sanctions worldwide, these risks should now be on all companies’ radar no matter where they do business.
“This is a very, very serious situation that we’re facing today,” warned Deborah Palmieri, Honorary Consul General of Russia. “It’s escalating every day.”
Palmieri, along with her fellow panelists, Trip Mackintosh from Holland & Hart, Deiadra Swartz from Jeppesen Sanderson, Inc., and moderator Doug Allen from the University of Denver’s Daniels College of Business, emphasized the severity of the situation now unfolding Russia, particularly for global business.
In response to its annexation of the Crimea in March, the international community has answered with multiple rounds of sanctions. Though Russians themselves will feel the bulk of the economic effects, panelists cautioned all U.S. businesses to hedge against the intensifying geopolitical uncertainties.
“This is not business as usual. This is not even your normal round of sanctions,” Palmieri said. “This is the 100-year flood.”
According to Mackintosh, the effects of these sanctions could be far reaching, as companies are mindful to play by the rules in the international space. The United States government has begun to draw lines in the sand, forbidding U.S companies from doing businesses directly or even indirectly with sanctioned entities. When legitimate U.S. companies see these kinds of specific markers put down, he said, they’re much more likely to back 20 yards away than push the limits of these rules.
“Now you can start to see the brakes being put on in places that wouldn’t necessarily be expected,” Mackintosh said.
Apart from following domestic trade restrictions, smart Western businesses should also watch out for what Russia does next, Palmieri said. While she suspects that Russia isn’t likely to cut off its gas exports to Europe, nationalize foreign-owned enterprises, or trade in its more than $125 billion in U.S. treasuries, Russia could cause significant damage to the West by going off the financial grid. To do this, she says that Russia could scrap the petrodollar and set up a parallel market in an alternative currency.
Given these realities, she says that now is the perfect time for foreign investors in Russia to push for concessions and guarantees. “You have an upper edge right now over the Russian government in terms of keeping your business in Russia … and minimizing risk,” she said.
For Swartz, a senior compliance officer, sanctions are an everyday reality.
While her fellow panelists warned of the difficulties facing the international business community, she spoke about her company’s approach to managing them. With a footprint in all 257 countries, Jeppesen Sanderson Inc, must monitor national and local regulatory changes in real time to ensure its staff and operations don’t break the law.
Though just a handful of countries regularly make headlines for economic attacks against them, such as Russia, Iran, Syria, North Korea, and Cuba, she noted that global companies have to be conscious of sanctions coming from and pointed towards any country embroiled in a geopolitical battle. Some of these sanctions are more digestible for U.S. companies than others.
“Sanctions that we agree with are called embargoes,” said Swartz. “Sanctions that we don’t agree with are called unauthorized boycotts.”
With production located in 17 countries and direct and indirect exports reaching all ends of the globe, Jeppesen has developed a dynamic system to handle the complexities involved with monitoring international sanctions, as well as the nuances of anti-corruption and labor laws and export controls worldwide. A company like Jeppesen also has to ensure that it gets paid for its merchandise. “It’s not just about getting our products and materials around the world,” said Swartz. “We also need to receive payment for them.”
Despite these mounting challenges, particularly with Russia, panelists agreed that if a company does its research and due diligence, many of these political risks can be mitigated.
“We’re on the brink of some really serious potential conflict with Russia,” said Palmieri. “Remember history. “