Russia and Ukraine: What does it mean for Australian companies?

The Russia/Ukraine conflict can seem far away from Australia, but there are many ways that it can affect the management of Australian companies. This article focuses on three key issues and discusses actions companies can take.

Avoiding sanction breaches

The Australian Government has announced sanctions for Russia and for the Crimea, Donetsk and Luhansk regions of Ukraine. The sanctions come after Russia commenced a ground and air invasion of Ukraine in late February. The sanctions prohibit the exportation and importation of a range of key goods and services including:

• products used for oil exploration
• military/arms products
• investment in publicly owned Russian banks (specified by DFAT)
• companies and individuals providing oil exploration or military services.

There are significant penalties for Australian companies or individuals that breach sanctions. A corporation can be fined $2.22 million or three times the value of the transaction. Individuals can be fined $555,000, or three times the value of the transaction or face imprisonment for up to 10 years.

There are a number of actions companies can take to avoid sanctions:

• identify whether any of your contractual counterparts, trading partners, financial institutions or other members of your supply chain appear on the consolidated list
• identify any existing contracts or activities relating to Russia, Donetsk or Luhansk
• conduct a review assessing exactly how your products and services are being used in Russia
• review the cancellation and force majeure provisions of your existing contracts.

If you have any questions regarding sanction compliance you can contact the Australian Sanctions Office. You can also apply for an exemption or sanctions permit through the DFAT website.

The most recent sanctions for Russia will come into effect from 25 April, while the sanctions for the Donetsk and Luhansk regions of Ukraine will come into effect from March 28.

Managing reputation during the conflict

A further issue companies are considering during the conflict is whether to continue business activities in Russia. Federal Treasurer Josh Frydenburg last week called for superannuation 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 committed to selling their Russian investments. Australian Retirement Trust announced it will offload its portfolio of Russian equities and instructed its investment managers not to make any new investments in Russia, Ukraine or Belarus. The Australian surfwear company Rip Curl also announced last week that it will 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 on whether to cease operations in Russia is ultimately one for individual companies to consider. However, some key questions companies may consider include:

• What possible risks could there be to the company as this conflict continues?
• Could there be further Australian sanctions?
• Could there be sanctions outside of Australia, which effect operations or investments in Russia?
• How do shareholders, customers and stakeholders feel about the issue?

Supporting workers during the conflict

A final issue companies are addressing in response to the conflict is how to assist affected workers. Australia’s largest gaming company Aristocrat Leisure recently announced that it will evacuate its 1000 staff in Ukraine following the Russian invasion. The company is assisting its workers to re-locate into Poland and cities further away from the conflict.

Some possible actions companies may consider in supporting affected workers include:

• regular check-ins to ensure staff safety
• paying staff salaries in stable currencies such as Euros or US dollars
• assisting with relocation where possible;
• considering alternative payment options in case of cash flow issues with Ukrainian banks.