What Does the War in Ukraine Mean for Businesses?
We asked Prof. Paul Bracken, an expert on business and defense strategy, about the risks that corporate leaders should consider as the Russian invasion and the resulting sanctions unfold.
A civil defense guard in Kyiv, Ukraine, on February 26, 2022.
What are the implications of the Ukraine invasion for business leaders?
Most attention is obviously on the diplomatic, military, and humanitarian aspects of the conflict. But there are huge implications for multinational corporations. Companies need to have some way to immediately review their compliance with the new sanctions and technology controls that are really significant.
I recommend having a checklist of questions senior leaders should put to their departments about potential violations of these regulations. Next, leaders should play out scenarios of different possibilities in terms of their brand image and how the media could handle any real or perceived violations.
What are the risks a company could face?
There are significant political risks to a multinational company that are getting a lot more attention from the EU, U.S. Department of Justice, and among state regulators.
“You cannot let your legal department own this issue. They usually overlook broader strategic and political dimensions of crises.”
If anyone thinks that these risks are unimportant, just look at the Credit Agricole case. They are a French investment bank that ran $32 billion of payments from Sudan, Cuba, and others through their New York office. In 2015, the beefed-up U.S. surveillance systems to enforce sanctions found multiple violations by Credit Agricole. They wound up paying nearly $800 million in fines to U.S. and state regulators. There was an enormous negative impact on their reputation.
Pleading ignorance of violations of sanctions is not a viable defense strategy for a company. This is controversial, I know, but it’s what I advise companies. You cannot let your legal department own this issue. They usually overlook broader strategic and political dimensions of crises.
The White House announced today that ‘selected Russian banks’ will be blocked from the SWIFT banking network. What will that mean?
Moscow will increasingly turn to other countries to move money and get technology. The China-Russia connection is the most important. A U.S. company doing business in China had better understand that dealing with a Chinese company that, in turn, deals with a Russian company could drag them into a huge sanctions violation debacle. Given that most of the mainstream media is hostile to big business in the first place, and especially hostile to big tech, firms in finance and technology need to map out their exposures and devise a game plan to deal with them. I think the big accounting firms who sign off on audits are also going to get a lot more attention from regulators and politicians.
This article was updated after the White House announcement on the evening of February 26.