Still Room for Russia Sanctions Escalation, KPMG Experts Say
Companies need to stay on top of their compliance because significant escalation of Russia-related sanctions is possible, KPMG experts said. The "dramatic increase in the use of sanctions and other controls" over the past two months will likely continue to expand in complexity, said Jason Rhoades, KPMG senior manager-trade and customs services, during a May 11 webinar. Because Russian behavior toward Ukraine has not changed, "we expect [the use of sanctions] to continue to grow," Rhoades said. "There is significant room still out there for [sanctions] escalation."
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The targeted sanctions have been the hardest to deal with from a compliance perspective, Rhoades said. Targeted sanctions "make sense from a foreign policy perspective ... but putting them into action is very difficult on the compliance side," he said. Tracking guidance from the Office of Foreign Assets Control and the Bureau of Industry and Security has already been challenging for compliance teams, and more State Department involvement -- either through more controls under the International Traffic in Arms Regulations or labeling Russia as a state sponsor of terrorism (see 2204180036) -- would increase the complexity. Rhoades said that he has heard "whisperings" of both possibilities.
Doing business in Russia and Ukraine "is already really tight ... but it could be made more difficult," Rhoades said. Other possibilities would be the imposition of comprehensive sanctions, "treating Russia like Iran or Syria" or additional service restrictions that would "make any cross-border transactions extremely time-consuming and inefficient."
Despite the risks of doing business in Russia and sanctioned areas of Ukraine, there are still incentives to continue, said Yatish Desai, a supply chain adviser at KPMG. "More than 2,100 U.S. companies still have at least one 'tier-1' supplier in Russia and 450 firms have 'tier-1' suppliers in Ukraine." Russia and Ukraine have 90% of the world's supply of neon, which is widely used in computer chips and semiconductors, and Russia is leading supplier of palladium and cobalt, and a major supplier of germanium, which are all used in semiconductors and other electronics. In addition, Russia is one of the primary suppliers of titanium, which is widely used in aerospace, military and medical applications, Desai said.