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Getting Caught on the Backswing – Will US Sanctions Undermine the Dollar?

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Getting Caught on the Backswing – Will US Sanctions Undermine the Dollar?

Since the Bretton Woods Agreement in 1944 there has been one currency that eclipses all others for international trade: the U.S. dollar. The dollar dominates when it comes to reserves and the settlement of trades, a hegemony that affords U.S. foreign policy incredible strength on the world stage. However, the U.S. reliance on the strength of the dollar to pursue far-reaching sanctions is also beginning to cut at the roots of that strength, as allies and global trading partners simultaneously pursue their own economic agenda and react to perceived over-reach by U.S. policymaker. 

A View from the Top

In 2019, the dollar comprised over 60% of global debt, more than 60% of global reserves for foreign exchange, and was the medium used in 40% of international payments, according to the European Central Bank (ECB). Despite the economic output of the Eurozone roughly matching that of the U.S., the euro accounted for only 20% of foreign exchange reserves and just over 20% of international debt (1).

This allows U.S. foreign policy a potency lacking in other international currencies. The Trump administration has relied heavily on this dynamic, imposing coercive economic measures on a wide spectrum of targets from Venezuela to North Korea and exponentially increasing the number of sanctioned entities. In fact, the U.S. sanctioned around 1,500 Specially Designated Nationals and Blocked Persons (SDNs) in 2018 alone, almost 50 % greater than in any other single year. 

Growing trends have become noticeable in the financial streams flowing between borders; a rise in the use of the euro, RMB and ruble as forex currencies, development of routes around the conventional financial sector, and flurry of interest surrounding the nascent potential of cryptocurrencies. The major drivers of these changes are unrelated to sanction policy and are more tied to the politicization of U.S. monetary policy or the inherent economic interests of other nations and trading blocs, including turning their own currencies into global standards. Regardless of the drivers, these developments suggest an international system ill-at-ease with the power of the dollar.

Secondary Nature, Primary Threat

The unrivaled strength of the U.S. dollar affords U.S. policymakers a weapon unavailable to any other nation. This is built on by the ‘secondary’ nature of U.S. sanctions – extending the impact of sanctions to non-U.S. entities who do business with sanctioned entities or individuals – that leaves few avenues to evade the regime. 

As virtually all dollar-denominated transactions pass through the U.S. financial system, even if just momentarily when they are “cleared,” very few businesses are able to trade with the targets of primary sanctions without themselves falling under the secondary regime. Violators are potentially liable for sizeable fines or other punishments, including being locked out of the U.S. financial system themselves. 

While this is a useful tool for closing down avenues of terrorism, crime or other illicit activity, it also means countries that disagree with the targets of U.S. sanctions must either comply or place their own industry at risk. The EU-U.S. divergence on the Iranian Nuclear deal, or on U.S. sanctions towards Cuba, are good example of this. 

This increasing sanctions activity provides the seedlings that may undermine the dollar’s strength, as it prompts allies that disagree with sanctions regimes to develop alternatives to the dollar – such as the Euro, Chinese RMB or Russian ruble. Special Purpose Vehicles, such as the EU-Russian INSTEX, are created – albeit with difficulty – to provide routes around the conventional financial system. 

Alternatives

Against this politicization of the dollar, various countries are developing alternatives. The euro is staking its claim with the development of the INSTEX vehicle and a declaration by Jean Claude Juncker, then-president of the European Commission, “to do more to allow our single currency to play its full role on the international sector” (2).

Similar gauntlets are being thrown by the ruble – Russia has been developing its own payments system since the Crimean sanctions in 2014 – and the RMB, with the Chinese Cross-Border Interbank Payment System (CIPS) launched in 2015. Given the size of the Chinese market and its growing world position, the RMB could theoretically pose a challenge to the dollar. However, the politicization of the RMB’s value – witnessed most recently in its rapid devaluation targeted at injuring the U.S. as part of the trade war – undermines its use as a global currency in the near to medium term. 

Another potential pitfall for the dollar is the development of new financial technologies, including the much-discussed Blockchain and cryptocurrencies. Such systems allow for the circumvention of the U.S. financial system and enable payments in relation to sanctioned activities, and have already have been used to facilitate illicit payments in North Korea and Iran. 

Mobile payments are also on the rise, further reducing global exposure to the dollar. However, as with other examples above, the use of some of these alternatives are being driven in significant part by illicit activity, which may lay the seeds of its own demise or limited adoption. 

The dollar’s strength on the international stage is undeniable, affording U.S. foreign policy unparalleled reach and potency. However, increasing international attention is being given to the Trump Administration’s fondness for relying on coercive economic measures in foreign policy, including the imposition of sanctions, tariffs, export controls, and investment restrictions. 

Each time a trading partner or ally objects to the U.S. policy goals but is forced to accept a new sanctions regime because of the dollar’s dominance, that dominance is eroded. While the dollar remains by far the best safe-haven for investments, backed as it is by a resilient economy and a history of stability, the potential corrosive effect of sanctions cannot be ignored. The future use of sanctions should factor in this unintended consequence and overall sanctions policy designed to ensure the long-term dominance of the U.S. dollar. 

 

Matthew Oresman leads Pillsbury Winthrop Shaw Pittman’s International Public Policy practice, carrying out high-profile activities in many of the world’s capital cities. He principally advises governments, political leaders, businesses and NGOs on achieving their most important objectives. He regularly designs and implements legal and policy solutions, including managing integrated U.S. and Europe-based initiatives. He advises global businesses on entry into emerging markets and compliance with U.S. and international regulations.

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(1)https://www.ecb.europa.eu/press/key/date/2019/html/ecb.sp190215~15c89d887b.en.html

(2) See Juncker, J.C. (2018), “The Hour of European Sovereignty”, State of the Union Address 2018 – https://ec.europa.eu/commission/sites/beta-political/files/soteu2018-speech_en_0.pdf

U.S. Strengthens Sanctions Targeting the Government of Venezuela

On August 5, 2019, the Trump Administration intensified pressure on the administration of Nicolás Maduro by imposing broad economic sanctions against the Government of Venezuela, a move that could escalate existing tensions with Venezuela’s supporters, Russia and China.  In a late-night Executive Order, President Trump announced that all property, and interests in property, of the Government of Venezuela, including its agencies, instrumentalities, and any entity owned or controlled by the foregoing, that are within the jurisdiction of the United States would be blocked.

The Order further suspended entry into the United States of sanctioned persons absent a determination from the Secretary of State. The Order also authorizes the Secretary of the Treasury to impose additional secondary sanctions on non-U.S. persons who materially support or provide goods or services to the Government of Venezuela.

Background

In January 2019, after months of economic turmoil and political unrest under Venezuelan President Nicolás Maduro, the United States formally recognized Juan Guaidó, the leader of the Venezuelan National Assembly, as the country’s legitimate head of state.  More than fifty nations followed suit, asserting that President Maduro’s 2017 reelection was illegitimate and that Guaidó was the rightful interim president under the Venezuelan constitution.

The Trump Administration followed its recognition of Mr. Guaidó as interim president with sweeping sanctions on the Venezuelan government. The measures included designating Venezuela’s state-run oil company, Petróleos de Venezuela, S.A. (“PdVSA”), as a Specially Designated National (“SDN”), thereby prohibiting U.S. persons from engaging in transactions with PdVSA, as well as transactions by non-U.S. persons conducted in U.S. dollars, unless otherwise authorized by the U.S. Department of Treasury, Office of Foreign Assets Control (“OFAC”).  (We previously summarized the PdVSA SDN designation here.)

Despite the increasing U.S. pressure, President Maduro has refused to cede power.  He retains the support of the Venezuelan military, and Russia, China, Iran, Cuba, and Turkey have continued their economic and diplomatic relationships with the regime.

Sanctions Overview

Through this new Executive Order, the Trump Administration has ratcheted up its efforts against the Maduro regime, asserting that further measures are necessary to combat “human rights abuses,” “interference with freedom of expression,” and “ongoing attempts to undermine Interim President Juan Guaidó and the Venezuelan National Assembly’s exercise of legitimate authority in Venezuela.”

However, contrary to initial press reports, the action does not create a comprehensive embargo against Venezuela (on the model of the U.S. sanctions against Iran) that would prevent U.S. persons from engaging in almost all transactions. Instead, the new measures focus on the Venezuelan government by blocking all property and interests in property of the government that are currently in the United States, will be brought into the United States, or come into the possession or control of a U.S. person. There is, however, an exception for humanitarian goods, such as food, clothing, and medicine.  The Order applies regardless of contracts entered into, or licenses or permits granted, prior to the Order.

Further, the Order could have a broad impact outside of the United States by authorizing secondary sanctions against any party determined by OFAC to “have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services to or in support of” the Government of Venezuela.  U.S. National Security Advisor John Bolton warned the day after the Order, “We are sending a signal to third parties that want to do business with the Maduro regime: proceed with extreme caution.  There is no need to risk your business interests with the United States for the purposes of profiting from a corrupt and dying regime.”

In conjunction with the Order, OFAC also revised twelve existing general licenses (“GLs”) and issued thirteen new GLs.  Notably, GL 28 authorizes through 12:01 a.m. on September 4, 2019, transactions necessary to wind-down contracts with the Government of Venezuela.  GL 31 also authorizes transactions with the Venezuelan National Assembly and the shadow government of Interim President Juan Guaidó, underscoring that the target of the action is the administration of Nicolás Maduro.

The GLs and related guidance make clear that the people of Venezuela are not the target of the sanctions.  Specifically, OFAC released a document entitled “Guidance Related to the Provision of Humanitarian Assistance and Support to the Venezuelan People,” which emphasized that “humanitarian assistance and activities to promote democracy are not the target of U.S. sanctions and are generally excepted from sanctions . . . ”  OFAC simultaneously issued four new Frequently Asked Questions (FAQs).  FAQ 680 stresses that “U.S. persons are not prohibited from engaging in transactions involving the country or people of Venezuela, provided blocked persons or any conduct prohibited by any other Executive order imposing sanctions measures related to the situation in Venezuela, are not involved.”

OFAC also issued a number of GLs to authorize humanitarian transactions and transactions necessary for communications involving Venezuela, including new GLs 24 (telecommunications and common carriers), 25 (Internet communications), 26(medical services), and 29 (broadly authorizing certain non-governmental organizations).

Further, U.S. persons in Venezuela are not targeted by the sanctions.  Section 6(d) of the Order exempts from the definition of Government of Venezuela “any United States citizen, any permanent resident alien of the United States, any alien lawfully admitted to the United States, or any alien holding a valid United States visa.”  Further, GL 32authorizes U.S. persons resident in Venezuela to engage in ordinary and necessary personal “maintenance” transactions, including “payment of housing expenses, acquisition of goods or services for personal use, payment of taxes or fees, and purchase or receipt of permits, licenses, or public utility services.”

Such measures targeting an entire government have rarely been used by the United States, and there are many questions about how the restrictions and related authorizations will be interpreted and applied.  As Bolton observed, “This is the first time in 30 years that [the U.S. is] imposing an asset freeze against a government in this hemisphere.”

Effect of the Sanctions

There has been some confusion in the media over the breadth of the measures.  Some reports have mischaracterized the Order as a “total embargo;” however, the scope of the Order is limited to property, and interests in property, of the Venezuelan government, its agencies, instrumentalities, and entities owned or controlled by these.  Because many major Venezuelan government entities have already been designated as SDNs in earlier actions, including PdVSA and the Central Bank of Venezuela, the measures appear to be only an incremental expansion of the existing sanctions program.

More significantly, the Order creates a secondary sanctions regime for OFAC to designate non-U.S. parties who continue to do business with the Maduro government.  While these secondary sanctions are most likely to target Cuban, Russian, and Chinese entities that continue to provide aid to the ailing regime, all non-U.S. persons engaging in transactions in the country should carefully assess whether those transactions could benefit the government.  In particular, companies trading with Venezuela should conduct due diligence sufficient to ensure that their counterparties are not owned fifty percent or more by the Government of Venezuela, or are not otherwise controlled by the government.

In addition, from a practical standpoint, although the sanctions only apply to Government of Venezuelan and related entities, the measures may cause financial institutions, insurers, freight forwarders and other companies – who often apply a heighted level of compliance going beyond the minimum required by OFAC – to avoid dealing with Venezuelan entities altogether.

The measures against Venezuela could also escalate existing tensions with Russia and China if the sanctions further restrict the countries’ access to Venezuelan oil.  Russia and China, which have continued to back the Maduro regime, currently import Venezuelan oil as part of a debt relief program.  China is slated to continue receiving oil from Venezuela until 2021, so it stands to suffer substantial losses if it is unable to continue the shipments.  This uncertainty comes in the midst of deteriorating relations between the United States and China due to the ongoing trade war, relations which suffered another blow this week when the Trump Administration labeled China a “currency manipulator.”

U.S. DOLLAR PROVIDES THE MUSCLE FOR ECONOMIC SANCTIONS

Money Talks

From drug kingpins to terrorists and from human traffickers to money launderers, the United States has nearly 8,000 economic sanctions in place, and the list is growing. Particularly in the post-9/11 era, the U.S. government has leveraged the global preeminence of the U.S. dollar to turn off spigots of funding for sinister activities and unwanted behaviors by state actors.

Among additional sanctions against Iran, Russia and Venezuela, The Trump administration earlier this month tightened travel restrictions to Cuba stating, “Cuba continues to play a destabilizing role in the Western Hemisphere…these actions will help to keep U.S. dollars out of the hands of Cuban military, intelligence, and security services.”

The muscle behind an array of U.S. financial sanctions derives from the reach and power of the U.S. dollar as the “lead currency” in the global economy. This status makes it possible to not only prevent U.S. individuals and companies from doing business directly with a sanctioned entity, it makes it risky to do business with third-country companies that do business with sanctioned entities. Acutely aware of their vulnerability, non-U.S. companies also frequently take steps to minimize their exposure to possible violations of U.S. sanctions lest they jeopardize their access to the U.S. financial system.

The U.S. Dollar Reigns

How strong is the dollar’s foothold in the global economy? The U.S. dollar was used in 88 percent of global foreign exchange transactions in 2016. For comparison, the euro was the medium of exchange in 31 percent of transactions in 2016, the Japanese yen in 22 percent, the British pound in 13 percent, and China’s renminbi in four percent (as two currencies may be involved in exchange, these numbers will add up to more than 100 percent).

Companies selling their goods and services outside the United States often accept dollars as payment because they can easily turn around and use dollars to pay for imported products and inputs. Or, they can hold onto their dollar revenues with confidence they are storing value.

Why is the Dollar Preferred?

The dollar is the world’s lead currency because it meets three key conditions.

First, the dollar is fully tradable and exchanged at relatively low costs. The U.S. government does not restrict the purchase or sale of the dollar.

Second, the dollar holds its value against other currencies. The United States is still considered a stable and open market economy, current tariff vagaries notwithstanding. At the end of last year, just under 62 percent of all central bank reserves were held in U.S. dollars.

Third, the United States is still the largest economy in the world, equivalent to 24 percent of global GDP. Below is a snapshot from the International Monetary Fund comparing the world’s largest economies. We have a large money supply, providing liquidity for the global economy.

Into the Arms of Another

Some have argued bad actors like North Korea will find always find ways to evade U.S. sanctions. Buyers of Iranian oil will seek alternative currencies for their transactions, both diluting the effect of sanctions and hastening reduced dependence on the dollar.

Several European countries developed a clearinghouse to enable companies to avoid the U.S. financial system in transactions involving Iran as part of their effort to salvage the nuclear pact the Trump administration pulled out of last year before restoring a slew of sanctions against Iran.

Despite initial discussions about a wider scope, Europe’s Instrument in Support of Trade Exchanges (INSTEX) will, at least for now, only facilitate trade in humanitarian goods such as pharmaceuticals, medical devices and agri-food products, all of which are already permissible under U.S. sanctions. Despite European government grumbling about being beholden to the U.S. dollar, there appeared to be little appetite on the part of European companies and commercial banks to risk U.S. penalties by using such a clearinghouse for other types of transactions.

Will the Euro or Renminbi Overtake the Dollar?

Not anytime soon.

The euro covers a large economic zone featuring sophisticated financial market institutions, but the politics surrounding continued support by members of the euro zone and unresolved debt discussions with southern states (we were talking about Grexit long before Brexit) are holding the euro back in overtaking the U.S. dollar.

Although the renminbi’s share in global transactions is still low, it should be noted that usage and overseas holdings of China’s currency by individuals, businesses and central banks has expanded in the last decade, enabling China to break through in 2016 to join the top five most-used currencies. The Chinese government is making a big push to internationalize its currency through global infrastructure investment funds associated with its Belt and Road initiative and through renminbi-denominated commodities futures contracts, among other initiatives.

China’s currency, however, is not freely convertible, its performance has been volatile, and the degree of state and private debt in China’s financial system remains murky.

The Dollar’s Achilles Heel

For the time being, most experts believe there’s no real threat to the U.S. dollar’s dominance. Europe would need to address skepticism regarding the monetary union’s future, China would need to implement significant reforms to its financial sector, and much-hyped cryptocurrencies still have long way to go to challenge the conventional system of global payments.

These are all big “ifs”. Instead, the dollar’s Achilles’ heel is of our own making. One of the biggest risks to the dollar’s long-term value is continued fiscal imbalances in the United States and the sustainability of our debt burden.

Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. She is a nonresident Senior Fellow at the Chicago Council on Global Affairs and an adjunct fellow with CSIS. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught International Trade for the last fourteen years as an Adjunct Associate Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

Update on Russia: Restrictions Expanded to New Actors, Industries

Since the beginning of August 2018, the United States has taken multiple actions that will affect U.S. trade with Russia.  The actions cover exports to Russia, doing business with Russian partners, and potential Russian investment in the United States.  These actions have added to the already challenging landscape of conducting business in and with Russia.

 

Economic Sanctions in Place Since 2014 Are Expanded Again

The United States has maintained targeted economic sanctions on Russia since 2014.  Most of these sanctions are administered by the U.S. Treasury Department, Office of Foreign Assets Control (OFAC).

These sanctions ensnare many prominent Russian individuals and entities.  They have also ensnared prominent U.S. companies: see our July 2017 blog post on penalties imposed against Exxon for Russia sanctions violations.  For an example of how sanctions have been periodically and consistently extended, see our September 2016 blog post.

There are also more recent examples.

First, in Executive Order 13,848, issued on September 12, 2018, President Trump established a process to investigate and impose sanctions against foreign parties and their agents that interfere in U.S. elections.  Under the Order, no later than 45 days after an election is concluded, if there is an indication of actions taken to interfere with the outcome of the election, an assessment must be conducted.

When the assessment is concluded, the outcome must be reported to the President, the Attorney General, and the Secretaries of Defense, Homeland Security, State, and Treasury.  Within 45 days of receiving that assessment, the Attorney General and Secretary of Homeland Security must report on whether there was foreign interference in the election.  Any party deemed to have been involved in that interference can be designated as a Specially Designated National (SDN).  As a general matter, U.S. persons cannot conduct any business with an SDN.

In addition, the Order authorizes the imposition of sanctions against the largest business entities licensed or domiciled in a country whose government authorized, directed, sponsored, or supported election interference, including at least one entity from each of the following sectors: financial services, defense, energy, technology, and transportation (or, if inapplicable to that country’s largest business entities, sectors of comparable strategic significance to that foreign government).

While the Executive Order does not say so specifically, it is safe to conclude that the Order is directed at least in substantial part toward Russia.

Second, sanctions were imposed pursuant to the Countering America’s Adversaries Through Sanctions Act (CAATSA).  (More information about CAATSA is available in our August 2017 blog post.)  Under CAATSA, among other things, the U.S. government designates parties that are affiliated with the Russian government’s defense or intelligence sectors, and can impose sanctions against persons that transact with those designated parties.

On September 20, 2018, the U.S. State Department designated 33 such parties and added them to the list of 39 parties designated previously.  Those 72 parties are listed on the CAATSA section 231 List of Specified Persons (the LSP).

There is no outright prohibition on conducting business with these 72 parties.  However, any person – regardless of nationality – that engages in a “significant transaction” with a party on the LSP is subject to sanctions, including designation by OFAC as an SDN.

What constitutes a “significant transaction” is not well-established in OFAC regulations or guidance.  But some insight was offered on September 20.  On that day, acting in concert with the State Department, OFAC designated one Chinese individual and one Chinese entity as SDNs for involvement in a significant transaction with parties on the LSP.

The designations, and additional trade restrictions imposed on these two Chinese parties by the State Department, were made because the Chinese parties were involved in a transfer to China from Russia of combat aircraft and surface-to-air missile system-related equipment. The State Department characterized this as a significant transaction which triggered designation under CAATSA, though State did not specify whether the size of the transaction, the nature of the equipment transferred to Russia, and/or other factors rendered this a significant transaction.

 

New Export Restrictions Announced Under Chemical and Biological Weapons Law

On August 6, the State Department announced its determination that the government of Russia used chemical weapons in England in an effort to assassinate Sergei Skripal, a former Russian spy, and his daughter.  The determination was made pursuant to the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (the CBW Act).

On August 27, acting in accordance with the CBW Act, the State Department announced the following restrictions on Russia:

-Termination of sales to Russia of defense articles and defense services, including termination of existing licenses for exports of such articles and services, except for exports in support of government and commercial space activities; and

-The prohibition on exports to Russia of commercial products and technology (e., items controlled for export under the Export Administration Regulations) subject to national security controls, with exceptions for certain exports specifically authorized under new licenses and specific license exceptions.

The State Department also imposed limits on certain financial assistance and aid for Russia.

The restrictions, which will remain in place for at least one year, augment existing restrictions on exports to Russia of certain oil and gas exploration equipment and exports to military end-users and for military end-uses.

 

Russian Investment in United States Likely to Be Subject to Greater Scrutiny

In August 2018, President Trump signed the Foreign Investment Risk Review Modernization Act (FIRRMA) into law. FIRRMA expands the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS) to review more types of transactions for potential national security concerns.

Much attention has understandably been paid to the impact that FIRRMA will have on investment from China. The impact on investment from Russia is likely to be significant, too.

For one, FIRRMA specifically contemplates scrutiny of investments originating in countries of “special concern.” In addition, the new law anticipates careful review of transactions that could create or expose U.S. cybersecurity vulnerabilities, including if the acquisition could facilitate election interference.

Russia is one of the countries that will be most impacted by these new provisions. Moreover, Russian investment in the United States will likely trigger CFIUS interest simply given how aggressively the Trump Administration has used national security as a basis for implementing trade restrictions. (In one particularly obscure example, OFAC recently emphasized how North Korea is using a large number of North Korean laborers in Russia to evade U.S. sanctions.)

 

Conclusion

We do not foresee the U.S. government easing trade restrictions on Russia anytime soon. To the contrary, we believe the U.S. government will continue to expand restrictions on Russia using mechanisms such as those described in this article.

It is therefore essential for companies to fully understand the scope of their Russia business. Screen transaction parties against the U.S. government restricted and prohibited parties lists, including – now – the LSP. Recognize that many U.S. exports to Russia are restricted based on the recipient or end-use of the product. Beware that Russian investment in the United States may face extra scrutiny.

Unfortunately, due diligence on Russian counterparts presents unique challenges. The ownership and organizational structures of such entities can be convoluted and obscure.  Accordingly, if a company has any reason to think a Russian business partner is affiliated in any way with a sanctioned entity, it is essential to enlist expert assistance to fully tease out ownership and control before proceeding.

Thad McBride is a partner in Bass, Berry & Sims PLC’s Washington, D.C. office in the firm’s International Trade Practice Group. They focus on counseling clients on compliance with economic sanctions and embargoes, US export regulations (ITAR and EAR), and the Foreign Corrupt Practices Act (FCPA). He may be reached at tmcbride@bassberry.com.

 

 

Moscow Targets McDonald’s Charity Operation

Los Angeles, CA – Ronald McDonald House Charities is the latest target of Moscow’s campaign of investigations into the Russian operations of global fast food giant McDonald’s.

Russian authorities are reportedly preparing to level tax evasion and money laundering charges against the charity, which operates a sports facility for physically and mentally disabled children in Moscow, and a residential facility near a children’s hospital in Kazan, 450 miles east of Moscow.

In an interview with the Washington Post, Russian Duma legislator Andrei Krutov said, “They use donations from ordinary Russians, so that is why we want to know how this money is spent. I am talking only about financial aspects of their activities, and technical questions about their work. We do not want you to think that we have political reasons for doing this.”

In August, Russia’s consumer protection agency ordered four of the company’s largest restaurants to suspend operations over a host of alleged hygiene violations and shortly afterwards added another five to the list.

Since then, 12 restaurant in Russia have been closed for alleged “sanitary reasons” while more than 200 unscheduled hygiene and safety “inspections” have been carried out.

Last week, nine more McDonald’s outlets – four in Moscow, two in Yekaterinburg, two in Volgograd and one in Sochi – were “temporarily” shut-down.

The latest move subjects more than half the McDonald’s franchises in Russia to government scrutiny.

McDonald’s Russia issued a statement on its website over the weekend saying that, “Right now, more than 200 probes have been initiated,” adding that a Russian court had extended the government’s temporary closure of the initial nine restaurants and added that it would appeal against the decision.

The company, which opened its first restaurant in Russia in 1990, has 450 restaurants across the country, more than 100 of which are in Moscow and the surrounding region. More than 60 are in St Petersburg and the surrounding region, the country’s second big metropolitan area.

Moscow’s investigation campaign is seen in the West as a slap-back at the economic and financial sanctions and executive orders put in place earlier this year by the US in response to Russia’s seizure of the Crimea and continued incursions into neighboring Ukraine.

10/20/2014

Exporters to Russia Face Increased Payment Risks

Los Angeles, CA -Russia is currently experiencing a slowdown in economic growth, and the situation is most likely to deteriorate further as a result of the newly imposed sanctions, according to a new country analysis report issued by The Atradius Group, the Netherlands-based global risk management firm.

Atradius is observing an impact across all sectors in the form of decreasing domestic demand, a weaker ruble exchange rate, a rise in inflation, limited access to external financing and international capital outflow.

Exporters to Russia “could experience an increase in payment delays and defaults with some sectors expected to be more affected than others,” the report said.

Russian sanctions on imports of food and agricultural products “will hit the food sector, in particular the fish, meat and dairy subsectors, with a negative impact on the whole value chain, while sectors dependent on consumer demand, such as the consumer durables and consumer electronics sectors are also expected to see further slowdown,” it said.

In addition, the report said, US and EU sanctions on financing are expected to put a toll on Russian businesses dependent on financing.

The oil and gas industry “is still performing well thanks to high commodity prices, but businesses in other strategic sectors such as metals and mining are suffering, and may not be able to refinance their large debts. While the Russian government is ready to provide financial support, its reserves, though ample, are limited.”

Some sectors, however, such as the pharmaceuticals sector, “are expected to be less impacted and local agricultural production could even benefit from restrictions on food imports,” the report said.

“In case of price controls, however, business profits may be hit with higher costs that cannot be transferred to consumers in such cases,” the report concluded.

09/23/2014

 

 

All-Out Ban Urged on Russian Seafood Imports

Los Angeles, CA – A number of companies from Alaska’s $6 billion seafood industry are voicing their support for a ban on Russian seafood imports to the US, while urging Moscow to rescind its August ban on US food imports.

Such a move, they say, “would not only further squeeze Russia’s faltering economy as Russia threatens European stability, but would support America’s sustainable, high-quality fisheries.”

Companies calling for the action reportedly include some of the largest seafood producers in the Pacific Northwest including Alaska General Seafoods, Alyeska Seafoods, Icicle Seafoods, North Pacific Seafoods, Ocean Beauty Seafoods, Peter Pan Seafoods, Trident Seafoods, Westward Seafoods, and UniSea Inc., all based in Washington state, as well as the entire membership of the Alaska Bering Sea Crabbers Association.

The proposed US ban, the group says, would remain in effect “until Russia rescinds its ban on US imports, and would include mechanisms to prohibit all seafood imports of Russian origin, including Russian-caught seafood that is transferred through other countries such as China before reaching the US.”

Hundreds of millions of dollars of Russian seafood imports are sold in the US every year, with much of the imported Russian fish coming through China.

The Alaska seafood industry is seeking support from the state’s Congressional delegation for the ban, as well as from the Office of the US Trade Representative, while also seeking diplomatic efforts to immediately end Russia’s ban on US seafood products.

Russia has been a major market for US seafood products such as salmon roe, hake, Alaskan pollock, and others, while the US has been an important market for Russian products including crab, Russian pollock, salmon, and caviar.

According to the US Department of Commerce, sales of food and agricultural products to Russia amounted to $1.3 billion in the first five months of this year with more than $86.5 million of that was from US seafood, including shrimp, hake, sole and sardines. The majority of that — $46.4 million — was salmon roe, used for Russian red caviar.

“We did not start this fight, and we hope the Russians will call off their embargo,” said Terry Shaff, president & CEO of Washington-headquartered seafood producer UniSea Inc.

But, he said, “a US ban will signal to President Putin that America will not sit idly by while Russia disregards international law and tries to coerce the world into ignoring its transgressions through retaliatory actions,”

09/19/2014

USCOC, NAM Oppose More Sanctions on Russia

Washington, DC – In a major policy shift, the US Chamber of Commerce (USCOC)  and National Association of Manufacturers (NAM), two of the largest business groups in the US, have publicly come out in opposition to the sanctions imposed by the White House on Russia following that country’s February military incursion into neighboring Ukraine.

The groups ran newspaper advertisements last week in several publications including the New York Times, Wall Street Journal and Washington Post, asserting that “the only effect” of additional sanctions would be “to bar US companies from foreign markets and cede business opportunities to firms from other countries.”

Both groups had, previously, confined their opposition to the sanctions in a series of private meetings with Obama Administration officials.

The ads ran under the headline, “America’s Interests Are at Stake in Russia and Ukraine“.

Its text read: “With escalating global tensions, some US policymakers are considering a course of sanctions that history shows hurts American interests. We are concerned about actions that would harm American manufacturers and cost American jobs. The most effective long-term solution to increase Americas global influence is to strengthen our ability to provide goods and services to the world through pro-trade policies and multilateral diplomacy.”

Jay Timmons, NAM president and CEO, wrote, “History shows that unilateral sanctions don’t work. President Reagan recognized this reality three decades ago when he lifted the ineffective grin embargo on the Soviet Union.”

The only effect of such sanctions, Timmons said, “is to bar US companies from foreign markets and cede business opportunities to firms from other countries. It’s time to put American jobs and growth first.”

US workers and industries, wrote USCOC President and CEO, Thomas J. Donohue, “pay the cost of unilateral economic sanctions that have little hope of increasing the United States ability to achieve its foreign policy goals.”

Both the US and European Union have imposed penalties against Russian companies, as well Ukrainian supporters of the separatists with Russian President Vladimir Putin threatening to retaliate against US and European companies if broader sanctions are imposed.

US officials have said that the current sanctions now in place have fueled a record $60 billion capital outflow in the first quarter of this year, as well as losses in Russia’s stock market and currency.

The Ukrainian government, the US and its European Union allies say Russia is fueling the conflict by providing manpower and weapons including tanks and anti-aircraft missiles to separatist rebels in Ukraine.

07/08/2014