Retailer Holland & Barrett became another casualty of the new sanctions regime against Russia at the end of March after HSBC delayed processing its interest payment on debt owed because of links to Russian oligarchs that are under sanctions.
The delay meant that the debt was not covered in time to meet the deadline for payment. Initially, HSBC refused to process the payment because of concerns over LetterOne, the London investment group that owns the retailer and is majority-owned by Russian oligarchs that are under sanctions, including Mikhail Fridman and Petr Aven.
In early March the two oligarchs resigned from LetterOne. Their stakes had been ‘frozen’ in the wake of the EU’s sanctions regime against them following Russia’s invasion of Ukraine. LetterOne has not itself been placed on the EU sanctions list, and neither Fridman nor Aven are under US or UK sanctions.
A LetterOne spokesperson: “There was no cost incurred and the matter has been resolved so will not reoccur. An interest payment (both GBP and EUR) was made by Holland & Barrett on 23 March. One of the paying agents had difficulties processing EURO payments and we worked with them to rectify this. HSBC made the payment to lenders on 31 March.
“Holland & Barrett has been and remains in full compliance with all its obligations to its lenders. LetterOne and Holland & Barrett are not subject to sanctions and have had confirmation of this from authorities both in the UK and Luxembourg.”
However, the delayed payment will undoubtedly worry onlookers that may have links, visible or otherwise, to Russia.
Russia is right on the doorstep of Europe and its oligarchs have for the past 30 years entrenched their business interests across many sectors of British life. Unpicking Russian oligarchs’ interests in Europe and the UK is proving complex and is likely to become more so.
Neil Whiley, policy lead at UK Finance, which represents the banking and finance industry, says: “The basic problem is that the Russian economy is huge – the eleventh largest in the world – so trying to implement sanctions against it is always going to be complex, and there are always going to be unintended or unexpected consequences.”
The bad news is that what happened with Holland & Barrett and its owner LetterOne is highly likely to happen again. Banks, insurers, shipping and transport businesses – as well as needing to run their own commercial operations – have to adhere to legal requirements in regard to sanctions, which have extraterritorial reach. If a bank’s operations are international, they will have to observe several different sanctions regimes, and that is proving to be costly in terms of compliance.
Experts believe that some financial institutions may decide to exit jurisdictions where they consider the cost of doing business due to new and onerous compliance measures outweighs the benefits. Reputational risk is also increasingly a factor.
“We’re coming to a point now where we’re getting to the end of the ‘easy’ to implement sanctions. And we’re going to be getting into the really difficult ones. There are a number of oligarchs that could be considered likely targets but there are loads that aren’t listed by any jurisdiction yet,” Whiley says.
It is hoped, however, that governments of Western allies will work in a more coordinated and collaborative approach when imposing sanctions in order to halt the potential for oligarchs to shift money from one jurisdiction to another, thus avoiding sanctions.
“It’s not as aligned as people might think. The spirit of the different sanctions regimes is broadly aligned, but the detailed text of law isn’t. And this is a problem for banks because they have to work across international legal frameworks,” Whiley says.
Another wish is that governments share information between each other and allow financial institutions to share information, too. For example, HSBC can’t share its own internal research on Russian oligarchs with other UK institutions. It can only share it with the UK government due to GDPR.
UK Finance’s Whiley says: “GDPR is a bit of a blocker, in some ways, for intelligence. The absolute Utopia would be sharing publicly available data, bank to bank, bank to government, government to bank and government to government, so that everybody gets everything, and listings improve and align better.”
CCAB, the collective body representing accountancy institutes in the UK, issued a joint statement in early March relating to sanctions imposed by the UK, reiterating accountants’ fiduciary and ethical obligations.
It said: “Members should therefore ensure that they are aware of and fully understand the scope and impact of sanctions which apply to their business, their staff and their clients; and that they remain up to date by checking the relevant lists of sanctions and sanctioned individuals and entities published by authorities in their respective jurisdictions.
Members should consider the need to obtain legal advice.”
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