| Sanctions in International Financial Services - a new era for Irish FS |
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| The Sanctions imposed following the Russian invasion are the most comprehensive and severe ever, involving the financial services sector, and have resulted in a rapid learning experience for Government,regulators, and those with executive responsibility in the financial services industry. In this feature we survey the overall philosophy and legal implications of the sanctions as they affect Ireland’s IFS industry in particular. |
Since the first incursion by Russia into Ukraine on February 20th 2022, the EU has reacted swiftly introducing, by the end of March its seventh rounds of sanctions, gradually widening and tightening the restrictions on financial companies and individuals.
The Central Bank of Ireland has issued regular updates, the latest being on March 24th.  | | Taoiseach Micheal Martin:?'We will support the imposition of comprehensive and severe sanctions on Russia'. |
Ireland’s corporate, professional services, and financial services sectors have been involved in various ways. This is inevitable, given that Ireland, as measured by UNCTAD, is the eight largest exporter of financial services in the world.
This manifests itself in the size of the investment funds industry, the Irish aircraft leasing industry, and corporate legal and administrative services, for example in securitisation vehicles using Irish structures.
Ireland's IFS sector is a significant constituent of the global financial community and an integral part of the ecosystem supporting and enforcing the sanctions of the EU and its global partners to degrade Putin's military aggression against the people of Ukraine. The initial sanctions that were imposed involved the Irish IFS and aviation finance sectors and employed detailed KYC ('Know Your Customer') applications to design forensic sanctions with maximum effectiveness, aimed in the process at mitigating ‘friendly fire’ costs to sanctioning states and limiting the impact indeed on other other innocent parties, this latter including Russian citizens themselves.
This targeted effectiveness particularly aimed towards the economic community surrounding Putin, and calibrated targeting of the most effective elements in introducing a shutting out of Russian financial elite and banking elements in SWIFT system sanctions, for example.
Four days after the invasion, on February 24th the Taoiseach Miche?l Martin said: 'We will support the imposition of comprehensive and severe sanctions on Russia'. The Irish Government, representatives of the Government parties, and opposition TDs subsequently declared support for the fullest sanctions to be introduced by the EU. This legally obliged financial institutions domiciled in Ireland and other IFS companies to provide their full support for the sanctions as they are implemented.
This also applies at the level of individual executive level accountability.
An assessment of the scale of Ireland's Direct Financial Links to Russia by Economic Sector was published by the Central Bank of Ireland on March 4th.
Focussing primarily on the breakdown of assets held, the study found that the overwhelming proportion of such Russian linked assets are held in Special Purpose Entities (SPEs), specifically 33 identified remaining, as of December 31st 2021. (By contrast private Irish households held just €1 million worth of Russian assets). The total value of Russian assets in Irish SPEs has dropped by more than a third since 2016, the study shows, from c.€57 billion, to €37.1bn at the end of December 2021. "The assets and number of Russian sponsored SPEs have declined since 2016, largely due to vehicles sponsored by banks, with some unable to issue new debt after the introduction of sanctions in 2014.", the paper says. | | Ireland's IFS sector is a significant constituent of the global financial community and an integral part of the ecosystem supporting and enforcing the sanctions of the EU and its global partners to degrade Putin's military aggression |
The paper identified €49 billion of Russian assets, (aside from the aforesaid €1m in household assets), on the balance sheets of Irish incorporated structures, including Investment Funds, (€11bn, out of a total of €3.8 trillion), insurance and pension funds, and direct bank lending, mostly by Irish incorporated international banks (€1.1bn).
Proportionally, the Russian SPE exposure (€37 bn in 33 vehicles) is a small fraction of the total number and value of Irish SPEs (33 out of 1,800 SPEs in Q4 2021, or 1.8%). By value this represented 3.6% of the total value of SPEs in Ireland at December 31st of €1.03 trillion.
A number of Irish firms in the professional services and IFS space have initiated actions since the invasion to distance themselves from Russian business and oligarch connections in line with international sanctions as the Russian invasion of Ukraine continues.
In reaction to the invasion, the EU has adopted a wide range of restrictive measures against Russian individuals and entities in order to cripple Russia’s ability to finance the war. Beyond individual asset freezes, travel bans and visa restrictions, these restrictive measures comprise far-reaching trade restrictions in a number of economic sectors, as well as restrictions for activities in the financial sector. In order to facilitate economic operators’ compliance with the restrictive measures, the Commission has provided a website, which continuously updates the sanctions measures as they are developed. This is available at the following web adddress: https://ec.europa.eu/info/business-economy-euro/banking-and-finance/international-relations/restrictive-measures-sanctions/sanctions-adopted-following-russias-military-aggression-against-ukraine_en#finance |
This article appeared in the March 2022 edition of Finance Dublin.
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