War between Russia and Ukraine - Also a Disaster for the Metal Industry

The world is holding its breath; for the first time since the end of the Second World War, wars of aggression are being waged again in the middle of Europe. In addition to the terrible impact on the people in both countries, this is also causing considerable difficulties for the economy. The fact that Russia plays a central role in the procurement of raw materials makes the unpredictable situation a significant risk for the metal industry.

Features

In response to the Russian invasion of Ukraine, the EU has adopted a series of extensive sanctions, some of which directly affect the industry. For example, extensive restrictions apply to trade with Russian companies insofar as sanctioned individuals and/or organizations are found in their ownership structures. This particularly affects a number of raw materials suppliers whose owners, often the so-called oligarchs in the Kremlin's entourage, are either already sanctioned or at least pose a significant risk of this. In addition, further considerable risks arise from the purchase of raw materials from Russia and also from Ukraine. In this regard, this article discusses an overview of the current challenges in trade activities with certain companies within the scope of the German legal framework, based on the information provided to us by the Federal Office of Economics and Export Control (BAFA).  


Who is considered sanctioned?

The sanctioned companies and persons are listed in detail by the EU. According to BAFA, the relevant factor is which natural or legal person (ultimate beneficial owner) has a "controlling influence". As soon as a sanctioned person organization can de facto be assigned more than 50% the shares of the company, it is also considered sanctioned. 

 

What are obligations as a company?

According to BAFA, if there is an initial suspicion, a supplier must be checked immediately with regard to its ownership structure. A proactive search of all suppliers is currently not necessary. If this search comes to the conclusion that it is a sanctioned company, or if this suspicion cannot be dispelled, maintaining the business relationship leads to criminal liability. This also applies to (framework) contracts concluded before the sanctions came into force, if, for example, individual orders have to be triggered separately. In cases where obligations are provided under existing contracts, these must be approved by BAFA on a case-by-case basis.

 

What risks are there apart from sanctions?

In addition to the considerable legal risks associated with the sanctions, Russia's increasing isolation and the destruction in Ukraine give rise to further risks that make it difficult or impossible to maintain a stable supply chain. Important transport routes by sea, land and air have now been cut off; Russian ships, for example, are no longer allowed to call at ports in the United Kingdom. Russia has also been cut off from international payments, and a number of banks no longer finance Russian materials. Ukraine, too, can hardly be reached any more, and war damage to relevant infrastructure and to businesses themselves can be expected at any time. In addition, the potential damage to the company's reputation resulting from maintaining business relations with Russian suppliers should not be underestimated, and in the worst case scenario this could well lead to a loss of orders.

 

What action takes Metalshub?

All of this poses significant challenges to companies in the metals industry. Therefore, Metalshub is taking action towards supporting its customers to ensure safety and stability in their supply chains. In the past few days, we have conducted a comprehensive review of all high-risk-companies, and from now on we will highlight all companies that refuse to disclose their ownership structure. We guarantee that all organizations trading on Metalshub are sanction-free and ensure this continuously. To maintain stability in supply chains, it is now necessary to quickly find alternative sources of supply. Metalshub is the right place to go for this as well.

 

The Metalshub team is always available to answer your questions and concerns about the impact of the war between Russia and Ukraine on the metals industry.

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