How One Company Is Finding Exiting Russia Very Complicated

ItUnprecedented numbers of Russian companies declared that they would suspend operations in Russia after the conflict with Ukraine. However, announcing your departure is not the same as actually closing down a business in an advanced G8 economy. TMF Group was one of those companies to announce a withdrawal. It provides compliance and administration services for corporations who want to conduct business abroad. There are 125 locations worldwide. It also provides services in Russia and Ukraine, including helping foreign investors in Russian bonds.

Mark Weil, CEO of TMF Group announced in February that TMF Group would be closing down any Russian work and will not accept any new Russian clients. However, he would still continue serving existing Russian clients. But it has been more complicated than he thought, partly because of the maneuvers companies have made to camouflage their Russian origins, partly because different nations have different rules about sanctions and ceasing operations and partly because it’s not always easy to find out who really owns a company. TIME spoke to him about the management of his company’s process.

(This interview has been condensed and edited to make it more concise.

Three months have passed since your announcement of Russia’s withdrawal. How’s it going?

The sanction side is the easy bit because we have no choice; it’s a legal process. The much harder bit was the decision I took that if you’re a Russian UBO [Ultimate Beneficial Owner, the term for the entity who actually controls or derives the benefit from the company’s operations]We are ready to go. Having now worked on it for the last month, the definition of who’s a Russian and who’s a UBO turn out to be not so clear. Every jurisdiction uses different definitions for a UBO. Sometimes you get a German public company, which has a minority Russian shareholder, so it might have been their company, but they’re no longer technically the UBO. Or they’ve got lawyers advising them on how they transfer the ownership to friendly but non-Russian parties. That “derussification” process can be perfectly legitimate and the company no longer has much to do with Russia. It could also be a kind of smokescreen, not really affecting the UBO; it’s a technical maneuver with clever legal advice. We’re not a law firm, and to unpick that is quite complex.

And then the ‘who’s a Russian?’ bit is also quite fraught. I believe the Dutch government is introducing a law about our industry not working with Russians, but they’ve said if they’ve got a dual passport, they’re not Russian anymore. I think it’s too simple a test. There’s the whole question of what do you do about somebody with multiple passports, or indeed, who no longer has a Russian passport, or may not even be Russian but made their money in the regime, or is a Russian but is a dissident. About 80% are pretty clear cut; we’re not going to hang around. Maybe 10% are sanction cases and that’s again clear, you have to freeze [their assets.]. And then about 10% we’re putting through a process, which I chair, where somebody in our firm locally can say I think this client deserves a fair hearing. It’s not an easy process. We’re not the Court of Human Rights. And we have to do it at some pace, and try and make decisions we can live with on the basis of the evidence we have, but it’s quite onerous.

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My parents fled to England as refugees. So saying, ‘Sorry, you’ve got a Russian passport, you’re done’ feels a little bit harsh. One of our clients was a reasonably high profile dissident and I wouldn’t feel terrific saying to that person, ‘You’re out.’ I think it was the right thing to do. In some ways, it’s a useful exercise. But I will say if lots of governments around the world started saying, ‘you mustn’t do business with clients who look like this or have this kind of passport,’ I hope they’ve thought it through because it’s really not easy to do it correctly and fairly and legitimately.

Are you seeing a lot more exits from Russia in your client base than usual?

They may not be making these decisions. This takes some time. There’s often quite a slow process, if they did decide to unwind from Russia.

Reports have surfaced about the mass exodus elite educated Russians. I wondered if you’ve seen any?

Yeah, we’ve seen some of that. The problem with this process is that no one is still. They’re not stupid. Since [the Russian invasion of] Crimea in 2014, a lot of Russians saw what was coming and did things to act upon the sanctions that appeared at that point, and they’ve been acting on them since and have acted on them again with this impetus. So it’s like shooting a moving target. I say, ‘O.K., we’re exiting Russian [firms]’ and you say, ‘Well, wait a minute, they’re about to sell to a French or German or British concern or they’re winding down their shareholding.’ So do we exit or do we wait a few weeks to see whether they actually deliver on what they say? If you’re a big Russian conglomerate bank, there’s not so much you can do. If you’re Gazprom you’re Gazprom. Many have made efforts to stop being considered a Russian UBO. It’s obviously to do with access to banks and markets and whatever. That’s a very real thing. And we are trying to manage it by asking ‘O.K., if the client says they are taking legitimate action to no longer be part of a Russian enterprise, do we agree it’s legitimate? What date will this have occurred? Will we be willing to wait for confirmation that it happens? And when’s the drop dead date?’ That’s what we’re running through.

Is it possible to determine if the Russians have disinvested legally?

If somebody’s clearly putting in place clever structures and intermediaries that aren’t Russian, and there’s a structure in the British Virgin Islands and so on, we would absolutely still want to exit. Every situation has been unique so far. They have some quite clever, imaginative advisors helping them and part of our problem is to form a view in a sort of court of common sense: is that a fundamental ‘goodbye to Russia’ in their ownership structure? Is it more strategic, reversible and to circumvent sanctions? I don’t have a rulebook for that. There’s a small number, typically that middle tier of corporates who aren’t so obviously part of the Russian state, where we’re working hardest to stay on top of what they’re proposing and whether we think it passes the sniff test. What we’re trying to get at is who’s actually owning and controlling that business; who’s really making the decisions? And I could hire lawyers to figure it out, but then we’d still be here next year.

Have you noticed a major financial change in your company?

It’s bearable. Our colleagues in Ukraine needed something. Do you think it is more expensive that I anticipated? It’s not. I mean, there’s an opportunity cost because rather than spending my time working out how we serve our clients, better grow the business, invest in digital data, all the exciting stuff, I’m running a process on the negative to say, why shouldn’t we exit this client? There are 125 of us in the world. Every office could be home to a Russian client. This isn’t something I enjoy.

Have there been anything unintended consequences, anything that you didn’t expect?

One complexity is that obviously not everybody respects everyone else’s sanctions. One of our Russian clients is in Hong Kong. We say ‘Ah, they’re on the U.S. sanctions list.’ Well, Hong Kong doesn’t recognize U.S. sanctions so they don’t care. So we say ‘well, we kind of do.’ So we still exit but essentially for convenience.

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So they’ll just find a local Hong Kong compliance firm?

Actually, that’s an interesting point. My view is that we’re a regulated company, we have a pretty rigorous KYC [Know Your Customer standard]. If we’re rejecting a Russian client, how can they then just go somewhere else? There ought to be some policy that says if they’ve been rejected by one of you, that’s the kind of if not a red card, at least a yellow card. The risk of a Russian client being expelled in, for example, the Netherlands is that they will set up their own business and manage it in a small office next to the canals. I think there’s a sort of bit of catch up required on the policy side.

What do you think about the impact of sanctions?

In the area that we are dealing with, which is more to do with making life harder for those who got wealthy off the regime, I think it’s having some effect. Those are the people who are used to being wealthy and traveling the world and having all the benefits and services of Western economies can provide—we’re one of those—and my sense is taking that away might only be an irritant, but the accumulation of irritants is what leads to pressure. I understand that a number have gone to Dubai or wherever, so they’re just moving, and you could argue it’s tokenism. But it’s more than that. Friends of mine who are Russian and in business are pretty caught up about the reputational impact of Russia and their standing in countries where they they’ve made their lives.

Imagine I’m a Russian millionaire. How have I failed to achieve my goals since the sanction?

You can’t do anything; your money or assets are frozen. And they’ve sanctioned plenty. I think that’s had a very dramatic effect. I wouldn’t want to miss that. The number that we’re monitoring is about 1,700 named parties. That’s quite a lot of wealthy Russians. It is quite restrictive in comparison to what kind of lifestyle they are most likely to have led. Now, whether they had backup plans, I wouldn’t know, but the impact on lifestyle, the ability to spend, to buy stuff, to use money, is greatly constrained. And we’re just going a step further and saying we think there are others who may not be sanctioned, but look a bit like people who are part of this because they’ve made their money [from the regime]. My opinion is that our actions aren’t as important if we believe it can be done in a matter of minutes to locate another provider. But it’s not always that easy to do that because it takes time and we’re a regulated sector. So I would say it’s potentially a significant encumbrance to doing business.

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What have the people you stopped doing business?

It’s still quite early because there’s a formal contractual obligation to give notice. Some jurisdictions have an actual fiduciary obligation to locate a substitute. You can’t just walk away, you have to find a willing counterpart. So that really does blunt the impact of what you’re doing. I come back to the question of how more jurisdictions taking action is helpful because if the jurisdiction says we’re stopping it, then it is stopped. What I’m doing is more of a gesture. You must give them fair notice. We have a legal duty of care not to cause chaos contractually so there is a there’s a process we have to follow.

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