March 4, 2022

RWI: Implications of Russia Sanctions

This is pretty far down the list of priorities when it comes to the sickening events of the last couple weeks in Ukraine, but the new sanctions imposed on Russia for its aggression need to be considered by both buyers and RWI insurers when they evaluate a proposed deal with a company that has business in Russia. This Norton Rose Fulbright memo addresses this issue from both perspectives. This excerpt reviews some of the things that buyers planning to purchase RWI need to keep in mind:

Buyers that are seeking RWI coverage on an ongoing transaction should be prepared to supply detailed information regarding touchpoints in Russia or Ukraine, especially if those touchpoints are direct commercial relationships with Russian firms or Russian nationals. Insurers will expect that businesses in key industries like energy extraction and transportation, high-tech devices and components and transportation, to the extent they have any exposure to the impacted region, present heightened compliance risks in underwriting RWI policies. In order to minimize the breadth of any coverage exclusions, buyers should be proactive in undertaking specific due diligence to address the impact of new sanctions and restrictions on the target business.

Once in underwriting, buyers should assume that significant insurer time and attention will be devoted to assessing this area of risk, so buyers should consider taking a proactive approach in diligence to understand how effectively the target business has established trade compliance policies and procedures, whether the target business has sufficient recordkeeping in order to quantify the impact of new sanctions and restrictions and whether the target business has already begun the process of disentangling itself from any impacted relationships.

Additionally, buyers should expect that this will be a broader diligence exercise than simply addressing trade compliance. Insurers will also focus on labor impacts, to the extent employees or contractors sit in Russia or Ukraine, cybersecurity impacts and supply chain impacts, so members of the buyer’s diligence team specializing in those areas should conduct their review with an eye towards answering conflict-specific questions in their area.

John Jenkins