New article by Johannes Leitner in the journal “Compliance Praxis”

Companies are experiencing a dramatic increase in government intervention such as economic sanctions, embargoes and export controls. In this environment, modern trade compliance management can provide a significant competitive advantage. Today, companies are increasingly confronted with the question of how to run a successful business while complying with sanctions regulations. In particular, managers are faced with the conflicting issues of how to implement sanctions regulations in their day-to-day business and what standards they must adhere to. The purpose of modern and effective trade compliance management is to create an operationalizable framework within which business can be conducted in compliance with sanctions. The article describes the most important steps that need to be implemented for modern trade compliance management. Please follow the link to the article (in German).

As part of a trade compliance project, the L&M PRISK team visited Moldova and Bulgaria this summer. Both countries are considered high-risk countries in terms of possible sanctions evasion.

This applies in particular to Moldova, which has no control over the pro-Russian region of Transnistria. Pro-Russian actors can also be found in Gagauzia in particular. However, the entire country is politically divided between pro-Russian and pro-European forces. The country is also suffering from sanctions and the interruption of supply chains as a result of the war in Ukraine. The high political risks are preventing urgently needed investment in the industrial sector and are therefore hindering economic development. Emigration and brain drain continue to pose a major problem, even if the negative effects are mitigated by the immigration of Ukrainians.

Bulgaria, on the other hand, shows far fewer political risks. However, the country is suffering from the fact that no government has yet been formed after six parliamentary elections. As a result, there is a backlog in EU funding reserved for Bulgaria. High inflation, falling approval ratings among the population and the unclear political constellation are jeopardizing accession to the eurozone in January 2025. Moreover, although the country is a member of the EU and NATO, there are still hidden trade flows to Russia, also encouraged by the pro-Russian stance of many entrepreneurs.

The Russian church "Sveti Nikolay Mirlikiiski" in Sofia. The country maintains close cultural and hidden business relations to Russia, despite of EU and NATO membership. (Source: Own Photo)

New Eastblog article by Johannes Leitner and Hannes Meissner in the Austrian daily newspaper “Der Standard”.

Despite far-reaching sanctions and geopolitical risks, many international companies remain active in Russia. An empirical analysis of company data from the Kyiv School of Economics shows this. Of the 3945 international companies surveyed that were active in Russia in 2022, 423 companies had completed an exit from Russia by September of this year. This corresponds to just under eleven percent of all companies recorded in the database. This raises the question of why more than 3,500 companies are still present in Russia? The article shows that legal uncertainty and expropriation risks are increasing, but that the market remains lucrative. At the same time, the reputational risks only have a weak impact. Please follow the link to the article (in German).

The GCM Parker conference “21st Business Ethics Anti-Corruption Compliance and Fraud Prevention Strategies in CEE” took place in Prague from September 26 to 27. L&M PRISK contributed with a presentation on “Firm Level Response to Sanctions and Anti-Corruption Compliance”. Moreover, Hannes Meissner took part in a panel discussion on “Sanctions Compliance and Screening”.

In his presentation on L&M PRISK's experience, Hannes Meissner emphasized that companies' anti-corruption strategies are increasingly shifting from retrospective damage limitation to proactive, forward-looking trade compliance management. The reason for this is the fact that the world is facing a multiple crisis. De-globalization, geopolitical conflicts and hybrid warfare between the West and the emerging bloc of authoritarian countries, sanctions regimes, terrorism and cyber risks are forcing Western countries to introduce more and stricter sanctions and trade compliance regulations. At the same time, law enforcement is on the rise. As enforcement agencies increasingly turn to experts to investigate the full picture of compliance violations, companies must respond appropriately. In this context, Hannes presented a best practice strategy for trade compliance risk management. He also illustrated this L&M PRISK approach using three current consultancy cases.

The panel discussion was moderated by Zoard Gazmar (Head of Compliance, OTP Bank). Other panelists were Nora Sljukic (Chief Compliance Officer and MLRO, UniCredit Bank Hungary) and Antonio Stoyanov (Senior Vice President, AlixPartners). In our discussion, we came to the conclusion that the circle of sanctions continues to escalate, driven by the ongoing geopolitical conflicts. However, while in the first phase after the Russian attack on Ukraine the pace of imposing sanctions was high, the strategy has now shifted to closing loopholes. This is characterized by secondary sanctions and attacks on individual targets responsible for the loopholes and identified by trade compliance authorities. As a next step, enforcement will become increasingly important. As we concluded, there are currently still far-reaching deficits here.   

L&M PRISK participated in this year’s Transform Finance Conference that took place in Frankfurt on 5 September. The conference revealed three major trends in political risk analysis and management. Firstly, against the backdrop of escalating geopolitical tensions and the global threat of terrorism, political risks for companies and banks are currently increasing massively. Political risk factors and constellations must be considered in their entirety. Secondly, KYC screenings must be carried out thoroughly and comprehensively before signing contracts and onboarding. Software checks alone and superficial checks to just meet legal obligations are no longer sufficient. In fact, this traditional approach is associated with massive risks, today. Thirdly, companies need comprehensive risk analysis and management models. It is no longer enough for individual company departments to simply collect and save data and view risks separately from one another. As panelists emphasized, the work of political risk managers will thus increase significantly and become more interesting in the coming years. Interpretations and comprehensive assessments by experts will be more important than ever before.

At the conference, Hannes met Josephine K. Vanek, CB -Trade Finance & Lending (TF&L) Operations - Embedded Risk Management at Deutsche Bank.

On the NTV "Wirtschaft Welt & Weit" podcast, Hannes Meissner discusses Moldova's EU accession prospects and the opportunities and risks for foreign investors in the country with Andrea Sellmann and Ludwig Graf Westarp. How successful is Moldova in terms of rule of law reforms? Will the economic situation improve? What opportunities does the country offer for Austrian and German companies? What is the impact of Russian plans to overthrow the government? Please follow the link to find answers to these and other questions.

The war in Ukraine and the sanctions against Russia are having a major impact on European companies. Many are looking for alternative markets, including in Central Asia. At first glance, gas-rich Turkmenistan seems particularly promising, and not just for energy companies. However, as Hannes Meissner emphasizes in the article “'Alles Walzer' in der Wüste” by Simone Brunner in "ZEIT ONLINE", political risks in Turkmenistan are high and require a special management strategy. Here is the link.

A war in Molodova is becoming more likely. Following his re-election, Putin is signalling his willingness to further escalate the geopolitical struggle aimed at re-establishing Russian hegemony in the entire post-Soviet space. For the time being, however, Moscow will continue to rely on hybrid warfare in an attempt to further destabilise the situation in Moldova in order to undermine Moldova's EU rapprochement process. There is no sign of any willingness to compromise. The sole aim is a pro-Russian change of government. Transnistria is a decisive lever here. While the local political and business elite in the separatist region has no interest in this, the decision lies solely with Moscow.
Please listen to the new podcast on Transnistria with Kevin Schulte from NTV.

Drawing on our deep insights and confidential sources, our business briefs provide macropolitical risk analysis and strategy recommendations on current topics. The aim is to provide our customers with a quick guide to current events and trends in post-Soviet countries and their implications for business. The business briefs are free of charge, but access requires registration.

Our first business brief covers the topic that European companies face a rising risk of nationalization in Russia, as our independent and confidential resources from the region report. While the EU takes steps towards confiscation of Russian assets, Europe can expect an equally effective counter-response, in line with the strategy of symmetric retaliation proclaimed by the Kremlin.

Please follow this link to our new service and the policy brief “European Companies’ Risk of Nationalization Rises Substantially”.

Four key impressions remain from a personal trip to Dushanbe, the capital city of Tajikistan. In recent years Tadjikistan has become one of the most authoritarian states in the world.

Firstly, President Emomalij Rahmon is omnipresent through his personality cult. His portraits and slogans can be found on buildings and bridge overpasses in the capital and the surrounding area, as well as on large posters along the main roads.

Secondly, Dushanbe is being de facto reinvented in the course of a gigantic construction boom. The Soviet city has largely given way to new high-rise buildings. An urban middle class is present in the main streets of the city. This contrasts with the situation in the rest of the country, which remains economically weak and characterized by socio-economic problems.

Thirdly, the country appears to benefit comparatively little from the opening up of new trade routes as a consequence of the New Silk Road and the sanctions against Russia, as it is landlocked and not a member of the Eurasian Economic Union.

Fourthly, the country's business community is concerned about the EU's idea of confiscating Russian assets. They are openly asking whether the EU is sacrificing legal certainty for political goals and whether property is still safe in the EU.

Portratis of Rahmon in Hissor

Portraits and slogans along a main road

The virtual event hosted by LM Political Risk and Strategy Advisory together with “Altstipendiaten der Konrad-Adenauer-Stiftung e.V.” and its special interest network "Netzwerk Aussenwirtschaft", delved into the pressing topic of "Geopolitics is back in Europe: Russia, EU, and its impact on European companies." We would like to thank the numerous participants whose insightful questions enriched the discussion. Johannes Leitner and Dr. Laetitia Spetschinsky (OIIP & University of Leuven) discussed the impact of Russia’s war in Ukraine and EU’s sanctions strategy on businesses in Europe.

In conclusion, it is essential for business leaders to heed the following key points:

⚡ The global trade framework faces significant challenges and is undergoing transformation.

⚡ Geopolitics is making national security a priority.

⚡ In response to Russia's invasion of Ukraine, the EU has quickly adapted to the application of sanctions, signaling a paradigm shift.

⚡ Sanctions have become a permanent state of affairs and are becoming an increasingly popular diplomatic instrument.

⚡ The risk of expropriation in Russia for Western companies is on the rise and requires careful attention.

These insights underscore the critical need for proactive strategic planning and risk management strategies in navigating the evolving geopolitical landscape, safeguarding the interests of European companies amidst geopolitical uncertainties.

Strengthened by his re-election, Putin is announcing increased steps to re-establish hegemony in the post-Soviet space. Further escalation seems inevitable, not only in Ukraine, but also in Moldova. This means that another war is becoming more likely, at the end of this year at the earliest. Until then, Russia’s primary strategy remains focused on overthrowing the pro-European government of Maia Sandu by means of hybrid destabilization strategies. Transnistria remains a decisive lever for Moscow. But with Gagauzia, another conflict is now coming into the spotlight. Please listen to my podcast on Gagauzia with Kevin Schulte from NTV. Here is the link.

In early summer, the peace negotiations on Nagorno-Karabakh seemed to be close to a major breakthrough. Since then, however, the conflict positions have hardly shifted. Even more, the blockade of the Lachin corridor by Azerbaijan and the prevention of aid transports from Azerbaijan by the local government have led to a humanitarian catastrophe in the isolated region. On September 11, Hannes discussed the roots of the conflict, the geopolitical constellation in the region, and the propsects for peace with Barbara Zeithammer (Ö1 moderator), including questions from the audience. Please follow the link to the radio discussion.

Dr. Johannes Leitner will give a keynote speech on Market Entry Due Diligence and Sanctions Management at the 13th annual conference on BUSINESS ETHICS ANTI-CORRUPTION COMPLIANCE & FRAUD PREVENTION STRATEGIES IN CEE. The conference will take place in Prague on 21 Septemer. He will moreover contribute to the panel discussion on the current status of the sanctions regime and its impact on corporate activities. Please see the programme for more information on the conference.

Dr. Johannes Leitner was invited to to the Federal Commission for International Affairs of the Wirtschaftsrat (Economic Council) in Berlin, where he gave a speech on the "Effects of political strategies on corporate decisions".

As Johannes pointed out, we are currently in a process of slight deglobalisation. Unlike in the past, international relations are no longer primarliy dominated by business and trade interests. The driving factor is rather the primacy of politics. In fact, this is not an entirely new phenomenon. Such trends have been observable for more then ten years now. Economic rationality is increasingly giving way to political goals. This means that more then ever before, chances for companies have to be examined on the basis of geopolitical risk constellations. An example of this are trade policy interventions in the relationship between the USA and China, reducing economic interdependencies. In this context again, the main features of this China strategy reach far back to the term of office of George W. Bush Junior.

Please follow this link to the full content of the keynote speech.

From May to July, the L&M PRISK team had an additional member. William Menkes, a student at the University of Colorado, practiced corporate intelligence, KYC, and investigative research.

Hannes: Dear William, thank you very much for your great support during the last weeks. Can you please give us some details on the exchange program, you were part of?

William: I was part of an internship program this summer called IES that connects Americans on university campuses with international internship opportunities and business professionals. Furthermore, I completed two courses on Austrian politics and business in relation to the United States as well as a German Intensive.

Hannes: Why did you decide to come to Vienna?

I choose Vienna because it was important to me to work in a German-speaking city to practice my language. I also study international relations and German with a focus on the post-Soviet space. Vienna of course is somewhat of a political hub in Europe with the UN headquarters lying there. I thought it would be the best option to combine these two interests.

Hannes: What experiences did you make during your internship?

While working for L&M PRISK this summer, I learned about KYC reports and corporate investigation. I gained a glimpse into the process of conducting background reports. I also learned about NGOs through research and how business connections are made. I of course made some good connections with you and Johannes and your team. I also learned about the Austrian work culture and professional businesses in general as this was my first opportunity at working for one.

Hannes: Why do you think political risk consulting is important?

William: I am currently studying international relations due to my interest in European affairs and how it pertains to nations in the EU and post-Soviet space today. I believe political risk consulting is especially important in diverse regions of the world such as Europe today. Experts in the geopolitical landscape of a diverse region such as Europe are a necessity in guiding a business’s professional operations through sanctions, trade, ESG, conflict, etc... Specialists in this field offer a variety of expertise an organisation can use to gain a new self-reflective angle on moving forward with international operations.

Hannes: Thank you, William. We wish you all the best for your future.

Special Issue by Johannes Leitner and Hannes Meissner

Johannes Leitner and Hannes Meissner have edited a special issue of the academic journal “Wirtschaft und Management”. It is dedicated to the war in Ukraine, the conflict between the West (EU/USA) and Russia and associated geopolitical shifts at the global level. It sheds light on consequences of this constellation for enterprises and asks how businesses can manage this new situation. The special issue contains contributions by Florence Ertel and Julian Plottka (University of Passau), Oxana Karnaukhova (University of Passau), as well as Albert Hayrapetyan and Susanna Aghajanyan (Armenian State University of Economics). In their own contribution, Hannes Meissner and Johannes Leitner zero in on the dramatic geopolitical changes currently taking place against the backdrop of the Russian attack on Ukraine. They analyse the possible effects on enterprises and provide an outlook on new risk management strategies in ligh of Russia’s strong influence on post-Soviet countries. The edited volume is available at this link.

On 26 June 2023 (09:00-11:30) the Schneider Group holds a business breakfast at Hilton Vienna Park (Stadtpark 1, 1010 Vienna). The event is dedicated to the business environment and HR in Kazakhstan and Uzbekistan, as well as green energy, pharma, agriculture and logistics, and sucess stories and pitfalls.

The following presentations are scheduled:

1. Kazakhstan and Uzbekistan as the New Eurasian Tiger States with Clemens Machal, Commercial Counsellor & Trade Commissioner of Austria for Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan

2. Growth opportunities in Kazakhstan with Kirill Afanasyev, Partner SCHNEIDER GROUP Kazakhstan

3. HR for market entry and business expansion in Kazakhstan with Olga Nezgovorova, HR Director SCHNEIDER GROUP Kazakhstan

4. Growth opportunities and HR in Uzbekistan with Nodir Ayupov, Partner SCHNEIDER GROUP Uzbekistan

5. Between euphoria and regulations: compliance management for Central Asia and the South Caucasus with Dr. Johannes Leitner, Managing Partner, LM-Prisk

6. Project taxation Central Asia with Andreas Radu, Professional, ICON Wirtschaftstreuhand GmbH

After the presentations, a Q&A session will take place.

For the detailed program, please follow this link. Please register until 26 Juni via this link.

The event will be held in English.

In his recent podcast, Kevin Schulte (NTV) analyses the current status of the conflict between Armenia and Azerbaijan over the Nagorno-Karabakh region. For more than a hundred years, Armenia and Azerbaijan have been fighting over the once mixed ethnic region. Currently, a solution to the conflict seems closer than ever - at least on paper. Russia, meanwhile, is trying everything to freeze the conflict again. Hannes Meissner reports from the Armenian capital Yerevan.

Kevin Schulte (NTV) dedicates a podcast to the situation in Georgia. The country has been trying to join the EU and NATO for years. Most people in the country are pro-Western oriented, but Russia is currently restoring its influence . Direct flights between Moscow and Tbilisi are the first step. Hannes Meissner provides insights.