India Inc gears up to deal with sanctions risk

NEW DELHI: A volatile geopolitical environment and global supply-chain disruptions are pushing India Inc to rethink its risk priorities. Sanctions risk has emerged among the top business threats, prompting domestic companies to increasingly seek assistance from legal and accounting firms to manage its immediate and disruptive impact.

For companies, sanctions exposure is no longer a compliance footnote but a core governance issue, with direct implications for cash flows, vendor relationships, financing and corporate reputation, experts told TOI. The scrutiny may be widening, with newer restrictions imposed by US on countries such as Venezuela, expanding compliance minefield for globally connected firms, alongside sanctions on Russia and North Korea.




Tarun Bhatia, regional MD and co-head of Asia Pacific investigations, diligence and compliance at Kroll (a global financial and risk advisory firm) says: "In a world where geopolitics increasingly shapes commerce, sanctions risk deserves same weight as financial, cyber or climate. Sanctions compliance is not about avoiding fines. It is about protecting a company's licence to operate, its reputation and its long-term value. Leaders are expected to ensure the organisation identifies and assesses the sanctions risks, implements robust compliance frameworks, monitors and escalates potential breaches. Failures can trigger regulatory enforcement, reputational harm, financial penalties, even criminal liability, and in some cases the loss of access to critical markets.''

A company based in India could still face US scrutiny if it transacts with a sanctioned party using US dollars, even if no American entity is directly involved. A legal expert said firms have been receiving multiple queries from domestic companies as payments are stuck or frozen across the world, as are instances where they have to pay to entities which have now been sanctioned.

Says Manavendra Mishra, partner, Khaitan & Co: "...The reaction to sanctions cannot be reactive, and its repercussions are staring down on a fair number of Indian companies, and hence active monitoring, recalibrating supply chains and a proper sanctions SoP are needed.''

Says Suveer Khanna partner and head (forensic services) KPMG India, "...Given that US dollar is the primary global currency for settlements and dominating international trade, corporations cannot ignore US sanctions risk. In this regard, Indian boards with US touchpoints are required to provide crucial oversight and leadership to the organisation in navigating through the risk of being penalised.