Hundreds of corporations, including Shell Plc, Hyundai Motor Co, and PwC, a worldwide professional services organisation, have said that they are withdrawing or halting activities in Russia as a result of the country’s invasion of Ukraine.
The following are some examples of how insurance and international arbitration could help firms who stand to lose billions of dollars:
No, but political risk insurance can be purchased as an add-on to trade credit, property, and aviation insurance. It includes property seizures and forced abandonment by the government, as well as the revocation of government permits for businesses such as mines and the difficulty to exchange foreign cash. Other types of businesses can obtain the insurance, which often covers long-term energy or infrastructure projects.
Policies are confidential, insurance experts noted, and disagreements are settled in private arbitration.
According to the most recent figures from the Berne Union, a trade organisation representing political risk insurers, $1 billion in new political risk insurance was written in Russia in 2020.
Much of the insurance is written by non-commercial organisations like the United States’ Overseas Private Investment Corporation and the World Bank’s Multilateral Investment Guarantee Agency.
According to legal experts, companies that depart and abandon their operation without the Russian government taking action to acquire possession of their assets will have a difficult time collecting insurance.
“You see companies saying ‘we’re leaving because we support Ukraine.’ The question is then whether the policy covers a voluntary departure,” said Micah Skidmore of the law firm Haynes and Boone.
According to legal experts, insurers are most likely to pay claims for earnings made in Russian roubles that are no longer convertible to foreign currency.
Russia could take steps to back up assertions that assets are being confiscated. Last week, Russian President Vladimir Putin signed legislation allowing the country to register planes leased from foreign corporations on its aircraft register. find out more
The Russian law, according to Air Lease Corp, reveals Moscow’s determination to take planes, and the business expects the move to help it collect on its insurance.
The aircraft leasing business has until March 28 to cut connections with Russian airlines due to the sanctions.
The industry stands to lose over $10 billion if more than 400 jets in Russia are not repossessed.
Russia’s decision Early in March, the United Russia party indicated it was exploring a proposal to nationalise foreign-owned companies that leave the country. If passed, this bill could potentially help with insurance claims.
A business can rely on trade agreements signed by Russia, which provide for arbitration in the event that government acts harm foreign investment.
In a statement to clients this week, the law firm Steptoe & Johnson stated that typical international arbitration issues include failure to protect intellectual property rights, refusal to transfer aircraft, and asset expropriation.
After Moscow occupied Ukraine’s Crimea peninsula in 2014, at least nine Ukrainian corporations utilised trade agreements to seek billions in arbitration from Russia.
According to legal experts, the international arbitration process might take years, and Russia does not voluntarily pay awards.
Franz Sedelmayer, whose German security equipment business was expropriated by Russia in 1996, won a $2.3 million arbitration award in 1998, but it took him more than a decade to collect the money after fighting in many courts.
It would be impossible for a corporation to collect on both insurance and arbitration claims.
(Adapted from Reuters.com)