FINANCIAL FLOW MANAGEMENT PROBLEM IN FOREIGN ECONOMIC ACTIVITY AT RUSSIAN SMALL BUSINESS UNDER SANCTIONS PRESSURE

ПРОБЛЕМА УПРАВЛЕНИЯ ФИНАНСОВЫМИ ПОТОКАМИ В СФЕРЕ ВНЕШНЕЭКОНОМИЧЕСКОЙ ДЕЯТЕЛЬНОСТИ МАЛОГО БИЗНЕСА РОССИИ ПОД САНКЦИОННЫМ ДАВЛЕНИЕМ

Камалиева Регина Эльвиртовна

магистрант, Юго-восточный университет Китая (SEU),

Китайская Народная Республика, г. Нанкин

ABSTRACT

An overview of the main challenges and problems faced by small companies in Russia when trying to solve the financial component of foreign economic activity by setting up companies in «friendly» countries.

АННОТАЦИЯ

Обзор основных вызовов и проблем, с которыми сталкиваются малые предприятия России при решении финансовой составляющей внешнеэкономической деятельности с помощью создания предприятий в дружественных странах.

Keywords: management, small business, foreign economic activity, international payments.

Ключевые слова: менеджмент, малый бизнес, ВЭД, международные платежи.

Globalization has opened up to the consumer the full range of goods and services produced in different countries - more opportunities, more choices. Thus, the countries involved in international trade supply each other with goods, services, energy, technology and raw materials. The main forms are exports and imports. Given the international specialization, which is due to geopolitical situation, traditions, science and technology, it is possible to conclude that the costs differ in different countries, and the difference is the main benefit in trade - «Delta». «Delta» is one of the key concepts in financial analysis and trade. It is the main cause of international trade. [1, p. 22]

With the dissolution of the USSR and the establishment of a market economy, free pricing, disruption of production chains - Russia was faced with the need to provide consumer goods with the help of private business and international trade instruments.  In the period from 1985 to the present Russian entrepreneurship has passed seven stages of formation: from experimental character in the period of planned economy - to an integral part of the Russian economy, where small entrepreneurship corresponds to transformations in world trade.  The world experience shows that small business does not know its equal in adaptation and ability to revive the economy, get it out of the crisis and provide an individual approach to the consumer of goods and services. [2, p.192]

With the beginning of Special Military Operation in Ukraine the basic market conditions changed [3] - there were non-market barriers for doing business both sides - from Russia and the countries of «Global North». In general, the blocking sanctions are aimed at the financial, energy and transport sectors, the supply of goods, technologies and equipment, and visa policy. A number of large Russian banks have been disconnected from the system of interbank payments - SWIFT, activities of payment systems «MasterCard» and «Visa» have been suspended in the Russian Federation. The assets of the Central Bank of the Russian Federation, located abroad, were frozen, as a result of which Russia technically lost the opportunity to pay non-residents, assets of Russian banks and companies. [4] Many foreign companies have left Russia, investments, products and equipment have been cut off.  It is especially worth noting that secondary sanctions for countries that help circumvent non-market trade barriers - Western countries have strengthened sanctions against organizations from third countries suspected of violating restrictive measures against Russia. These are companies from 37 countries: Cyprus, China, Iran, UAE, UK, Kazakhstan, Armenia, Uzbekistan and others. [5]

Companies engaged in foreign economic activity (FEA) [6] faced new challenges to which they had to adapt without theoretical knowledge or experience:

1. Many of SWIFT transactions in North Atlantic currencies have been stopped or significantly slowed down. [7]
2. The common infrastructure solutions that were used earlier - air transport, maritime transport, and transit - have been modified. [8]
3. External markets make it hard to access technology. [9]
4. The financial market solutions are not accessible.
5. Additional attention to the founders and beneficiaries of the company.

By paying attention to the specifics of small business management, it is possible to determine that overcoming barriers outside of the market is the most difficult for him, when compared to large and medium-sized businesses:

1. The hierarchy of management is unidimensional, with multiple jobs, busy working hours, and poor management skills. The head, often the owner, manages all spheres simultaneously.
2. Insufficient flexibility in the management of working capital and credit lines, strict accounting of expenses.
3. Alternative-free production chains that impose procurement and sales restrictions. 
4. Geographical difficulties and low infrastructure access to consulting solutions in foreign markets.

Decisions, goals, objectives, and ways of implementation are significantly influenced by these important factors.

The most serious challenge the small business received in the financial sphere - interbank payments: in fact, Russian companies could not make payments for goods and services, receive money for products already delivered from for blocking correspondent accounts in domain banks of the currency of payment - dollar and euro. According to SWIFT, the dollar and the euro account for 90% of payments. [10] The specificity of the global financial system, the next - any transaction confirms the country issuing the currency, the dollar - the US, the EU - the Euro. Every bank that wants to conduct transactions in the desired currency must open a correspondent account in the bank of that country, and the bank may lawfully reject the transaction on the basis of the bank's policy or the laws of its country.

Most banks in the international payment system use the Belgian SWIFT system, which is legislatively subordinate to the European Union (EU) and is controlled by the United States of America (USA). [11] All transactions are continuously monitored. Other international systems have little coverage. [12] Given the retrospective of sanctions against the Republic of Cuba, the Democratic People’s Republic of Korea (DPRK) and the Islamic Republic of Iran, it is possible to conclude that there will be no early lifting of sanctions and the current market conditions are a new reality, to which we must adapt. [13]

The previous year showed that small business chose the CIS countries and neutral countries of the Far Abroad as a way to solve the problems of settlement - the Republic of Kazakhstan, the Republic of Armenia, the Republic of Uzbekistan, Georgia, the Turkish Republic, the Republic of Serbia and others. Preference was given to countries with visa-free regimes, loyal tax and migration policies, and similar business environments.

To help with international payments, the easiest way to register a new intermediary company was to become familiar with the available options for registering a company-intermediator to make payments in sanctioned currencies. Search for consulting partners for registration of enterprise, legal address, collection, preparation of documents and other necessary activities.

1. Definitions of the tax regime.
2. Consultations on banking services in the proposed country.
3. Budgeting and calculation of costs arising from creation of a new company.
4. Document collection and business registration.
5. Establishment of management accounting, coordination of currency control in the domain country and the country of the company intermediary, accounting and tax reporting.

The main problems that may arise in the implementation of this scheme:

1. Banks pay attention to the nationality of beneficiaries when opening a company. Banks and counterparty payment services may refuse to make payment to the intermediary company. There are cases of requesting documents on payment and subsequent refusal for founders with Russian citizenship.
2. VAT and other taxes: VAT is an indirect tax, which in an international transaction for small businesses is not subject to credit, due to the specifics of the tax, customs, banking system. In fact, the company pays VAT on each incoming amount to the settlement account - from 10% to 20% at the rate of National Banks. [14]
3. Cross-border payments: under the classical import system, goods are sent directly to Russia, avoiding third countries and intermediaries. This raises the issue of cross-border payments for goods: the need to accept payment when exporting and pay the supplier when importing. At the same time, the goods do not actually enter the country - there is no cargo customs declaration, which complicates the provision of documents upon confirmation of payment and drafting of the contract.
4. Payment agents and services: most banks, in the CIS, prohibit agency activities by referring «Bank Policy», a position that is not supported by documentation, despite the fact that the legislative activity of agents in states is allowed.
5. Supervision by state service: intermediary companies with Russian beneficiaries attract increased attention from supervisory authorities: both duty ones - legal address verification, labour protection, and planned - scheduled inspection, or targeted - requesting documents from contractors, verification of accounting records and the legitimacy of the documents. The primary objective of fiscal supervision is to guarantee budget income, and new companies without market experience possess great potential in this area.
6. Administrative costs: maintenance of office, legal address, accounting and other consulting services is a permanent, monthly expense item that has a propensity for growth.
7. Companies that provide consulting services, such as FEA support, legal services, auditing, and accounting services, play a significant role in small businesses and a small hierarchy of management. At the same time, the cost of services will increase periodically, at least by the amount of annual inflation.
8. Payment instruments: Many options that can be used by international counterparties are not common for the CIS to be accepted for accounting under the tax codes of the domain country and intermediary countries - cash, electronic currencies, cryptocurrencies, e-pay and others. All market participants face a two-pronged problem caused by financial sanctions against Russia.
9. The toxicity of North Atlantic currencies "dollar-euro": if the payment is successful, the Russian company has no possibility to use it from inside Russia, because it is risky - the commission for servicing the account in the Russian bank, additional conditions from banks on payment (amount, object of payment). The state border prohibits the physical export of currency over 10,000 USD in equivalent. [15]

I would like to note that the "Western partners" have exhausted the possibility of direct pressure on Russia: both sides of the confrontation recognize this and the possibility of influence exists in increasing pressure on third countries where Russia has retained its influence. The easiest way to apply pressure to banks in third countries is through the following mechanism (for example, JSC 'CenterCredit').

1. The announcement of Russian bank sanctions, the introduction of blocking sanctions - 'If you work with him, you do not work with us' - and the disconnection from the SWIFT system.
2. The bank of the third country, conditional JSC 'Bank CenterCredit', has stopped working with the bank in all currencies, even the ruble.
3. All FEA clients of the Russian bank have been relocated to a smaller-scale partner bank (PJSC 'Ak Bars' - LLC 'Kamkombank').
4. Over time, banks continue to operate in a different system, usually Russian, in a friendly currency: ruble, tenge, yuan, etc. - SPFS.

In the future, experts predict manual confirmation of SWIFT operations in the Russian Federation and/or disconnection of Russian banks completely, increase of the list of prohibited products for delivery to Russia, increase supervision of sphere of influence of "friendly" and neutral countries. Small businesses will encounter new rules and barriers as a result of these changes.

References:

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