EU luxury misses Russia sanctions, but Swift move could hurt

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The Russian government and its oligarchs are being targeted with financial and military sanctions by the EU Commission. Exports of luxury goods, so popular with the ultra-wealthy, are immune for now.

Luxury goods are not included in the European Union’s current Russian sanctions. That answers a key question that has weighed on the minds of Italian luxury executives — and much of the fashion industry – as Autumn/Winter 2022 collections have played out on Milan’s runways.

The flow of luxury goods from Italy and France to Russia can continue, although financial transactions to pay for them may be complicated thanks to financial sanctions imposed by Europe and the US.

EU luxury misses Russia sanctions, but Swift move could hurt

Ukraine and Fashion Sanctions
No impact of Sanctions on the Market says Russian Leaders

Imposed sanctions are aimed at disrupting Russia’s technology and military operations against Ukraine, and at hobbling the power structure around Russian President Vladimir Putin, including the powerful and wealthy oligarchs. Italy sells roughly €1.2 billion in luxury goods to Russia each year, according to its fashion federation, the Camera Nazionale Della Moda Italiana. The oligarchs are famous clients of Italian and French luxury houses.

So when news reports emerged that Italy was demanding from the European Commission a carve-out of its luxury industry from the sanctions according to anonymous EU diplomats, even some in the fashion industry expressed frustration. Missoni president Angela Missoni, for instance, said she supports Ukraine, despite the pain it might cause Italian companies.

With criticism swirling, a spokesman for Italy’s Prime Minister Mario Draghi said on Saturday Italy made no requests for carve-outs for luxury goods. The news was widely welcomed.

What Products Are Banned?

While exports were banned for certain tech products, semiconductors, aircraft, and other goods with potential use to the military and oil refining, a person familiar with the sanctions at the European Commission on Sunday evening confirmed to Vogue Business that luxury goods are not included in the Russia sanctions. Instead, the focus is on Russia’s banks and financial services, politicians and oligarchs, energy, transport, technology, and diplomatic visas.

A person close to Draghi’s office said on Sunday night that the prime minister is on board with the broader focus of the European Commission’s sanctions targeting Russian finances and military. The person added that the Italian luxury industry is likely safe from the threat of further sanctions; given that the current sanctions are so broad, it is unlikely they will need to go further.

A stiff package of financial sanctions from the United States and European Union will block certain Swift and other financial transactions at a number of Russian banks, including the country’s two largest, Sberbank and VTB. That will likely require businesses who transact via those banks to seek new banking relationships to continue with their operations

“Excluding Russian banks won’t impact (credit card) payments in stores, but it will impact international wiring,” says Julien Martinet, founder of law firm Swift Litigation. “That means it will be more difficult for brands to pay their suppliers and partners and vice versa.” As long as subsidiaries of international banks in Russia are not affected, Russian companies will not be impacted if they have an account in those banks, according to Martinet. But it will be more complicated for Russian companies to do business in euro, pound or dollar. In the case of sanctions on payments, Martinet doesn’t believe that established brands could easily resort to alternative payments such as cash or crypto assets due to compliance issues.

Ukraine and Fashion Sanctions

The Swift network opened in 1977 and is controlled in Brussels. “When we threatened Russia to cut them off from Swift in 2014, they created an alternative system for Russian banks called SPSF, but it remained mainly national,” Martinet added.

A weak Russian ruble could also dent margins on products sold in Russia unless brands decide to increase their prices. Meanwhile, most European countries and Great Britain have announced shutting their airspace to Russian airlines. “We will work to prohibit Russian Oligarchs from using their financial assets on our markets,” Ursula von der Leyen, President of the European Commission, said.

Written by Christina Binkley and Laure Guilbault

All Rights Reserved| No Copyright Infringement Intended

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#EU luxury misses Russia sanctions, but Swift move could hurt

#EU luxury misses Russia sanctions, but Swift move could hurt

#EU luxury misses Russia sanctions, but Swift move could hurt

#EU luxury misses Russia sanctions, but Swift move could hurt

#EU luxury misses Russia sanctions, but Swift move could hurt

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