Most Americans did not expect the quick succession of events in Ukraine leading to the removal of President Viktor Yanukovych or the emergence of Crimea as a flashpoint in Ukraine-Russia relations. The situation in Crimea is just the most recent example of how quickly and unexpectedly the international political and economic landscape can change. These changes can adversely impact U.S. business people and investors who have exposure in places such as Russia and Ukraine.
For example, the U.S. and EU have introduced a series of selective sanctions against Russia and some individuals for their role in the current crisis but have indicated that broader sanctions against certain sectors of the Russian economy are possible. Russia has responded by putting a travel ban in place for several American officials. One of the Russians included in the U.S. sanctions, parliamentarian Andrei Klishasa, went further- introducing a bill to allowing for the confiscation, expropriation and nationalization of western assets in response to these U.S. / EU sanctions although it is unclear whether this bill will gain any momentum. Given the interconnectedness of the global economy (including Europe’s reliance on Russia for about 30% of its natural gas), a widening of the crisis or quid pro quo sanctions could impact U.S. businesses with exposure in Russia, Ukraine or Europe.
Fortunately there are solutions which can mitigate the risk of loss due to political risks. These solutions include coverage against political violence, war, confiscation, expropriation, nationalization, forced abandonment and selective discrimination. In addition to coverage, these solutions often provide access to a global network of experts who continually monitor political risk in emerging or frontier markets.
The deterioration of relations between Russia and the U.S. and Europe and events in Crimea are a reminder of the value of protecting your investments and assets (fixed, mobile or inventory) against the perils of political risk. You may also wish to consider protecting your trade receivables against buyer non-payment especially for your international accounts.
For more information see U.S. Freezes Assets of Russian Businessmen and Bank Close to Putin
Being claim ready starts with three things: Coverage, Compliance, and a Complete Claims Package. Let’s delve into each one.
One of the most critical aspects of trade credit insurance deals with having coverage on the legal entity with whom you are trading. As you know, legal entities are only responsible for their debt obligations and have their own distinct credit profile or credit worthiness. Underwriters of trade credit insurance approve coverage on a legal entity. If you, as the insured, sell to a different legal entity than the one you have coverage on, the underwriter has grounds to deny your claim. We recommend that before you begin any trading relationship, you request information that clarifies the legal entities to which you are selling. In some cases, there may be a holding company, parent company, or subsidiaries and it is critical you understand the legal relationships with each other. Legal entities may also us various fictitious names such as trade styles or Doing Business As (DBAs). Requesting a W9 on your trading partner often helps this process.
Trade credit insurance policies are “contracts of adhesion” which means that the insured has to adhere to the conditions of the policy. In other words, a valid claim must be in compliance with the wording of the policy. For a claim to be paid, It is imperative to be in compliance in these key areas: paying premiums, reporting requirements, filing claims by the relevant deadlines, and providing appropriate supporting documentation. This is covered in a Complete Claims Package.
Complete Claims Package
We recommend starting a file for each of your trading partners and keeping the file current with each shipment. What sorts of information you keep will depend on the details of your coverage, but in general, the following represent some of the items an insurance carrier will request with any notification of claim form: purchase orders, proof of delivery, invoices, and statements of account. These seemingly commonplace documents can often be challenging to gather once a buyer goes into default. One insurance carrier, The Export-Import Bank of the United States of America (Ex-Im), places great importance on having the exporter prove, through documentation, that the buyer received the goods. Ex-Im’s position protects them and ultimately the U.S. taxpayer against seller fraud. It also helps with the collection process since documentation is evidence that the buyer received the goods. Those currently insured with Ex-Im are strongly encouraged to review their policies. Many sellers are selling on Incoterms of Ex-Works (EXW) and bills of lading show goods being delivered to a U.S. location before being exported. In this scenario, Ex-Im will require further proof that goods were received by the buyer. Trying to ascertain this information when the buyer is financially distressed can be difficult.