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Contract Intelligence Blog
Apr 06, 2022
Staying Out in Front of Sanctions and Other Disruptions With Contract Data
As the war in Ukraine enters its second month, governments worldwide are imposing increasingly severe sanctions against Russian imports and exports—with the most sweeping package of sanctions yet announced on Wednesday.
Meanwhile, public support for Ukraine continues to mount—as do impacts on the world economy.
Companies are responding by working diligently to stay compliant with these sanctions, minimize supply chain disruptions, and demonstrate that their values align with those of their customers. This has required a deeper understanding of what business they have in Russia or with Russian-related entities and how these relationships impact them from regulatory, reputational, and operational standpoints.
Some of these efforts have proven to be more effective than others.
Depending on how mature an organization is in its digital transformation journey, the process of identifying Russian ties in its business network may range from quick and painless to difficult and incomplete.
The most effective efforts include a review of structured and connected contract data. Why contract data? Because contracts are the bedrock of who a company does business with and on what terms. Companies that have digitized these powerful documents and centralized their data in a repository enjoy a single source for who their suppliers are, who the customers are, and what rights and commitments each relationship carries. They can also act quickly to terminate existing contracts and stay agile and compliant with regulation while executing new ones.
When contract data is structured and connected to the systems it touches to deliver insights, it becomes what we call Contract Intelligence. In this context, the benefits of Contract Intelligence can be broken down into two categories: Current state and future state.
The first order of business is for companies to understand what business relationships they have with Russian-connected entities today. Enterprises with access to digital contract data are well situated to execute a three-step plan to respond to evolving sanctions and other pressures related to doing business with Russian entities:
Identify Impacted Agreements: With all agreements in a central location and with metadata like contracting party or corporate headquarter locations extracted, companies can run AI-assisted searches to determine which supplier and customer contracts need review for potential sanction implications. (e.g., U.S. Department of Commerce, Bureau of Industry and Security (BIS) final rule, “Implementation of Sanctions Against Russia Under the Export Administration Regulations (EAR)” or UK sanctions relating to Russia – GOV.UK (www.gov.uk))Further refinement comes with integrations with third-party data sources that can identify specific individuals or business entities (including entities with obscured ties to sanctioned entities or individuals) or product classification identified for sanctions (e.g., the Consolidated Screening List maintained by the U.S. Department of Commerce, or Financial sanctions, Russia – GOV.UK (www.gov.uk)).
Identify Potential Actions Available Under Contract Terms: Once impacted contracts are identified, companies can automatically extract relevant clauses to quickly form a plan of action, identify risk and impact to the company, and if necessary, determine the process and rights for ending the business relationship.Once again, as during the early days of COVID, companies are reviewing contracts specifically for their force majeure provisions; technology like AI-enabled CLM allow companies to do this quickly and confidently. Once the force majeure clauses are surfaced, analysis can begin to determine whether current events fit the force majeure definition. Force majeure events have typically included wars, invasions, insurrections, riots, acts of God, other causes beyond the control of a party and orders, and possibly regulations or restrictions imposed by governmental authorities. Accordingly, a company affected by the Russian sanctions must ascertain whether its supply contracts contain force majeure provisions and whether the Russian sanctions constitute an event that excuses performance under the contract.
Terminate Agreements; Preserve Single Contract Record: For those contracts that have been identified for termination, companies can ensure they are in compliance with notification processes outlined in the contracts and can avail themselves of a single view of contract statuses—enabling them to report the number of terminations, approvals or contracts still in flight, etc.
Once companies address contracts active today, Contract Intelligence also empowers them to plan for the future.
Backfill Contractual Relationships: As companies conduct their diligence, they will identify contracts they will terminate. This activity disparately affects supply chain and procurement contracts. However, contract management software infused with contract intelligence can mitigate the impact. First, companies can respond to supply chain issues raised by terminated contracts by identifying other suppliers already under contract who can provide the same services or goods. If no such supplier is under contract, digital contracting systems can accelerate the onboarding of a new supplier through automation, so disruption is minimized.
Prohibit New Business with Sanctioned Entities: Next, companies can set up controls across the enterprise prohibiting new contracts from being executed with entities that would violate sanctions or public commitments. With integrations with Dun & Bradstreet or other third-party systems that can help check for sanctioned individuals or beneficial ownership of a contracting party, this functionality can extend to situations where Russian ownership is concealed. This means compliance isn’t “one and done” but an ongoing corporate posture.
Put Your Commitment to Ukraine in Writing: Lastly, companies can update their standard contract boilerplate to make clear that they expect their business partners to take sanctions against Russia as seriously as they do. For example, procurement can ensure that clauses giving them the right to immediate termination if a supplier violates sanctions are included. More stringent language can require warranties and certifications that all sourced material abides by agreed-upon standards.
Aligning Your Business Impact to Your Values
Sadly, we are seeing tremendous human suffering in Ukraine. As the death toll and refugee numbers rise, every person, government, and company alike must ask themselves what they can do to help.
With every dollar in and out of a company defined by a contract, Contract Intelligence is a system of orchestration and control that empowers companies to quickly ensure their business impact is aligned to their values.
Icertis Remains a Leader in the Q1 2021 Forrester Wave
Icertis has again been recognized as a Leader in the Forrester Wave: Contract Lifecycle Management For All Contracts Q1 2021 report. This is the second consecutive Wave report to recognize Icertis as a Leader. Read the report and learn more about the impact of CLM and why Icertis has been named a Leader.