In the context of international business development, adhering to sanctions has become a critically important aspect of commercial activity. International sanctions serve as a tool for geopolitical influence and can significantly impact the business processes of companies operating in the global market. Failing to comply with sanctions can lead to serious legal consequences, including substantial fines, asset freezes, and even criminal liability. Let’s explore the main types of sanctions, offer practical advice on compliance, and discuss how lawyers can help companies avoid sanction-related risks.
What are international sanctions?
International sanctions are a set of coercive measures implemented by states or international organisations, such as the United Nations (UN) or the European Union (EU), aimed at influencing the behaviour of states, legal entities, or individuals who violate international law norms or pose a threat to international security. These measures include, among others, asset freezes, trade embargoes, restrictions on capital movement, entry bans, and other restrictive measures designed to exert economic and political pressure.
The legal basis for the imposition of international sanctions is established on the grounds of international treaties, conventions, and regulatory acts adopted within the framework of international organisations. For instance, United Nations Security Council Resolution No. 1737 (2006), which imposes sanctions against the Islamic Republic of Iran, and Council of the European Union Regulation No. 833/2014, concerning restrictive measures against the Russian Federation, serve as prime examples of legal instruments that establish sanction regimes.
It should be noted that international sanctions can vary significantly in their focus and consequences. In some instances, sanctions may be eased or lifted provided there is a change in behaviour of the entities they target. For example, OFAC release of blocked funds if certain conditions are met, this illustrates the flexibility of sanction regimes and their dependence on the political climate.
Types of sanctions
Sanctions can be divided into several main types depending on their purpose and focus:
- Economic sanctions. These include bans on trade, investments, financial transactions, and the freezing of assets. They are aimed at limiting access to economic resources and reducing the economic potential of a country or entity.
- Diplomatic sanctions. These restrict or sever diplomatic relations between states, including the recall of ambassadors and the breaking off of consular relations.
- Military sanctions. They prohibit the export and import of weapons and military equipment, as well as restrict cooperation in the military sphere.
- Individual sanctions. These are targeted at specific individuals or organisations and can include the freezing of assets, travel bans, and restrictions on conducting business.
- Comprehensive sanctions. These are a combination of various types of sanctions and are applied to achieve broader political and economic objectives.
Key Tips for Complying with Sanctions
Adhering to international sanctions requires a systematic approach from companies and the implementation of robust compliance procedures. Only by doing so can the risks of breaches be minimised and the potentially devastating consequences of sanctions avoided. Developing a comprehensive sanctions compliance programme is a fundamental step in managing sanction risks. Such a programme should include the following elements:
Development of policies and procedures
The company must clearly define its obligations to comply with sanctions, establish internal policies, and implement procedures that will govern interactions with counterparties from jurisdictions under sanction pressure. This may include a process for identifying potential risks at the deal-making stage, as well as mechanisms for ongoing monitoring.
Staff training
Particular attention should be paid to the training of staff, especially those directly involved in foreign economic activities. Conducting regular training sessions and seminars will help increase their awareness of sanction regimes, minimise the risk of accidental violations, and ensure compliance with legislative requirements.
Continuous monitoring and control
A compliance programme must include regular reviews and updates of internal procedures in line with changes to sanctions legislation. It’s also crucial to conduct internal audits and checks to ensure adherence to established requirements and swiftly address any identified breaches.
Conducting a comprehensive inspection
Due diligence is an integral part of any sanctions compliance programme. It enables the identification and assessment of sanction risks associated with potential partners and counterparties.
Checking counterparties against sanction lists
During the inspection, it’s necessary to conduct regular screening of counterparties against international sanctions lists, such as the lists maintained by the Office of Foreign Assets Control (OFAC) in the US, the EU sanctions list, and other similar registers. This will help minimise the risk of entering into transactions with individuals who are under sanctions.
Analysis of ownership structure
In addition to checking formal sanction lists, it’s also crucial to analyse the ownership structure of counterparties to determine whether they or their beneficiaries are subject to sanctions. This analysis should also take into account indirect ownership and control, which may not be immediately apparent.
Assessment of business reputation
A comprehensive check should also include an assessment of the business reputation of the counterparty. This is particularly important when working with partners in jurisdictions with a high level of sanctions restrictions, where the risk of reputational damage can be significant. The main role here is played by sanctions lawyers in London who have experience in managing sanction risks and can offer their expert services.
The use of technologies and tools
In the context of a rapidly changing sanctions landscape, the use of modern technology becomes critically important for effective compliance with sanctions.
Sanctions screening software
As of today, there are specialised programmes that automate the process of screening counterparties against international sanctions lists. These programmes enable the swift identification of potential risks and help prevent violations.
Analytical platforms
The use of analytical tools to assess sanction risks enables a company to stay abreast of the latest changes in sanction legislation. Such platforms assist in timely adjusting strategy and minimising the impact of sanctions on business.
Compliance management platforms
These systems integrate all aspects of sanctions compliance into a single platform, providing centralised management of the compliance process. They enable the automation of monitoring, reporting, and risk management tasks, making the sanctions compliance process more efficient and transparent.
Companies that recognise the importance of adhering to sanctions and implement the specified measures will be able to minimise their sanction risks and avoid significant fines and other negative consequences associated with breaching sanction regimes.
Fines for breaching sanctions
Failing to comply with international sanctions can lead to serious legal and financial consequences. Depending on the jurisdiction and the severity of the violation, sanctions may include:
Fines. In some countries, such as the USA, penalties for breaching sanctions can amount to millions of dollars. For instance, OFAC regularly imposes multimillion-dollar fines on companies for failing to comply with sanctions regimes.
Criminal liability. In certain instances, particularly if the breach of sanctions was deliberate and intentional, criminal prosecution may ensue, including imprisonment.
Freezing of assets. Companies may face the freezing of their assets, both domestically and abroad, which can significantly limit their financial capabilities.
Access restrictions to markets. Breaching sanctions could result in the loss of licences, bans on conducting business in certain countries or sectors, which could negatively impact the business reputation and long-term prospects of the company.
How can sanctions lawyers assist?
Professional solicitors specialising in sanctions play a key role in ensuring compliance with international legal regulations. They can offer the following services:
Consultation on sanctions legislation. Lawyers will assist in understanding and interpreting the complex norms and rules relating to sanctions, which is particularly important for companies operating across multiple jurisdictions.
Development and implementation of sanctions compliance programmes. Specialists will assist in creating a bespoke sanctions compliance programme tailored to the needs of the company and ensure its implementation at all levels.
Comprehensive review and risk assessment. Lawyers will conduct a detailed analysis of counterparties and transactions for sanction risks, which will help avoid undesirable consequences and maintain the company’s reputation.
Defence in the event of breaches. Should any claims or investigations arise, solicitors will ensure the company’s interests are defended in court and will assist in minimising legal and financial repercussions.
Contact lawyers regarding sanctions issues.
For successful international business operations under the conditions of sanctions pressure, it’s crucial to have reliable partners who can help you navigate through complex legal matters and ensure compliance with all necessary requirements. If you’re facing issues with the aforementioned facts, get in touch with us and our qualified sanctions lawyers will provide robust legal protection for your business to mitigate sanction risks.
