Get your head around global trade and the world of sanctions. Leading Finnish expert Marja Boman of Eversheds took our questions.
1. What are sanctions and who can impose them?
Trade or economic sanctions mean regulations resulting in the withdrawal of customary trade and financial relations with certain countries for foreign and security policy purposes. Economic sanctions may be comprehensive, prohibiting commercial activity with regard to an entire country or they may be targeted, blocking transactions of and with particular businesses, groups, or individuals or even limited to certain products and materials.
The aim of trade sanctions is to alter the strategic decisions of state and non-state actors that threaten the interests of other states or multinational bodies or violate international norms of behavior. Economic sanctions are used to advance a range of foreign policy goals, including counterterrorism, counternarcotics, nonproliferation, democracy and human rights promotion, conflict resolution, and cyber security.
Governments like the U.S. and multinational bodies like the European Union or United Nations can impose trade sanctions. The U.S. uses sanctions more than any other country. The Treasury Department’s Office of Foreign Assets Control (OFAC) administers most sanctions programs, but other departments may also play a role. The OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.
2. Which countries have recently been targets of trade sanctions?
The EU and OFAC publish information about target countries as well as specially designated nationals. Countries like Cuba and Venezuela are exclusively on the U.S. sanctions lists. Russia and Iran, among others, have had sanctions imposed on them by both the U.S. and the EU.
In the U.S., sanctions are imposed in order respond to an unusual and extraordinary foreign threat, such as the proliferation of nuclear, biological, and chemical weapons or the actions and policies of the Government of the Russian Federation with respect to Ukraine.
3. How do trade sanctions affect businesses? Are sanctions relevant if the company does not operate in the U.S.?
Sanctions prohibit corporations and citizens from doing business with a blacklisted entity or otherwise engaging in business activity that is prohibited under the sanctions.
Sanctions may also affect companies who do not operate in the U.S. as such but have a connection with the U.S. Each country may implement its own sanctions regimes. EU sanctions are implemented in the EU Member States and enforced on a national level. U.S. sanctions are applicable to U.S. persons, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the U.S., all U.S. incorporated entities, and their foreign branches.
In some cases, foreign subsidiaries owned or controlled by U.S. companies must also comply. Some programs also require foreign individuals in possession of goods of U.S. origin to comply as well. Generally speaking, U.S. sanctions include a significant extraterritorial element and businesses with any U.S. element need to make sure that they are compliant.
4. How can a company continue dealing with e.g. Iran and Russia despite the sanctions?
Sanctions are difficult to avoid. Businesses should conduct a sanctions due diligence and consider whether they could avoid the sanctions by amending their activity, changing the location of the business to a more favorable jurisdiction or perhaps apply for an OFAC license, if available.
Some sanctions are temporary, so observing the political climate while refraining from selling the products subject to sanctions might also be a wise strategic approach. The key element to comprehensive sanctions compliance and risk mitigations is awareness. If a company wants to avoid U.S. sanctions it may need to undergo significant changes to break all ties with the U.S. Sometimes, altering the imported product by carving out the prohibited element may be enough.
5. What happens if sanctions are breached? How costly are the consequences?
Breaching sanctions results in an investigation and often negative publicity, followed by a potential penalty. Enforcement in EU countries, which always takes place on a national level, is often less public, or at least attracts less media attention, and may even take place outside criminal proceedings. In the U.S., the enforcement of sanctions often falls in the scope of criminal proceedings and the settlements are often made public.
Breaching sanctions is costly. OFAC statistics show that during 2009-2016 the highest penalty was imposed on a French bank for processing billions of dollars to blacklisted entities in Cuba, Iran, and Sudan. The fine amounted to 8.9 billion USD.
6. What does the future of trade sanctions look like?
Sanctions are reflections of the political climate. The EU sanctions regime is perceived as more predictable, whereas the future of U.S. sanctions comes down to actions of the current President’s administration. So far, there is very little factual knowledge about President Trump’s sanctions-related plans.
The U.S. sanctions regime continues to bear more and more extraterritorial elements and enforcement is known to be more aggressive than in the EU. Businesses should be mindful of this. Even with a vague nexus to the U.S., foreign companies may unintentionally become subject to U.S. jurisdiction.
By Marja Boman
About the writer:
Marja is a Senior Associate in Eversheds’ dispute resolution group, specializing in domestic and cross-border litigation and arbitration. She advises on all aspects of dispute resolution, including white collar crime and regulatory investigations. She has extensive experience in public and private enforcement of competition law, in particular cartel follow-on damage claims. She represents clients in both general courts and arbitral proceedings. She also advises clients on regulatory compliance related matters, such as anti-corruption and anti-money laundering.