How to shield your business from trading with sanctioned people
(FREE) Sanctions make it hard for businesses to trade in certain countries and certain people. But there are steps companies can take to avoid trading with sanctioned persons.
What are sanctions?
Sanctions are political and economic decisions that are part of diplomatic efforts by countries, multilateral or regional organizations against states or organizations either to protect national security interests, or to protect international law, and defend against threats to international peace and security.
Types of sanctions
There are several types of sanctions:
Economic sanctions – typically a ban on trade, possibly limited to certain sectors such as armaments, or with certain exceptions (such as food and medicine)[6]
Diplomatic sanctions – the reduction or removal of diplomatic ties, such as embassies.
Military sanctions – military intervention
Sport sanctions – preventing one country's people and teams from competing in international events.
Sanctions on Environment – since the declaration of the United Nations Conference on the Human Environment, international environmental protection efforts have been increased gradually.
Economic sanctions are distinguished from trade sanctions, which are applied for purely economic reasons, and typically take the form of tariffs or similar measures, rather than bans on trade.
Why do we have sanctions?
Restrictive measures, or sanctions, are one of a countries tools to promote the objectives of a countries's foreign policy
These include
safeguarding the countries' values,
its fundamental interests and security;
consolidating and supporting democracy,
the rule of law,
human rights and the principles of international law;
preserving peace; preventing conflicts and
strengthening international security.
Do sanctions change?
EU, UK and US sanctions are reviewed at regular intervals. Governments decide whether sanctions should be renewed, amended or lifted. In the EU, for example, all legal acts related to EU sanctions are published in the Official Journal of the EU, the same applies in the UK or US.
What types of sanctions can be adopted?
Restrictive measures imposed may target governments of third countries, or non-state entities (e.g. companies) and individuals (such as terrorist groups and terrorists). For a majority of sanctions regimes, measures are targeted at individuals and entities and consist of asset freezes and travel bans.
Governments can also adopt sectoral measures, such as economic and financial measures (e.g. import and export restrictions, restrictions on banking services) or arms embargoes
Most common sanctions types
Traditionally, there are three types of sanctions regimes in place.
1. sanctions imposed by the UN which are transposed into law.
2. Governments may reinforce UN sanctions by applying stricter and additional measures
3 Finally, governments may decide to impose fully autonomous sanctions regimes
All sanctions adopted should be fully compliant with obligations under international law including those regarding the respect of human rights and fundamental freedoms.
Who most frequently imposes sanctions?
United States
European Union
EU Member States (where the EU does not have exclusive competence)
UK
Other countries
UN Security Council (Resolutions have to be implemented by member states)
Other regional bodies
How should companies react when a sanction is imposed?
Every company operating across borders needs to plan for the potential effect of sanctions on their business, how to manage the risks, and how to position itself to operate safely by taking decisions that make business sense.
On the positive side, companies that properly formulate their objectives, plan their strategy and implement it well will benefit from being in a better position to navigate sanctions when they hit and may well have a competitive advantage.
There are, at least, three key dimensions that need to be carefully evaluated:
Country considerations
Your business could be exposed to sanctions through your territorial presence, your products and services, your employees or your business partners.
Sanctions must be complied with within the territory of the country that imposed the sanctions, so they typically apply to your employees in that state along with any subsidiaries incorporated there. Sanctions can also attach when employees from one country visit another.
For example, US sanctions apply to anyone in the US, even temporarily. In addition to the sanctions' law of the states in which you have operations or are located, you should also be aware of sanctions imposed by countries along your shipping routes.
Even if none of your employees is involved in the shipping, it is possible that sanctions could apply with regard to the transport.
Also, if your product's transit through a sanctioned country, if a carrier or vessel used is on a sanctions list, or if the port is controlled by someone on a sanctions list, the shipment could be in violation of sanctions.
Products and services
Sanctions and export controls often attach to the sale, purchase, transfer, import or export of products, and the provision of services, technical assistance and financing linked to these transactions.
Covered products are often identified by their customs classification, or by their relation to a particular sector, project, use or end-user.
Again you don’t need to know everything, but you should know the kind of products and services your business provides and their major applications.
This will help you identify your exposure when sanctions are imposed. The type of products or services targeted by sanctions varies from country to country. Where once sanctions would focus on products or technologies of a military or dual-use nature (meaning they can be used for both commercial and military or other sensitive applications), sanctions have now become more diverse and often include
energy or infrastructure-related products and services.
This is particularly the case in relation to sanctions on Russia and Iran.
One simple, practical step is to maintain an up-to-date list of potentially relevant targeted products and services against which you can screen your
portfolio. Given adequate time and resources, in house legal counsel and product experts or engineers can work together efficiently to create such a list. If the product-related sanctions apply only to certain uses of the product, you should ensure that your contract documentation with your business partners contains information or representations relating to the applicable rules and the intended use of the product.
People
Companies should verify all transaction parties against the official denied party lists from
the government to avoid accidentally selling to blocked entities. Screening can be undertaken by software of maintaining a simple spreadsheet or by outsourcing the screening function. Also, receiving regular updates will ensure you know who is now an undesired entity to engage with.
If you need to support sanctions and their interpretation, do not hesitate to contact us for support. We follow EU, UK and US sanctions and can support the interpretation of legislation in this field. Contact info@customsmanager.org