Alert: Are You a Sanctions Buster?

Photo By: Sgt. Jessica OstroskaThe business world became an even more complicated place this week with the imposition of various US sanctions on twenty named Russian citizens. The in-house lawyer can ill afford to ignore this development, however remote it may seem. It is symptomatic of a growing trend and raises potential problems.

Do you know who they are?

Trade and financial sanctions used to happen to other people. If you were a global conglomerate or operated in the defence market or oil, you worried about sanctions but otherwise, probably not. Now Western governments are increasingly resorting to sanctions against individuals and organisations to apply pressure and engineer outcomes. The recent US sanctions are aimed at those who have close personal ties to the Russian President. People (and their money), not just countries and restricted goods are being targeted for sanctions

Do you know the individuals behind the organisation with whom your company trades? As individuals and organisations are being targeted, any business that imports or exports materials or has international interests needs to be alive to sanctions. As well as travel restrictions, the business interests of individuals are now being prohibited. You need to understand if you are trading directly or indirectly with any such interests. If so you must check the detail of any prohibitions.

An organisation that breaks sanctions risks not only criminal and civil penalties, fines and imprisonment. The long-term effects of sanctions busting can result in damage such an adverse impact on business reputation, consumer boycotts and exclusion from bidding for contracts with public authorities. Such effects can be more damaging to businesses with loss of revenues potentially counted in much larger percentages of turnover than any fine.

It is not always obvious when sanctions apply. The financial interests of individuals may not be clear. Subsidiaries and joint ventures pose a particular risk. Imports can lead to problems as much as exports. Does a finished product contain banned ingredients? This last point is relevant in the world of finished goods.

Anti Sanctions Busting Strategy

A good in-house counsel should keep up with international politics and the consequent business risks. When the risk is identified, it can be managed. Here are 5 things you should be doing:

  • Improve your due diligence on suppliers and customers. Add sanctions to the list of things against which you carry out pre-contract checks. You should already be doing anti-bribery and anti-money laundering checks, so this should not be a stretch. Do not forget to consider subsidiaries and joint ventures – yours and theirs.
  • Review your organisation’s risk management. Understand your businesses product set, supplier chain and distribution. What are the origins of product ingredients? Who will be the end-user?  Are you operating with high-risk products or in high-risk countries?
  • Sort out your contracts. Build in rights of suspension and termination if you discover that a counterpart creates a risk in this area. Seek positive disclosure of any potential issue by the counterparty and make non-disclosure a ground for contract termination/suspension. Do you need to control re-export of your products?
  • Keep a watch on the sanctions lists. There are various sources you can check relatively easily. Set up an Internet search alert for news of new sanctions. Periodically, but regularly look at the relevance of your policies and measures.
  • Training – you cannot train away your problems, but good training will cut the incidence and impact of risks. It will also show the authorities that you are serious about sanctions management.

Sanctions Information – Key Websites

UN Sanctions

EU Sanctions

UK Sanctions

US Sanctions

Photo By: Sgt. Jessica Ostroska – Reproduced by kind permission of the US Department of Defense

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