The consequences of being found guilty of breaching sanctions are serious. A number of major financial institutions have been subject to multi-million dollar fines and settlements with US and UK regulators for sanctions breaches.
Insurers are also concerned about the impact of sanctions violations. Loyd's of London has reviewed the issue following suspicions that some members may have breached international sanctions through insurance and reinsurance contracts. In turn, increased pressure is being applied to exporters of products and services to ensure that they do not expose their lenders and insurers to sanctions risks.
Sanctions as a compliance issue came to the fore when a number of international companies were identified by the UN as breaching sanctions against Iraq under the Oil-for-Food Programme. Numerous oil and gas service, infrastructure and engineering companies were subsequently prosecuted and convicted for sanctions breaches.
What are embargoes and sanctions?
Embargoes and sanctions can take a number of forms, but the most relevant types of sanctions for businesses are financial sanctions and trade sanctions.
Financial sanctions generally involve asset-freeze measures affecting the provision of funds and economic resources to certain entities or individuals ('designated persons'). They may also include restrictions on the use of assets by designated persons, receipt and transfers of funds to particular types of persons - for example, Iranian nationals - and prohibitions on the provision of financing or financial assistance connected to designated persons and prohibited transactions.
Trade sanctions prohibit trade in certain goods from affected countries, usually arms and commodities such as oil, timber, gold and diamonds; and equipment for use in the nuclear, oil and gas or petrochemical sector. Activities related to such trade may be prohibited.
It is also broadly prohibited to engage in any activities the object or effect of which is to circumvent sanctions. As a consequence, companies should not structure transactions to avoid international sanctions. For example, an EU based oil and gas business which supplied equipment to a company in the UAE, knowing that in turn the UAE Company supplied that equipment to end users in Iran, may well have breached EU trade sanctions against Iran.
EU and UK regimes
The EU and the UK currently have sanctions in place against numerous countries, or certain individuals and entities from or within those countries. There are also measures in place in respect of terrorist organizations and associated individuals. EU and UK sanctions are particularly onerous in respect of Iran and Syria. Other countries affected include Afghanistan, Egypt, Iraq, North Korea, Sudan, and Libya.
Extra care is needed when doing business in these countries or with people from or connected to these countries.
The jurisdictional reach of EU sanctions is extremely wide as they apply.