What are Sanctions?
Sanctions are a complex mixture of foreign policy and instruments to help curb some
criminal activity. They are legally binding on all UK citizens and registered
companies, they have regulatory layers for some industries, they have an
international reach, and for global businesses they often introduce a conflict of
laws.
Like war and diplomacy, they are a foreign policy instrument for governments to use
to fulfil foreign policy objectives.
Sanctions are a fast changing, reactive, legislative area that covers a mixture of
foreign policy, international trade, criminal prohibitions, financial restrictions,
and travel or visa bans.
Law and sanctions
Sanctions legislation is domestic law, though it is one of the areas with extra-
territorial reach, so the requirement to adhere to UK legislation is absolute for
UK nationals and UK registered companies. This is often referred to as a nexus.
International corporations, especially those in banking can find this mixture of
extra-territorial legal requirements extremely complex and costly to manage.
Why impose sanctions?
The aim of sanctions is usually to help enforce a change of behaviour in the
target, or to send a political or foreign policy message.
They are imposed in response to behaviours such as threats against peace or
security; human rights abuses; engaging in terrorism; committing public acts of
corruption; or the proliferation of weapons of mass destruction. Governments and
international authorities will typically issue laws and regulations to create
restrictions in pursuit of the objectives outlined above. It is important to note
that sanctions
are no longer imposed on a country (which denotes that every person of that country
is sanctioned) but rather in relation to a country (which denotes that certain
groups (such as politicians or business leader) in a country are sanctioned).
Who imposes sanctions and who is the target of sanctions?
Sanctions are imposed by international bodies, such as the UN or EU, or governments
against a particular group or groups. Governments, like the UK or the US, can also
have an autonomous sanctions program.
Sanctions can be imposed against individuals, such as a travel or visa ban. They
can also be imposed against companies or groups, this may be an asset freeze or a
prohibition on certain forms of trade.
Sanctions may be issued against the following actors and activities:
Governments of countries, jurisdictions or regions.
Individuals.
Trading activities: Sanctions can apply to trade in certain goods, services
and technology.
Sectors - For example, there is an internationally established Sectoral Sanctions
Identification (SSI) List prohibiting certain types of debt financing and equity,
in response to Russia’s annexation of parts of Ukraine.
Why sanctions get complicated quickly
Sanctions are a Foreign Policy tool and as such invoke international complications.
Recent international political developments and unrest have brought the threat of
terrorism to the forefront of domestic and international political agendas. It is
critical that firms and compliance functions fulfil their legal and regulatory
sanctions obligations, in support of the wider political aims of the international
community.
How sanctions affect businesses
Financial institutions and financial sector businesses act as a front line against
financial crime. It is also a regulatory requirement for financial institutions to
combat money laundering, terrorist financing and sanctions breaches.
Other industries are also required to ensure that they are not exposed to sanctions
risks.
Firms are required to do no business that is connected to individuals, entities,
government of countries, regions or activities subject to sanctions. While it is
not possible to prevent every instance of sanctions-related activity, firms must
establish controls through a programme of detection and appropriate action to avoid
risks or at least mitigate the effects of those that materialise, in line with
regulatory obligations and industry best practice.
What is the aim of sanctions and why are they imposed?
Who imposes sanctions and who can be targeted by sanctions?
Are UK nationals and registered companies legally bound to follow sanctions
legislation?
What are the potential consequences for companies that fail to comply with
sanctions regulations?
Can sanctions be imposed on individuals? If so, how?
What are some of the activities or behaviors that can result in sanctions being
imposed?
How can businesses mitigate the risks associated with sanctions and comply with
regulatory requirements?
