What are Sanctions in Business?
Sanctions are restrictive measures imposed by governments on target countries, regimes, organisations and individuals. They are used for reasons of foreign policy and national security, prevention of terrorism, maintaining international peace and security, as well as compliance with international obligations.
Sanctions are intended to prevent, or bring about a change in a certain type of behaviour, or send a political message. Sanctions can be imposed either unilaterally by the UK or in coordination with other countries. UK sanctions apply to all UK persons (individuals and entities), including anyone in the UK and its territorial waters, UK nationals outside the UK, and bodies incorporated or constituted under the law of any part of the UK.
What are sanctions?
Sanctions can be categorised by type and this determines which government department is responsible for their implementation and enforcement. Types of sanctions include financial, trade and transport.
The Office of Financial Sanctions Implementation (OFSI) is responsible for implementing the UK’s financial sanctions. The Sanctions and Anti-Money Laundering Act 2018 (Sanctions Act) provides the main legal authority for UK sanctions.
UK financial sanctions include targeted asset freezes, restrictions on financial services such as the provision of advisory services and insurance, directions to cease banking relationships and activities, as well as restrictions on access to capital markets.
Entities that are not listed, but that are owned or controlled by listed entities or persons are also subject to financial sanctions.
The Export Control Joint Unit (part of the Department for International Trade) implements trade sanctions and embargoes. Trade sanctions relates to measures which restrict the import from and export to a country of goods, or technology (including software) or non-financial services (e.g., technical services).
As an example, and amongst many other controls “The Russia (Sanctions) (EU Exit) Regulations 2019” contains comprehensive lists of goods and raw materials controlled for export and import reasons.
Transport sanctions are implemented and enforced by the Department for Transport and relate to restrictions on the ownership, registration or movement of ships and aircraft. Transport sanctions also cover the provision of ancillary services such as insurance.
How do these sanctions affect international businesses?
Economic sanctions on international businesses can have a significant impact on their ability to trade and engage in financial activities with sanctioned entities. This makes sanctions in business an important element for companies to consider.
Businesses should ensure that they do not trade with designated (listed) individuals or entities, or with an entity which is owned or controlled by a designated individual or entity. This means that all parties involved in any transaction (customer or supplier) should be screened against all applicable sanctions lists.
Businesses should also ensure that all items (goods, software or technology) are classified correctly against all applicable export control lists. Additionally, trade sanctions include lists of controlled goods and raw materials for import and export control reasons, so businesses need to ensure that they are compliant with these controls.
As well as business sanctions, other export or import controls may also be applicable, depending on the type of item, or on the end-use application.
Where a transaction involves a person or organisation subject to financial sanctions (whether directly or indirectly), businesses must obtain a licence in order to allow the activity to take place without breaching financial sanctions. Where a transaction is subject to trade sanctions, then businesses must obtain a licence from the Export Control Joint Unit (ECJU).
Similarly, licences may be requested for other sanctioned activities from the applicable government departments, including OFSI.
UK sanctions are complex and far reaching. The Sanctions and Anti-Money Laundering Act 2018 allows the government to create criminal offences for breaching sanctions regulations. These vary across specific regulations, but can include a prison sentence of up to 10 years, a fine, or both.
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