TT Talk - Understanding the patchwork of sanctions regimes
Freedom in international trade in the 21st century remains littered with obstacles and barriers, most of which will be accommodated in the normal course of business. The political and volatile subject of sanctions presents an extremely important hurdle that every company involved in handling and transporting cargo internationally needs to approach with diligence.
This article takes a broad look at sanctions regimes generally, concentrating on the EU, so that transport operators (ie. freight forwarders, logistics operators and shipping lines) can understand the common features of the various sanctions programmes and how these impact on them.
There are currently EU sanctions against a host of countries, from the highly publicised and wide-ranging measures against Iran and Syria, to less high-profile programmes such as those against Belarus, Libya, Egypt and Ivory Coast (the latter three programmes being the legacy of earlier more expansive programmes which have now been substantially wound down). Penalties for breaching the sanctions can include significant fines and imprisonment of directors.
Virtually all of the EU trade sanctions programmes impose an asset freeze, the effect of which is to prevent access to or movement of the funds and economic resources of named individuals and entities and prohibit the provision of funds or economic resources directly or indirectly to or for the benefit of the named individuals and entities.
Both ‘funds’ and ‘economic resources’ are widely defined, and include cash, guarantees, bills of lading and any assets which have an economic value. As a result, these restrictions effectively make it impossible for the targeted individuals and entities to trade with EU-based transport operators or with operators elsewhere whose supply chain activities are supported by EU-based banks and insurers.
Any transport operator which has grounds to believe that they are engaged in any trade which directly or indirectly involves one of the sanctioned countries therefore needs to identify the sanctions programme imposed on that country and screen all of relevant parties in the sanctioned country, to ensure that they are not dealing with a sanctioned entity.
In many instances the asset freeze is accompanied by various restrictions on the import and export of particular goods to and from the sanctioned country. In some circumstances, prohibited goods are limited to military and quasi-military equipment, such as dual-use goods and/or equipment for internal repression. However, in other cases the prohibitions on imports and exports extend to purely ‘commercial’ goods, in circumstances where it has been determined that the trade in those goods is either funding the activities of the targeted regime, or is in some other way critical to the achievement of that regime's objectives.
Transport operators therefore need to know precisely what goods they are carrying to or from (or via) a sanctioned country, so that they can check that they are not being asked to carry prohibited goods.
In the most extreme cases, such as the trade sanctions regimes against Iran and Syria, the EU asset freeze and restrictions on imports and exports are also supported by a host of ancillary restrictions intended to increase the pressure further on the targeted regime by restricting all commercial trade with the sanctioned country (eg. by prohibiting some banking transactions and limiting the availability of insurance). Any non-EU based transport operators engaged in trade with or involving a sanctioned country therefore need to take care to ensure that they do not expose their EU-based insurer, reinsurer or bank.
In addition to the EU sanctions, sanctions have been imposed by a host of other countries, including measures which are often very similar to the EU sanctions (in the case of Norway and Switzerland), and measures which stick more closely to the measures mandated by the UN (in the case of countries such as India and Turkey).
Transport operators will need to take steps to ensure that they are fully up to speed with the restrictions imposed by their own country, but they should also be aware that restrictions imposed by the US could also apply. US domestic measures will apply where the transport operator has a US connection (for example they are owned or controlled by a US person, or have US nationals as directors) or the transaction involves US origin goods or payments in US Dollars. In addition, where the US has adopted measures which have extra-territorial effect they will apply to transport operators worldwide.
US extra-territorial measures are most relevant in the context of sanctions against Iran, but the important point to stress is that these extra-territorial measures derive their force from the penalties which can be imposed, which include exclusion from the US banking system, seizure of assets in the US, and other restrictions on trade with the US. As a result, any transport operator wishing to engage in trade with US persons and companies needs to ensure that they do not violate US extra-territorial measures.
- Identify the restrictions imposed by your own country (and any other countries whose jurisdiction applies) against any country to or in which you trade;
- Establish rigorous procedures to screen counterparties and any other relevant entities to ensure that they are not sanctioned entities;
- Ensure you know precisely the cargo that will be carried and satisfy yourself that it is not subject to restrictions;
- Lack of care may prejudice your position with banks and insurers.
Modern supply chains are themselves complex and anyone who suspects that sanctions may impact on their business should take legal advice. However, the following websites contain current and, generally, clear guidance on this intricate aspect of international trade:
We gratefully acknowledge the assistance in the preparation of this article of Daniel Martin of Holman Fenwick Willan LLP.
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Risk Management Director, TT Club