Effective sanctions compliance is an important feature of business risk strategy. It is essential that businesses understand the operation of various economic sanctions and export controls, and have robust systems in place to ensure that processes capture sanctions risks.
The war in Ukraine has brought these matters to the forefront, particularly as the international community continues to implement economic sanctions against Russia to bring hostilities to an end.
Economic sanctions typically take the form of asset freezes against designated people. However, they often also include prohibitions on specific industries or aspects of a country’s economy. The UK’s Russian sanctions impose restrictions across a range of sectors including:
- Financial and investment restrictions, including those on dealing with certain transferable securities – such as shares in companies – issued by specified Russian companies and people, and prohibitions on loans to specified Russian companies (and other associated or connected companies and people)
- Energy-related services, including restrictions on oil exploration activities in Russia
- Insurance and reinsurance services relating to aviation and space technology for people connected with Russia or for use in Russia
Where there are applicable sanctions or restrictions, it is imperative that thorough analysis of any proposed transaction is undertaken. Where any doubts occur, legal advice should be obtained. Interpretation of terms and concepts under these sanctions is a fraught area, and complex questions can arise.
Penalties for breaches of sanctions are severe – with certain offences carrying a penalty of up to ten years’ imprisonment. The sanctions make it a criminal offence to contravene or circumvent any of the prohibitions contained within the regulations. A person can be guilty of an offence and liable to a fine and/or imprisonment if they:
- Contravene the prohibitions contained in the sanctions
- Intentionally provide false information to anyone exercising powers under the sanctions
- Destroy, mutilate, deface, conceal or remove any document with intent to evade the clauses within the sanctions.
It is imperative that businesses carefully consider their exposure to economic sanctions. This requires being vigilant in relation to red flags such as the involvement of high-risk jurisdictions, designated people or high-risk sectors such as shipping, oil and gas, or trade involving machinery or equipment that may be capable of having military application.
When a thorough sanctions screening does not identify any existing restrictions, it is important to be aware that economic sanctions are usually a movable feast. There is a high likelihood of further and even more draconian prohibitions being brought into force.
Accordingly, businesses should seek to ensure that contracts contain clauses that enable them to exit transactions where sanctions issues arise.