Companies Urged to Stay on Top of Sanctions


LONDON – Government application of economic sanctions is on the rise, and that can create complications during an age of global trade. Companies in a wide range of industries – including base oils and finished lubricants – need to keep abreast of both financial and trade sanctions and account for them in their operations and business planning, according to speakers at a conference here last week.

Governments impose different types of sanctions, Zia Ullah, a partner at international law firm Eversheds Sutherland, explained during the ICIS World Base Oils & Lubricants Conference, and businesses need to grasp the differences between them. Financial sanctions freeze funds and economic resources of the target, prohibit making funds or other economic resources available to the target directly or indirectly, or prohibit transferring funds over certain national borders without a license. This goes beyond just freezing bank accounts to restrictions on a wide variety of financial markets and services.

Trade sanctions, in contrast, restrict the import or export of certain goods, software or technology and can be targeted at a particular industry, such as the oil embargo imposed on Syria by the European Union or U.S. sanctions against Iranian oil companies.

The United States drives global sanctions compliance, according to Ullah, who is also head of corporate crime investigations at Eversheds Sutherland. Most international banking transactions use U.S. dollars and must clear through U.S. banks, which can stop transactions with sanctioned entities. “If you cant get paid, there’s no point to the trade,” Ullah quipped.

Sanctions application and enforcement vary by enforcing entity. For example, both U.S. and European Union sanctions impact companies that are owned by a sanctioned country, even if that company is not being sanctioned directly. However, EU sanctions also apply to companies that are controlled by a sanctioned country. This means businesses must understand ownership relationships beyond a simple sanctions list, he cautioned.

While U.S sanctions are overseen and enforced by the Office of Foreign Assets Control, which is part of the U.S. Treasury, each EU jurisdiction has its own regulator to implement criminal penalties.

Applications for exemptions and licenses to trade with sanctioned entities are handled by the European Union rather than individual member states, and by OFAC in the U.S. Obtaining a license from OFAC takes a year or more, Ullah said, and three to four months from the EU. He warned companies to build this processing time into their business plans.

Sometimes international sanctions can conflict. For example, the U.S. withdrew from the Iran nuclear deal in May last year and reinstated sanctions on the country. At the same time, the EU has put regulations in place that prohibit compliance with the U.S. sanctions. Other conflicts exist for sanctions on Cuba, North Korea, Syria and Russia, according to Ullah.

Consequences for violating sanctions reach beyond financial penalties to include criminal prosecution, imprisonment and fines for company officials; regulatory action and restrictions on business, such as revocation of an export license; negative impacts on capital reserves; damage to company reputation and business and banking relationships; and becoming a target for secondary sanctions.

Also speaking at the conference, Vincent Gaudel, compliance expert with software company Accuity, told attendees that complying with sanctions regulations takes a whole program; no unique tool can prevent you from being fined.

It has to be backed by a deep corporate culture endorsed at the executive level, he continued. He also cautioned companies not to rely solely on banks, which may not detect all risks, or may prevent legitimate business out of an abundance of caution.

Gaudel recommended conducting a risk assessment by making a list of sanctions that may be applicable to your business and cross-checking it with a list of what your business is currently doing, taking into consideration geography, activities and partners. Clear policies, procedures and recordkeeping should be established for compliance, as well as screening tools and staff training.

Companies conducting international trade should consider several questions, Ullah advised. Are there any applicable sanctions or embargoes in place? Is a license necessary for existing and planned activities? Do government controls apply to equipment that a company sells? Who is the customer, and are there concerns that the end user might be subject to sanctions? Is a company supplying product that could be used for military, nuclear or other weapons applications?

Ullah also pointed to some red flags that might signal a client is attempting to subvert sanctions, thus putting the supplier at risk. The product may not be in line with the overall technical advancement of the country to which it is being shipped. The customer may be unfamiliar with the products performance characteristics or may decline routine installation, training or maintenance services. Companies should also be suspicious if the shipping route is abnormal or if delivery dates are vague or planned outside of typical business hours.

“Maintenance is also important,” said Gaudel. “As both sanctions regulations and your organization evolve, your compliance framework will also need adjustments.”

Companies should give serious consideration to the overall cost of doing business with sanctioned entities, Ullah said. The high burden of compliance may not be commercially or economically worthwhile.

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