Not so long ago, sanctions were a rare occurrence which only involved obscure products and countries, and which were decided by the members of the United Nations Security Council. Today, the European Union and particularly the United States, impose sanctions and other trade restrictions with high frequency which have the potential to affect any type of transaction. Set forth below is a summary of some recent developments.
Since 2017, the United States has imposed sanctions with reference to the Global Magnitsky Sanction Programme which target human right abusers and corruption occurring worldwide. There has been a significant number of designations by the United States during 2020 with reference to the Global Magnitsky Sanction Programme.
On 7 December, the European Union announced that it will launch a similar sanction programme, enabling the European Union to target entities – including state and non‑state actors – responsible for, involved in or associated with, serious human rights violations worldwide. Acts that will fall with the ambit of the programme includes genocide, crimes against humanity, torture, slavery, extrajudicial killings and arbitrary arrests or detentions. Targeted entities will be subject to a travel ban and freezing of funds within the European Union. Notably, the programme does not appear to target corruption, in contrast to the Global Magnitsky Sanction Programme.
On the same theme, it may also be noted that on 21 December, the United States Department of Commerce launched a “Military End User List” naming 58 Chinese and 45 Russian companies which the US government has determined are ‘military end users’ for purposes of the ‘military end user’ control in the United States’ Export Administrative Regulations (EAR). Companies worldwide are obliged to observe the Military End User List in the event they handle products that are subject to the EAR, which essentially covers all products of United States origin.
On 14th December, the United Stated Department of Treasury announced that it has launched a new type of sanction list – the Non-SDN Menu Based Sanction List (NS-MBS List). Entities will be added to the list if they have not been made subject to asset blocking measures, although they will be subject to a “menu” of non‑blocking sanctions under other statutory authorities. If asset blocking is chosen as a menu‑based sanction, the entity will be added to the specially designated nationals list. If non‑blocking sanctions are imposed, the Entity will be identified on the NS‑MBS List. At this juncture, only one entity is on the NS‑MBS List, namely Turkey’s Presidency of Defence Industries (with name variations).
Readers are no doubt well aware of the long and winding road for the JCPOA, the agreement concluded between Iran, the five permanent members of the United Nations Security Council and Germany, the United States, and the European Union, by which a significant number of sanctions against Iran were lifted in 2015 provided Iran restricted its nuclear programme. When the United Stated withdrew from the agreement in 2018, its extra territorial sanctions were re‑imposed which resulted in the agreement essentially becoming irrelevant. There are indications that President‑Elect Joe Biden will change Iran policy and make an attempt to re‑enter the agreement. In fact, Biden has said a new Iran policy would be one of his priorities. In doing so, however, he will have to overcome significant domestic political resistance. The European Union, on the other hand, is presently involved in meetings with Iran to discuss continued implementation of the agreement. The prospects for a swift revival of JCPOA are uncertain since Iran has been found to be in breach of the agreement on a number of occasions.
On 20 November, a study was issued by the policy department of the European Union Directorate‑General for External Policies entitled “Extraterritorial sanctions on trade and investments and European responses”. Extraterritorial sanctions are controversial in that they are intended to apply to entities outside a state’s own territory over which the state generally has no jurisdiction. For instance, it is because of the United States’ extra territorial sanctions against Iran that the JCPOA has become irrelevant. The study acknowledges that the United States is the main driver regarding the use of extraterritorial sanctions and there are signs that other states follow suit. The study makes the following recommendations on how to neutralise the effect of extraterritorial sanctions:
On 17 December, the European Union Council decided to extend sanctions against Russia for its actions in destabilising the situation in Ukraine until 31 July. The sanctions limit access to the European Union’s capital markets, prohibit forms of financial assistance and brokering towards Russian financial institutions, prohibit direct or indirect imports, exports or transfers of all defence‑related materiel and establish a ban for dual‑use goods for military use or military‑end users in Russia. The sanctions further curtail Russian access to certain sensitive technologies that can be used in the Russian energy sector, for instance in oil production and exploration. Notably, there are other type of sanctions in effect against Russia for its annexation of Crimea consisting of diplomatic measures, individual restrictive measures (asset freezes and travel restrictions) and specific restrictions on economic relations with Crimea and Sevastopol.
On 15 July, the United States Department of State announced that the Countering America’s Adversaries Through Sanctions Act (“CAATSA”), a sanctions regime targeting any company involved in certain high‑value investments related to the construction of Russian energy export pipelines, would include also the Nord Stream 2 project as well as the Turk Stream project. Both the Nord Steam 2 and Turk Stream projects had previously been excluded from CAATSA. In addition, on 25 June a legislative proposal was made to expand sanctions pursuant to the Protecting Europe’s Energy Security Act (“PEESA”) to also include “pipe‑laying activities”. Currently, PEESA only targets pipe‑laying vessels. These changes (albeit one prospective) significantly increase sanction risks for any company involved in the Nord Stream 2 project, 95%., of which has been completed. Media reports suggest that Joe Biden is not expected to change the United States’ tough stance towards Nord Stream 2 and other Russian energy export projects.
On 30 October, the Office of Foreign Asset Control (OFAC), the US agency responsible for enforcing economic and trade sanctions, issued an advisory regarding sanction risks in the art industry. The advisory provides that sanctioned persons may use high value art work as an investment asset or medium of exchange and since it is generally prohibited to undertake transactions with sanctioned persons, art traders may be exposed to sanctions as a result thereof. OFAC reports that it has previously warned art and luxury goods dealers by way of previous publications to be alert to the schemes of illicit actors who hide funds in high‑value assets in an attempt to mitigate the effects of U.S. sanctions. The fact that a prior warning and an advisory now have been sent out to the art market may entail that OFAC will not hesitate to enforce sanctions firmly in the event of a breach, on the basis that “you have been warned”.
There is a continuing trend by the European Union and the United States to issue targeted sanctions against companies, individuals and activities rather than against countries. Considering today's global supply chains and intertwined economies there is an inherent risk for any business to have an unintended connection with sanctioned entities, activities or countries. As a result, any company involved in international trade should be aware of sanction risks and should also have appropriate measures in place in order to mitigate them. The measures should include a sanctions policy and also procedures governing how to implement the policy. Vinge is well suited to assist in identifying and assessing sanction risks, as well as drafting sanction policies and procedures.