Sanctions are complex, vary from country to country, and are ever-changing in today’s tumultuous geopolitical landscape. Many businesses, however, make assumptions that could come back to hurt them down the line.
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Sanctions have always been an area of constant evolution, but recent years have been positively head-spinning. From the passage of the Joint Comprehensive Plan of Action in 2016 and the uncertainties surrounding its future, the Countering America’s Adversaries through Sanctions Act in 2017, the loosening (and then tightening again) of sanctions against Cuba, and the uncertainty of where we are heading with Russia and North Korea, the world of sanctions has never been more complex.
With all these changes, it is not surprising that businesses have a tough time keeping up. Here are some of the common misconceptions that can trip businesses up.
1. Restrictions only apply to countries targeted by US/EU sanctions
While it is understandable that comprehensive sanctions – which block most trade with specific countries like Iran or North Korea – get all the attention, there are other sanctions regimes to consider. These may stop you dealing with entities or individuals regardless of their location, and can be located in virtually any country including the US, the UK and others that most tend to think of as ‘friendly’.
Therefore, it is hugely important to check whether certain countries or entities are under sanctions. For example, the UK is currently applying sanctions against entities in countries such as Burma, Tunisia and Venezuela – countries that many would not usually consider to be an issue.
2. My company isn’t in the US or the EU, so I don’t need to worry about sanctions
Sanctions may still apply to non-US branches of a US company and, in some situations, subsidiaries of those companies. The US, with its broad extraterritorial reach, may also impose what are known as ‘secondary sanctions’ on non-US persons/entities with no known nexus to the US, such as those that it has applied to Iran this year.
EU sanctions generally still apply to non-EU branches of companies incorporated in the EU, although the EU tends not to impose ‘secondary sanctions’ on non-EU persons and entities.
3. Restrictions don’t apply to me, I’m abroad
Regardless of where they are located, US and EU citizens, as well as permanent residents, must comply with their country’s sanctions. For example, a German national who obtained US permanent residency but then decided to work in Dubai is still required to comply with US sanctions. Consequently, it is necessary to understand which sanctions regimes are applicable to you and your business.
4. It’s fine to use US dollars for my transaction – everyone does it
Virtually all US dollar transactions will transit through the US banking system. As a result of US financial institutions being ‘US persons’, they are required to comply with US sanctions; this may require them to reject or block your transaction. This means that using US dollars for your transactions brings the entire field of US sanctions into play. You should, therefore, consider carefully whether the security and reputation of trading in US dollars are worth the restrictions.