Financial and trade sanctions are a foreign policy tool used to combat terrorism and exert pressure on countries by cutting off access to funds or reducing trade. Lifting sanctions can also be used to reward countries for progress – hence the recent decision by the EU to suspend sanctions against Burma.
The European Union ("EU") implements sanctions imposed by the United Nations Security Council and also imposes its own sanctions; currently, the sanctions are directed at 23 different countries and groups, from Al-Qa'ida to Zimbabwe. The nature of the sanctions varies depending on the policy and actions which prompted them – for example, there are bans on the export of luxury goods to both North Korea and Syria, but this is not a standard component of sanctions.
African businesses which do business in the EU need to be aware of the restrictions imposed by EU sanctions because a subsidiary or branch incorporated in or operating in the EU is required to comply with EU sanctions. Knowledge of EU sanctions may also assist businesses in understanding why EU banks cannot process certain transactions and why EU businesses may need to make additional enquiries before dealing with certain countries.
In general, EU and UK financial sanctions are carefully targeted at particular individuals and companies, known as "designated persons". At present, there are nearly 3,000 designated persons (including some based in the EU). There are two basic restrictions. First, dealing with funds or economic resources (a widely defined term) belonging to, held or controlled by a designated person is prohibited. In effect, this obligation requires anyone who comes into possession of such funds to freeze them, thereby preventing the designated person from accessing his own funds. The second restriction is intended to prevent the designated person from obtaining funds from other sources; it is a prohibition on making funds or economic resources available to a designated person. The sanctions are very widely drafted and catch transactions which benefit a designated person, even if the designated person is not directly involved. For example, if a company is controlled by a designated person, that company's assets may be frozen. Circumventing the sanctions is also prohibited.
While other legislation aimed at combatting financial crime, such as the anti-money laundering regime, is directed at those most likely to encounter money laundering, such as banks, estate agents and casinos, everyone in the EU is required to comply with EU sanctions. The sanctions also have extraterritorial effect (albeit to a much more limited extent than is the case under US sanctions): EU nationals and companies operating overseas must also comply. This can cause problems in relation to crossborder transactions, particularly when new sanctions are introduced, and it is worth reviewing contractual terms and conditions to guard against this risk.
ECONOMIC AND TRADE SANCTIONS
Economic and trade sanctions are usually targeted at particular industry sectors or state-owned companies in a particular country, and aim to prevent the country from earning money through that industry. For example, there is currently a ban on importing Syrian crude oil into the EU. Although economic sanctions are limited in scope, they generally have a wider impact on trade because many businesses and financial institutions take a cautious approach when dealing with countries targeted by sanctions.
The imposition of financial sanctions has a Draconian effect on a designated person because any assets they have within the EU will be frozen. Licences are available to enable the designated person to make and receive payments, but they can only be obtained in very limited circumstances.
It is possible to challenge a designation (if a person believes that he or she has been designated unfairly or by mistake) by submitting evidence to the EU Council so that the designation can be reviewed. If this is not successful, the designated person has the right to challenge their designation in the EU General Court. This will, however, be a difficult task in the absence of clear evidence that a mistake has been made; a recent challenge by Bank Melli PLC, an Iranian bank based in the UK, was rejected.
If a business has been affected by EU sanctions, but is not a designated person – for example, because it has a bank account with a designated bank – it can apply for a licence to enable it to resume its operations. The application should be made to the relevant authority in the EU member state which is most closely connected with the matter. For example, if ABC Limited has an account with Bank Melli PLC in the UK and it wants to withdraw its funds, it should make an application to HM Treasury in London.
Sanctions can be imposed, changed and removed with surprising speed and frequency – and often inconsistently across different nations - so it is not always easy to stay on top of the most recent developments.
The EU responded to the recent turmoil in Guinea-Bissau by freezing the assets of (at the time of writing) six individuals accused of involvement in a coup. Similar action is being discussed by the Economic Community of West African States (Ecowas).
The EU has also recently imposed yet further sanctions against Syria because of continuing concerns about the human rights situation there. The latest changes are the fifteenth round of sanctions against Syria, and freeze the assets of two companies which the EU believes give financial support to the Syrian regime and three additional individuals.
By contrast, the EU has rewarded recent improvements in the political situation in Burma by suspending until 30 April 2013 asset-freezing measures and an investment ban which had covered around 1,400 individuals and entities. The suspension has the effect of temporarily lifting the majority of the sanctions against Burma and is a significant reward for the progress that has been made there.
The EU continues to regard sanctions as a valuable foreign policy tool and continued changes in this area are therefore likely as the EU responds to developments – both positive and negative – around the world
Summary map: African countries subject to sanctions imposed by the European Union
Click here to view map.