Although international economic sanctions feature in the news with increasing regularity, this subject is of particular relevance to those working in the shipping and international trade sector who should be acutely aware of the thorny issues they raise.
In November 2017, Clyde & Co hosted a seminar on sanctions, financial crime and terrorist financing in shipping and international trade. The seminar was chaired by Marie-Anne Moussalli, a senior associate in the ship finance team, and featured a panel discussion and presentations from Clare Hatcher (a partner and well known sanctions expert), John Leonida (a partner specialising in superyacht law, an area sensitive to sanctions and financial crime issues) and Tristan Frisell (head of legal and administration at tanker owner and operator Union Maritime). All three panellists highlighted main areas of concern: Clare gave a very helpful overview of current sanction regimes and Tristan provided an excellent insight into best practice in his industry, and the practical steps that they take to ensure compliance with any applicable sanctions regimes.
A key observation from the Clyde & Co seminar was the notable proliferation of sanctions in recent years. Around 32 countries are now subject to EU sanctions (with only around half of these resulting from UN obligations), while US sanctions (pertinent for any transaction conducted in US dollars and for anyone coming under the (broad) definition of a "US person") are even wider in scope and are used as a popular strategic and diplomatic tool.
Here, in the UK, the government's approach to sanctions has – in common with other countries and international organisations – become much more aggressive in recent years, with the establishment of the Office of Financial Sanctions Implementation (OFSI) in 2016. OFSI's powers were further bolstered by the Policing and Crime Act 2017. The detection rate for sanctions infringement has also increased, and, nowadays, banks have stringent reporting obligations where they suspect sanctions breaches, as do solicitors, accountants, and other professionals. Post-Brexit, the UK government has expressed its intent to continue complying with the EU sanctions regime, whilst retaining the freedom to impose its own additional measures if required. Undoubtedly, the sanctions landscape is looking increasingly complex.
Since the seminar took place, sanctions have continued to expand. The US has widened sanctions against regimes and individuals in Venezuela, North Korea and Russia, while US President Donald Trump has reluctantly renewed the waiver of certain sanctions against Iran. In January 2018, a further raft of sanctions took effect against Russia, the most significant being the expansion of restrictions under section 223 of the Countering America's Adversaries Through Sanctions Act, which prohibits US persons from involvement in certain types of oil projects anywhere in the world, and not just in Russia where certain Russian entities have significant ownership or voting interests.
On the opposite side of the Atlantic, Implementing Regulations (EU) 2018/87 and 2018/88 recently extended EU sanctions against various Venezuelan and North Korean individuals.
It is clear that sanctions are here to stay, and that all businesses – particularly those with an international dimension – need to be alive to the issues involved. Sanctions regimes vary in scope, are multi-layered and are subject to frequent change: in practical terms, a busy commercial team will find keeping up with the minutiae of sanctions lists and their impact challenging.
In terms of best practice, some useful suggestions for businesses included:
Do not try to be an expert. Instead, ensure that your approach to sanctions (and other issues such as money laundering) consists in casting a broad net that catches anything suspicious – any links to a sanctioned country within a transaction, or anything that appears unusual to your teams. The expertise and advice on next steps should then come from your compliance team and/or specialist lawyers, who have the knowledge, resources and experience to accurately advise on the appropriate course of action. The people in your business should focus on escalating their suspicions and concerns to the appropriate level, and should avoid making their own assessment of complex situations, as the wrong response could have devastating financial and reputational consequences.
The rapid pace of global events can mean changes to sanctions regimes with little (or no) notice, so do ensure that you include appropriate and robust sanctions clauses in your contracts – particularly, provisions allowing you to terminate the agreement if another party becomes the subject of sanctions. If you are being asked to enter into a contract which requires your company to comply with any sanctions regime, you will need to ensure that your business is able to comply with the contractual provisions.
Consider process improvements aimed at minimising the risk of human error – such as a "Customer Relationship Management" system that allows your staff to easily cross-check potential customers and suppliers against sanctions lists.
Be mindful of your financing arrangements: it is likely that your loan agreements contain sanctions and anti-money laundering provisions; banks are subject to particularly high scrutiny (and indeed financial penalties) when it comes to breaches of these laws. Accordingly, they may well insist on quite onerous undertakings and broadly-worded events of default clauses. When financing or refinancing, never skim over these provisions as standard boilerplate wording – read them carefully, and if in doubt seek advice from specialist lawyers.
One final point raised at the seminar was businesses' attitudes to sanctions and financial crime. There is often, perhaps, a tendency to see these as an unwelcome interruption to commercial activity. There is no question that complying with these obligations can be onerous timewise and financially. However, it is important to understand that compliance is not optional and that the consequences of a breach in implementation can be extremely serious and, in some cases, carry personal liability. With appropriate vigilance, established processes and specialist advice, the burden and bureaucracy of compliance can be minimised to allow commercial activity to proceed seemlessly.