The activity surrounding the Ukraine crisis during the past several months has shown that sanctions can be imposed rapidly in response to changes in the political climate. However, that flurry of sanctions activity has slowed during the past month, providing a good opportunity to assess how your business landscape has changed because of the sanctions—and what you can do to adapt to those changes.
1. Be Aware of Sanctions Relevant for Your Business
The Ukraine sanctions have had a noticeable impact in many sectors of the Finnish market, however, it is good to remember that other sanctions programmes also exist and can have a real-life impact. The penalties for violating any of sanction can be significant, and there are many more sanctions programmes in force than just those concerning Ukraine. The EU and the US each have approximately 30 separate sanctions programmes in force at the present time.
You may be caught by surprise of the range of business transactions that are restricted or forbidden by sanctions under various circumstances. Sanctions touch on a wide variety of activity. Although prohibitions against doing business with specific individuals or companies have been well-publicised during the Ukraine escalation, other restrictions on certain types of business activity (such as providing services or certain goods even if the counterparty is not sanctioned), tend to receive less attention in the media.
Older sanctions programmes, such as those concerning Iran and activities linked to terrorist organisations in various countries around the world, have a broad reaching effect but receive little if any press attention. Importantly, enforcement actions by EU Member States and the US authorities include an investigation of whether the violator knew or should have known that their conduct violated sanctions laws.
Also, it is good to keep in mind, that other countries (such as Canada, Australia and Switzerland) have also imposed their own sanctions. Although EU and US sanctions may be for many Finnish enterprises the most likely applicable sanctions programmes, it is good to be aware that other authorities can and do impose sanctions of their own.
2. Determine if Planned Business is Affected by Sanctions
If you believe that a business transaction that you have planned could be affected by sanctions, there are some steps you can take to protect yourself against liability—both in case of a sanctions-triggered dispute with your counterparty, as well should an official investigation occur.
- Identify as many of the personnel involved in the transaction as is reasonably possible, including both your own and those of your counterparties. Whether you are required to comply with any particular sanctions programme depends upon a number of factors, including where you and your counterparty are performing your obligations under the contract, where your decision-makers for that transaction are located while making decisions for that transaction, and the citizenship and residency rights of personnel involved in the transaction.
In addition, involvement by individuals or entities listed as sanctioned on the official lists, or because of the application of the 50% ownership rule, and the involvement of certain goods or services, can all affect whether a particular transaction will be affected by sanctions laws. Looking for the moment only at the background of the personnel involved, it is important to know that even a company that is registered and headquartered in Finland and that has no connection to the US, could in some circumstances be required to comply with US sanctions laws if a particular business transaction has a connection to the US.
The US authorities have a history of threatening civil or even criminal prosecution against foreign companies when those companies are believed to have caused US persons to violate US sanctions laws. Knowing as much as possible about the connections of personnel and companies involved in your transactions will improve your ability to determine whether your business plans might need to comply with EU or US sanctions, or perhaps on some occasions with both.
- Identify your counterparties and determine if they are sanctioned. Official lists of every individual and company specifically sanctioned by the EU or the US (or sometimes by both) can be found and searched online. However, be aware of the 50% ownership rule—a company may be sanctioned, even if it is not listed on the official lists, if that company is owned 50% or more by one or more sanctioned persons.
Try to obtain as much information as is reasonably possible about your counterparties, including their full names, official registration numbers, office locations and (if possible) the identities of their major shareholders.This information will help you perform a thorough due diligence review of potentially applicable sanctions programmes to determine if the transaction is at risk for a sanctions violation.Your current business should also be examined to rule out potential problems if you become aware that one or more sanctions programmes could potentially be applied to that business.
- Examine your business transactions to determine if they could trigger any industry-specific, or goods or services-specific sanctions violations.Remember that certain types of business transactions could be restricted or prohibited by sanctions laws even if none of the parties involved are sanctioned. Check the types of goods involved; the export, import or transfer through of certain goods is restricted or forbidden when certain geographic locations or sanctioned parties are involved. Pay attention also to goods assembled from parts manufactured in different locations—parts manufactured in certain countries could in some cases be subject to sanctions restrictions which could impact the distribution of the final products. Be aware also that the export, import or transfer through of certain goods may be forbidden if the final destination of those goods is a restricted industry, or a restricted geographic location or is connected to particular companies or individuals.
Service contracts may also be subject to restrictions or prohibitions when certain industries, citizens of certain countries or particular geographic locations are involved. Exactly what business activities are allowed and which require prior approval from the authorities, as well as which activities are forbidden, depends upon all the facts of a particular business transaction.
3. Prepare Your Strategy to Prevent Violations and Get the Deal Done
Prepare a plan of action to address the risks and to protect yourself against liability. Documenting your efforts to perform an appropriate due diligence sanctions check may prove useful in the future should the need arise to demonstrate that you performed the level of due diligence which the circumstances called for, e.g. in case of an official investigation. It may also be helpful to prepare internal training and education programmes to ensure that your employees are able to identify and address possible sanctions issues.
Depending upon the nature of particular situations, it may be beneficial to seek an official clarification or approval of business activities from the authorities. It is also possible in some cases to apply to the authorities for a special license to conduct business which may otherwise be prevented by sanctions restrictions.
You may also wish to review your transaction agreements to ensure that they contain language which offers you the maximum protection in the event that the restrictions imposed by existing sanctions, or new sanctions which could be imposed in the future, restrict or prevent the performance of those transactions.