The Effect of International Sanctions on Business Operations

Technological growth and free trade agreements continue to shrink the global marketplace—what was once on the other side of the world is now only a click away. While this expedites sales and fosters business relationships that cut across whole continents, it exposes multinational businesses to serious liability stemming from international sanctions.

Governments, the EU and the UN impose sanctions, which include a range of financial or trading restrictions, to further foreign policy objectives and maintain or restore international peace and security. Breaching the terms of a sanction without an appropriate licence or authorisation from HM Treasury is a criminal offence that can result in fines, penalties and even imprisonment. It is the responsibility of the business to be cognizant of the relevant legislation—ignorance of the law is not a viable excuse. For a current list of countries with economic sanctions and other restrictions, click here: www.gov.uk/current-arms-embargoes-and-other-restrictions#history.

To ensure your business is complying with international sanctions, ask yourself the following questions:

Do you have a process for identifying whether your global operations are working with entities that are subject to sanctions? Establish a process that screens clients and payees against lists of sanctioned entities (this could include countries, businesses and individual people). For the latest updates on sanctions and embargoes, subscribe to the Export Control Organisation’s free Notices to Exporters service, located at: blogs.bis.gov.uk/exportcontrol.
Will your business’ insurance cover apply in the event of sanctions? Your insurance cover always defers to the law—if a law or regulation bans insurers from making payments due to sanctions, the law will likely supersede any insurance agreements.
Does your business’ insurance cover exclude sanctions? Some insurance policies exclude or limit cover in the event of sanctions—some even terminate cover if a sanction is imposed. Make sure to review your policies to determine whether your cover is immediately invalidated once a sanction is imposed.

The risks of sanctions extend well beyond a business’ operations—scrutinise your business contacts and select alternative suppliers to ensure the effects of sanctions do not disrupt your business’ supply chain.