Sanctions and compliance: what to do next?

4 joulukuuta 2023

Sanctions are not a new phenomenon in the modern world, but the last 21 months have been unprecedented and united many countries with a single goal to stop Russia’s cruel war in Ukraine using sanctions as an essential tool. Also, companies have been faced with new rules and have had to implement sanctions-related policies and procedures and teach their employees how to avoid sanctions violations. In addition to this, many companies have decided to withdraw from Russia for ethical reasons. In the following, we look at current compliance issues – and decisions that still must be made.

Adopted measures and restrictions

Even the most experienced sanctions lawyers probably won’t be able to tell precisely how many new restrictions different countries and sanctions authorities have adopted since February 2022. Only the European Union has passed 11 new sanctions packages against Russia, including economic, trade and individual sanctions, as well as diplomatic and visa restrictions. Generally, almost 1800 individuals and entities related to the Russian government and military decisions have been listed as restricted persons on the European Union’s sanctions list.

The United States and the United Kingdom have taken a leading role in sanctions adoption and have in some respects made more severe restrictions than the European Union. Canada, Japan, Australia, and other countries and sanctions administrations regularly impose different types of sanctions as well.

Sanctions also increase in importance more broadly. Let’s not forget about regular limitations against Belarus as Russia’s closest neighbour and supporter or relating to Iran as, among others, a supplier of drones for the Russian army. There are also continuing discussions on restrictions against Chinese companies.

Business reactions and internal changes

In February 2022, many companies faced a new reality: How to deal with Russia related business? Even without physical presence in Russia, companies had to familiarize themselves with new sanctions, amend their internal policies, create new risk assessment processes, and teach employees how to deal with the updated requirements.

According to our experience, the most severe difficulties related to understanding the applicability of various sanctions, limited resources at compliance departments, and deciding how to properly assess and manage all kinds of risks. Also authorities faced the same uncertainty as they had not experienced so many simultaneous restrictions before. At the same time, the approach applied by banks was to restrict all payments traffic to and from Russia.

Future insights

Currently, there are no clear insights as to whether there will be new sanctions, or when and how existing sanctions could be canceled – not to mention that companies would return to Russia.

There is no one opinion related to Russia’s quick return to the world markets even if Russia loses the war or stops aggression, as many companies spent a significant amount of money and time to leave the Russian market, sell their business, and find new supplier chains.

From a business perspective, many businesses have generally prepared for the new decade without business with Russian counterparties, but compliance with sanctions is still an area that requires improvement.

Here are a few recommendations on further development of sanctions compliance:

  • Make sure you have internal procedures for sanctions compliance – and that they are simple, understandable, and user-friendly for all employees’ positions. This should include also named responsibilities.
  • Consider applying technical solutions and sanctions screening tools.
  • Adjust current risk assessment mechanisms, particularly against sanctions circumvention. We recommend taking advantage of the EU Commission Guidance for European operators and the Ministry for Foreign Affairs Practical guidance for companies to detect and prevent circumvention of sanctions.
  • Take necessary expenses for compliance and business ethics needs and improvements into consideration in budgeting for 2024.
  • Remember to document any sanctions related decisions (the more difficult the decisions the more careful the reasoning) – this can evidence that the company has used its best efforts in trying to confirm that it is not breaching sanctions even indirectly.
  • Ensure that the company has applicable channels for reporting sanctions violations.
  • Follow updates and guidance from respective authorities – and keep an eye on upcoming case law within the field of sanctions compliance.

We believe that despite challenges in sanctions compliance, applying a step-by-step improvement approach will allow any company to be both compliant and do its part in uniting for peace in Ukraine. The work that is done now will be useful also in the future, as sanctions will most likely expand and be used against more territories and countries whose leaders conduct illegal and threatening activity against humanity.

Kateryna Shapran
Foreign Associate, Dittmar & Indrenius

Dittmar & Indrenius is FIBS’s Partner in the area of ​​corporate responsibility legislation.




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