Political conflicts and war situations can lead to the imposition of international sanctions (also called restrictive measures). The imposition of international sanctions is an attempt to prevent a conflict, to respond to an impending or existing crisis or to influence the behavior of countries or of individuals and companies. In the European Union, sanctions are imposed through regulations prepared by the Commission. Restrictive measures are an important tool in the EU's common foreign and security policy (CFSP). The EU can adopt sanctions autonomously, but restrictive measures are often also the result of United Nations resolutions (UN resolutions).
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Contrary to what the name 'sanctions' suggests, international sanctions are not aimed at punishment. The purpose of imposing restrictive measures is to promote international peace and security, prevent conflicts, support democracy and the rule of law and protect human rights and the principles of international law. Sanctions are therefore not punitive in themselves. Of course, this does not mean that restrictive measures are not perceived as punitive. And of course it should not be forgotten that acting contrary to the obligations resulting from the sanction measures does constitute a criminal offence. The EU sanctions measures require member states to include sanctions (penalty clauses) in their national legislation that apply to breaches of the measures' provisions. These penalty provisions must be 'effective, proportionate and dissuasive'.
It is inherent in international sanctions that they should have an impact in third countries. After all, they are part of the common foreign and security policy of the EU. Sanctions are directed against third countries or against persons or entities in those countries. However, EU sanctions legislation applies only where the EU has jurisdiction. It applies within the territory of the EU, on board any aircraft or any vessel under the jurisdiction of a Member State, to all nationals of Member States and to any legal person, entity or body, whether inside or outside the EU, which is incorporated or constituted under the law of a Member State, and to business transactions carried out wholly or partly within the EU.
Supervision and enforcement of EU sanction measures rests with the competent authorities of the Member States. They therefore investigate cases of possible non-compliance.
Sanctions can be directed against the government of third countries, but also against natural or legal persons, entities, bodies, groups and institutions. Sanctions legislation is 'tailor-made'. Sanctions must, of course, be effective and be proportionate to the objectives pursued by the measures. They are directed at those responsible for the policies or behavior that the EU seeks to influence through sanctions, while minimizing collateral damage to others. Although the subject matter and nature of sanctions can vary considerably, sanctions can be divided into:
Where financial sanctions are imposed, the funds and economic resources of the sanctioned persons are frozen and EU persons and companies are prohibited from providing or offering financial services. The prohibition to make funds or economic resources available, directly or indirectly, to the sanctioned persons or to any natural or legal persons, entities or bodies associated with them amounts to a de facto total prohibition to do business with these persons.
In practice, it can be a challenge to find out whether a sanctioned person is involved in a transaction. After all, sanctioned persons will often no longer wish to do business in public after they have been blacklisted, but may attempt to set up constructions and structures to be able to continue doing business behind the scenes. This therefore requires companies to conduct careful Know Your Customer investigations in order to find out who is actually pulling the strings at the company they intend to do business with.
Economic sanctions involve a wide range of measures that generally amount to restricting trade in certain goods and related services. The imposition of economic sanctions usually seeks to specifically target certain sectors of a sanctioned third country. For example, a prohibition on the sale, supply and export of products suitable for use in the oil sector or other raw materials, but also on the provision of services and the sharing of knowledge and expertise. The import of products originating from sanctioned third countries into the EU can also be restricted.
Sanctions are increasingly used as an instrument in a political conflict. And that does not make it easy to determine the exact scope of sanctions, to whom they will apply and especially when. In practice, the imposition of sanctions often has a direct impact on business activities in or with the countries against which the sanctions are directed.
In addition to sanctions legislation, companies also have to take export controls into account. Export controls are used to monitor, among other things, the export of strategic goods and services. These are goods, including technology and software, to which, due to international agreements or for security considerations, so much strategic importance is attached that export is not allowed, or only under strict conditions.
Strategic goods are military goods or so-called 'dual-use goods'. Dual-use goods are goods that can have both a military and a civilian application. In September 2021, Regulation (EU) No 2021/821 establishing a Union regime for the control of exports, brokering, technical assistance and transfer of dual-use items entered into force. In the Netherlands, the Central Import and Export Office (CDIU) supervises the control of strategic goods and services on export. In many cases, a prior export authorization is required or a notification must be made.
Export controls and sanctions are not the same, but it may happen that export controlled items are also subject to a sanctions regime. An example of this is the prohibition on the sale, supply, transfer or export of dual-use goods and technologies to a (legal) person in Russia or for use in Russia as included in Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia's actions destabilising the situation in Ukraine. In case of overlap, international sanctions prevail.
Export controls and sanctions can present companies with complex and acute issues. Especially if both export controls and sanctions apply.
International sanctions and export controls are legally complex and touch on different and diverse areas of law. Think, for example, of customs law. When exporting goods from the EU, sanctions and export control legislation must be taken into account. The CDIU assesses license applications; the POSS team (Precursors, Origin, Strategic Goods and Sanctions Legislation) supervises compliance with the rules for exporting strategic goods and conducts investigations.
The Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM) supervise the financial sector in the Netherlands. They supervise whether banks and other financial institutions are properly implementing the sanctions and performing their checks whether the persons and companies they do business with are on sanctions lists.
Sanctions legislation and export controls also have an impact on contractual relationships between civil parties. For example, what if a sanction no longer allows a contract to be concluded or executed? Does that result in breach of contract or liability? Companies would be wise to take into account the possible implications of restrictive measures in their contracts and conditions. This also applies to the companies in the logistics sector.
And then, of course, there is criminal law. Violation of sanctions or export control legislation is a criminal offence and can result in prosecution and conviction. This can lead to considerable reputational damage as well. Sanctions are enforced in the Netherlands through the Sanctions Act 1977 and the Economic Offences Act.
Issues surrounding sanctions and export control may be relevant, for example:
Ploum has specialists in all fields that are required for an integrated response to complex issues in the field of sanctions legislation and export control. Think of:
If you would like practical advice on how existing sanctions and export controls affect your business, please contact the specialists at Ploum.
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