Sanctions regimes can be implemented multilaterally, such as through the United Nations or the European Union, or autonomously by sovereign States under their domestic legislation. They tend to have certain features in common, as well as differences which make it imperative to check the underlying rules. In an international arbitration where one of the parties is a “designated person”, it is possible for more than one sanctions regime to apply, given that parties, counsel, arbitrators and arbitral institution may be of different nationalities. Key considerations – using the UK sanctions rules as a model – include the following.
Who is sanctioned?
In the case of UK sanctions, a consolidated list of designated persons is published by the relevant authority, the Office of Financial Sanctions Implementation (OFSI). This is a list of physical and legal persons who have been designated by a government minister under the powers conferred by the relevant legislation for a particular sanctions regime.1 However, it is not just named persons who are sanctioned. Other persons who are owned or controlled by a designated person will also be subject to sanctions even if they are not named in the consolidated list.
What are the sanctions?
A wide range of potential sanctions is available under the legislation, from asset freezes and restrictions on access to financial markets to import/export controls and travel bans. What sanctions are actually in place will depend on the particular sanctions regime in question, and who and what it is intended to target.
What is required by way of compliance?
This will depend on the nature of the sanction. In the case of an asset freeze, for example, it is prohibited to deal with the frozen funds or to make funds or economic resources available to the designated person. There will also be an obligation not to engage in activity that may circumvent a sanction, as well as an obligation to make a report to OFSI.
Who must comply with the sanctions/what is their jurisdictional scope?
UK sanctions apply to all legal entities and individuals, regardless of nationality, who are in or undertake activities in the UK, and to all UK citizens and legal entities wherever they are in the world.
What exemptions may be available?
Exemptions to sanctions are generally limited. It may be possible, however, to apply for a licence from OFSI to carry out activity which would otherwise be prohibited. For example, in order for a sanctioned client to pay its lawyer out of funds which are subject to an asset freeze, it is possible to apply for a licence for the payment of reasonable legal fees and disbursements.
What are the penalties for breach?
Possible penalties for breach of sanctions include imprisonment (up to seven years) and fines.
It will quickly be apparent that a summary such as that given above raises as many questions as it answers. For example, what are “economic resources”? What is “ownership or control”? What legal fees are “reasonable”?
It is necessary to check the detail of the legislation, guidance thereto and any court decisions. Moreover, the answers to these sorts of questions and the scope of sanctions generally may differ between the sanctions law of different countries. So, for example, whilst the jurisdictional reach of UK sanctions legislation is generally limited to persons in the UK and to UK citizens and corporations in their activities abroad, some US legislation provides for the imposition of “secondary sanctions” where, in the complete absence of a US nexus, non-US persons may be targeted by asset block and denied access to US financial markets in the event of conduct such as a material violation of a sanctions programme.