International Sanctions: Impact, Regulation, and Compliance Strategies

Understanding International Sanctions and Embargoes in the EU

International sanctions and economic embargoes are restrictive measures imposed by the European Union (EU) to influence the behavior of states, entities, or individuals that pose threats to international security, human rights, or the rule of law. These measures may include trade restrictions, asset freezes, travel bans, and prohibitions on financial transactions.

Types of Sanctions

Sanctions can be classified into three main categories:

1. Sanctions Against Countries
   Restrictions imposed on specific nations due to human rights violations, terrorism, or threats to peace.
   Example: the embargo on North Korea or sanctions on Russia.

2. Sanctions Against Individuals and Companies
   Applied to people or companies involved in corruption, terrorism, or human rights abuses.
   Example: Asset freezes and entry bans into the EU.

3. Sanctions on Products or Services
   Restrictions on the export and import of specific goods, such as dual-use technologies, weapons, or energy resources.

Real-Life Examples

• Integral Concierge Services Limited (ICSL): Fined £15,000 in 2024 by the UK’s OFSI for breaching sanctions against Russia.

• TransferGo Limited: Fined £50,000 in 2021 for conducting transactions violating sanctions on Russia.

• Standard Chartered Bank: Fined in 2020 for lending to Denizbank A.Ş., a sanctioned Turkish entity.

• Telia Carrier UK Limited: Fined £146,341 in 2019 for facilitating calls to a sanctioned entity in Syria.

• Travelex (UK) Ltd: Fined in 2019 for violating EU sanctions against Egypt.

• Case in the Netherlands: In 2023, a company was fined €200,000 and its director sentenced to 18 months in prison for exporting electronic goods to Russia in violation of EU sanctions.

Current Legislation in Europe

EU sanctions are based on a strong legal framework:

• Article 29 of the Treaty on European Union (TEU): Allows the Council to adopt decisions imposing sanctions.

• Article 215 of the Treaty on the Functioning of the European Union (TFEU): Legal basis for adopting regulations implementing economic and financial measures.

• Directive (EU) 2024/1226: A harmonized standard defining criminal offenses and penalties for breaching EU sanctions, which Member States are required to transpose into national law.

More information on the over 40 current international sanctions regimes can be found on the European Commission website. Sanctions are adopted, renewed, or lifted unanimously by the EU Council based on proposals from the High Representative for Foreign Affairs and Security Policy.

Impact on Businesses and Commercial Operations

Sanctions directly affect companies involved in international trade, particularly in the following areas:

• Export and Import Restrictions: Companies must ensure their products, technologies, and services do not reach sanctioned entities or jurisdictions.

• Financial Transactions: Dealing with sanctioned banks or individuals can lead to asset freezes and legal liabilities.

• Supply Chain Compliance: Companies must ensure that suppliers and customers comply with EU sanctions policies.

• Third-Party Risks: Companies working with intermediaries or partners in sanctioned countries face increased regulatory scrutiny.

Non-compliance can result in severe penalties, reputational damage, and operational disruptions.

New Developments: Directive (EU) 2024/1226

The recently adopted Directive (EU) 2024/1226, effective as of May 30, 2024, strengthens the EU sanctions framework through:

• Stricter Compliance Requirements: Companies must implement enhanced due diligence and monitoring mechanisms.

• Harmonization of Criminal Penalties: Uniform enforcement measures to ensure sanction effectiveness across Member States.

• Increased Accountability for Executives: Broader personal liability for executives who fail to prevent sanctions violations.

• Stronger National Enforcement Mechanisms: Member States are required to impose severe penalties and criminalize intentional violations.

Compliance in Spain and Upcoming Regulatory Changes

Spain must transpose the directive into national law by May 20, 2025, which will introduce:

• Increased Penalties: Although specific fines have not yet been defined, sanctions violations will be classified as criminal offenses.

• Criminal Liability for Executives: Business leaders may face up to 5 years in prison for intentional breaches of EU sanctions.

These changes will require Spanish companies with international operations to adopt stricter compliance measures to mitigate risk.

Risk Mitigation Strategies for Businesses

Risk Analysis and Due Diligence

• Conduct risk assessments for international transactions.

• Apply due diligence to high-risk individuals and entities.

• Screen customers, suppliers, and partners against sanctions lists (EU, US, UN, OFAC, etc.).

Policy and Procedure Development

• Establish internal policies aligned with applicable regulations.

• Design oversight and control processes to prevent illicit transactions.

• Train employees and executives on regulatory compliance.

Immediate Response to Violations

• Implement early detection systems.

• Take immediate corrective action in case of violations.

Risk Mitigation in Mergers and Acquisitions

• Assess sanction risks prior to mergers or acquisitions.

• Implement safeguards in cross-border corporate transactions.

Ongoing Monitoring and Regulatory Updates

• Monitor changes in sanctions and embargo regulations.

• Conduct regular audits to ensure compliance effectiveness.

• Seek legal counsel in response to regulatory investigations.

Compliance Throughout the Corporate Structure

• Ensure subsidiaries and branches understand international sanctions regulations.

• Train staff to identify and respond to red flags in operations.