RISING RISK OF SANCTIONS: WHAT IT MEANS FOR COMPANIES

 

As our government addresses ever shifting geopolitical priorities and security threats, it is regularly turning to economic sanctions as a first order of business, ensnaring countless businesses and individuals across myriad industries in a complex and sometimes opaque process. A compliance program is essential to managing your day to day sanctions risk. But knowing what is happening with sanctions action in Washington and how to talk to policymakers at all levels is now more strategically and financially important for companies than ever before.

As one of our most effective coercive diplomatic tools landing between traditional diplomacy and kinetic action, it’s obvious why sanctions appeal to those tasked with national security. But the increasing sophistication of and reliance upon sanctions, and the relish with which lawmakers and the Executive branch have embraced them, creates real risk and expense for companies and individuals.

 During the Obama Administration, Congress passed more than a dozen pieces of legislation directing sanctions action against a number of nations and individuals engaged in activity they found objectionable. This trend continued into the Trump Administration with Congress passing the Countering America’s Adversaries Through Sanctions Act by an almost unanimous vote despite complete opposition from the Administration. Meanwhile the President, following in the footsteps of his predecessors, regularly issues new Executive Orders related to sanctions. “More sanctions” is often the only thing that feels bipartisan in Washington.

Today, the Office of Foreign Assets Control (OFAC), Treasury’s sanctions arm, administers over 30 programs from the Balkans to Zimbabwe that target everything from narco-trafficking to terrorism, from corruption to WMD proliferation, and dictators in Venezuela and North Korea. OFAC is so busy that they have had to add more lists to their website, expanding beyond the longstanding Specially Designated Nationals and Blocked Persons List. Trying to communicate this is a trial even for the talented folks at OFAC, their website now reads, “This consolidated list includes the Non-SDN, Palestinian Legislative Council List "NS-PLC List,"the List of Foreign Financial Institutions Subject to Correspondent Account or Payable-Through Account Sanctions,"CAPTA List,"the Non-SDN Iran Sanctions Act List "NS-ISA List," the Foreign Sanctions Evaders List "FSE List," and the Sectoral Sanctions Identifications List "SSI List."  Those lists have over 6,400 individuals and entities on them that range from terrorist financiers whom you’ve never heard of to billionaire oligarchs. Over 1,400 of those names were added last year and there is no sign that OFAC plans to slow down.

OFAC isn’t just looking for the drug kingpin or the terrorist financier, which would be pretty straightforward. Treasury is looking for the people and companies who facilitate nefarious behavior. Bad actors generally want access to the licit global financial infrastructure. By mapping and attacking those networks that allow access, OFAC can prevent the movement of funds that allow malign actors to act. OFAC will even go so far as to implement secondary sanctions to prevent non-U.S. citizens/companies/countries from engaging in certain business with designated entities. While other countries may not like it, the size of the U.S. economy and our importance in the global financial system leave them little choice but to comply.

“What’s next?” is the question many companies find themselves asking. More sanctions. That’s what’s next. Both the executive branch and Congress are working overtime to come up with creative and effective sanctions and all signs point to a willingness to experiment. On January 28, 2019, OFAC designated Venezuelan oil giant PdVSA for operating in the oil sector. In 2018 they designated Russian billionaire Oleg Deripaska rattling global aluminum markets. U.S. persons and companies are subject to restrictions related to entire sectors of the Russian economy. Roughly two dozen sanctions related bills have been introduced in Congress. They seek to address a diverse set of challenges including, North Korea, Venezuela, fentanyl trafficking, Chinese theft of intellectual property, and other activity. One of the Russia sanctions bills would even ensnare Nord Stream 2 and the ships laying deep sea pipeline for it.

The U.S. will not and should not hesitate to defend the global financial system or its own security. But it’s easy for those focused on protecting our nation to lose sight of the bigger picture in the rush to address today’s crisis. Most companies want to be good partners and help. The government needs to, and in my experience often wants to, hear directly from companies so that the private sector can continue to be an effective partner in sanctions implementation. Being a proactive partner to those crafting sanctions at the front end can save time, money, and potential legal headaches on the back end.