Sanctions headaches continue for the oil and gas industry in 2015

January 15, 2015 by Mark Dunn

oil rigSanctions implemented by the US and EU governments throughout 2014, in response to Russia's annexation of Crimea and interventionist policies in eastern Ukraine, are beginning to take their toll, particularly in the oil and gas industry.  The sanctions have affected Arctic, deep water and shale extraction activities in Russia, as well as the import and export of industry related technology such as drilling, testing and extraction equipment.

The UK government has stated that it is keeping its economic engagement with Russia under close review and has acknowledged that some bilateral cooperation and trade support activity is being affected. However, with a high potential for additional sanctions and amendments to existing restrictions, many businesses, particularly those in the oil and gas industry, will be increasingly conscious of sanctions issues in 2015.

These issues can pose a significant challenge to businesses operating in this global industry and many joint-venture projects have now been placed on hold until the sanctions are lifted.  Oil and gas businesses often carry out operations and transactions in high-risk jurisdictions; ensuring compliance, particularly when sanctions restrictions are continually evolving, can be very difficult.

Businesses should have a comprehensive compliance and risk assessment programme

Although the UK Government's Department for Business, Innovation and Skills (BIS) offers some guidance on the application of sanctions as they are introduced, risk-assessment and compliance decisions are ultimately in the hands of business leaders.

Businesses should already have a comprehensive compliance and risk assessment programme in place governing all areas of company policy and procedure. Ensuring sanctions compliance is vital for businesses operating in affected countries.  Realistically, any large enterprise in this industry should be executing a sanctions compliance route already prescribed in the existing company policy.

The penalties for non-compliance are high, both in terms of criminal charges and the potentially irreversible reputational damage that can befall a global enterprise operating contrary to the law.  A recent LexisNexis blog looked at an example case where a judge at the Central Criminal Court in London made two confiscation orders against a Managing Director and his company to pay a total of £1.14 million, after breaching trade sanctions with Iran.

But how can businesses ensure they have robust compliance programme in place?  The first step is to have comprehensive due diligence and screening measures in place for both customers and suppliers.  With such far reaching sanctions now in force in the oil and gas industry, due diligence screening should be a business priority.

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