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Don’t Risk Supply Chain Disruption By Being Unaware of Sanctions

June 04th, 2015 - Posted by Mark Dunn in Sanctions

Widening impact of sanctions for companies

To date, enforcement of sanctions regimes has primarily focused on the financial services sector. However, more industries are finding themselves subject to scrutiny, and it is critical that firms be aware of their legal obligations and implement controls to mitigate supply chain risks.
 
For many years sanctions, whether diplomatic or economic in nature, have been deployed by governments and intergovernmental organisations to reinforce national or international policies. For example, sanctions are put in place to mitigate perceived risks to global security by a specific group or to tackle perceived human rights breaches by a certain jurisdiction. Sanctions regimes can take many forms and the range of measures available includes: arms embargoes, travel bans, asset freezes, reduced diplomatic or military links, flight bans, withdrawal of aid, trade embargoes and a restriction on cultural or sporting links.
 
Often, sanctions originate from United Nations Security Council Resolutions. Under Chapter VII of the UN Charter, the Security Council can take enforcement measures to maintain or restore international peace and security. UN sanctions are published via the Consolidated United Nations Security Council Sanctions List. UN Member States are obliged to implement such measures and often republish the UN list via their local jurisdictions.
 
Examples of government agencies taking the lead on implementing UN sanctions measures include the U.S. Office of Foreign Assets Control (OFAC), part of the U.S. Department of the Treasury which administers and enforces economic and trade sanctions based on U.S. foreign policy and national security. Also in the UK, HM Treasury, is responsible for the implementation and administration of international financial sanctions. The European Union also collectively applies sanctions to pursue objectives in accordance with the principles of the EU Common Foreign and Security Policy. Across the world, UN Member States adhere to a similar approach. Each country may also have its own specific sanctions measures either to augment an existing UN policy or to address unique national priorities, for example, U.S. restrictive measures concerning Cuba.
 
Although in some circumstances, often involving a humanitarian risk, government agencies may grant licenses to exempt certain individuals or companies from specific restrictive measures, most sanctions are rigidly enforced. The financial services sector has seen a high volume of regulatory fines and settlements totalling billions of dollars for breaches of financial sanctions. However, an increasing trend has also seen companies within sectors outside financial services subject to heightened scrutiny and enforcement action. For example, in March 2015, the U.S. Department of Justice (DoJ) issued Schlumberger Oilfield Holdings Ltd with a $233m penalty for what were deemed violations of U.S. sanctions by providing services to Schlumberger customers in Iran and Sudan through non-US subsidiaries. The DoJ went on to issue a blunt warning describing this action as:
"A landmark case that puts global corporations on notice that they must respect our trade laws when on American soil".
 
Mitigating the impact of sanctions on supply chains

It is critical that companies implement steps to mitigate the impact of sanctions on their supply chain and the following outlines some essential factors to consider along with consultation with your legal counsel: 

Checklist

  1. Ensure senior management understands their company's sanctions obligations and endorses policy process.
  2. Prepare company policy and procedures, including disclosure requirements.
  3. Communicate policy and procedures to employees and third parties (eg. suppliers, contractors, sales agents).
  4. Implement regular training to ensure staff and third parties understand obligations and procedures.
  5. Implement a screening process appropriate to the nature, size and risk of the company's business to check sanctions lists.
  6. Align sanctions screening process to associated third-party due-diligence procedures.
  7. Ensure procedures include escalation contacts for sanctions enquiries and to report violations.
  8. Audit and regularly review policy and procedures, training and screening systems.
  9. Reinforce policy and procedures with independent audit and testing.
  10. Don't wait for enforcement as a trigger to implement above actions.

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