Sanctions économiques et commerciales

Trade sanctions are economic measures designed to restrict trade relations with foreign targets. They are usually part of a larger sanctions program that pursues political or diplomatic objectives. Trade sanctions set prohibitions that can be applied against target sectors and individuals or an entire country. Thus, any national of the country issuing the bans commits a criminal offense if they do business with the persons subject to the sanctions.

A cornerstone of the foreign policy of governments around the world, trade sanctions are adopted to punish violations of international law and human rights or to strengthen national security. As such, they are rigorously applied by the regulatory authorities. In other words, banks, financial institutions and other service providers must ensure that they comply scrupulously so as not to expose themselves to significant penalties or criminal prosecution.

How do trade sanctions work?

Trade sanctions can be imposed unilaterally or target specific forms of trade, or even individuals and organizations. Individual countries can impose trade sanctions under stand- alone sanctions programs or groups of countries acting as members of international organizations, such as the United Nations , can apply trade sanctions collectively.

The different categories of trade sanctions include:

• Tariffs: Application of fees or taxes on imports of goods and services from a targeted country.
• Quotas: Imposition of limits on the exchange of goods and services to and from a targeted country.
• Asset freezes: Governments can restrict trade by freezing the assets of countries, organizations or individuals, when those assets are located within their jurisdiction.
• Non-tariff barriers: Application of restrictions associated with the commercial aspect, in particular requirements in terms of packaging, the refusal of the exploitation of workers or animal welfare criteria.

Embargoes

Although trade sanctions and embargoes fall under the same regulatory register (both involve economic restrictions against a third country), practical differences exist between these two mechanisms. Where sanctions may specifically target certain business activities or individuals, embargoes are much broader in scope. Indeed, they often prohibit all trade with a targeted country, or may prohibit any import from, or any export to, the country concerned. Sometimes the embargo may be limited to the import and export of certain categories of goods, such as equipment for military use.

Examples of Trade Sanctions and Embargoes

Trade sanctions are measures commonly used to compel or induce targeted countries to comply with international law. For example :

• The Cuba embargo imposed in 1963 by the United States prohibited all imports and exports between the United States and Cuba. This system was revised in 2000 to authorize the export of medical and agricultural products .
• Between 1973 and 1974, OPEC countries imposed an embargo on the United States in response to United States support for Israel during the Arab-Israeli War.
• Many countries have imposed embargoes against segregationist South Africa. These embargoes lasted until the end of apartheid in 1994.
• Trade sanctions against North Korea imposed by the United States prohibit any export of goods to North Korea and any investment in this country.
• The EU has imposed sanctions against Turkish individuals in response to Turkey’s oil drilling activities off the coast of Cyprus.
• The US, UK and EU imposed sanctions on Russia in response to the 2014 invasion of Crimea, the crackdown on pro-democracy protests and the arrest of the leader of the opposition, Alexei Navalny.

Application of trade sanctions

Most governments have established trade sanctions enforcement authorities. In the United States, enforcement of sanctions is entrusted to the Office of Foreign Assets Control (OFAC), which maintains the Specially Designated and Freezed Countries List of Individuals and Entities (SDN List) of -United. The SDN List defines individuals and entities currently subject to US trade sanctions.

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How to Comply with Trade Sanctions

Institutions are required to comply with trade sanctions when onboarding new customers and processing transactions. In practice, they must have a sanctions screening solution in place as part of their AML/CFT program and check clients against the relevant international sanctions lists (the SDN list for example). If a match is found, an institution should apply an appropriate compliance response, including suspending the transaction and freezing assets, and notify the competent authority.

Difficulties in complying with sanctions: Trade sanctions pose specific challenges in terms of compliance. Institutions should ensure that their screening solution is appropriate for the level of risk to which they are exposed, without being so complex as to place an unmanageable administrative burden on compliance employees or negatively impact the customer experience. . With this in mind, institutions must strive to assess the risks of their customers during their integration and throughout the business relationship. They should also use this data to support their compliance response by subjecting customers who represent the greatest risks to more intensive controls.

Similarly, trade sanctions screening measures must take into account the difficulties inherent in screening foreign customers or transactions that involve foreign parties. In practice, care must be taken to ensure that the filtering solution is updated with the most recent sanctions data to guarantee the accuracy and reliability of the checks. The configuration of sanctions solutions must also take into account the use of pseudonyms and assumed names, as well as the naming conventions of certain territories. Indeed, Arabic and Chinese names, for example, use characters from non-Western alphabets and most often reverse the name-first name order.

AML and Trade Sanctions

In addition to a strong sanctions screening solution , institutions should, to properly comply with trade sanctions regulations, ensure that they deploy the following measures and controls as part of their overall AML/CFT program:

• Customer Due Diligence: Institutions must establish and verify the identity of their customers to accurately check their names against sanctions screening lists.
• Supervision of transactions:  Institutions should carefully supervise their customers’ transactions to ensure that they do not facilitate activities with entities subject to trade sanctions.
• Politically Exposed Persons: Public servants and elected officials may pose a higher risk for sanctions compliance. As a result, establishments must seek PEP status throughout a business relationship, even looking at friendly relations and close associates of their customers with PEP status.
• Negative media coverage: Media coverage is a good indicator that new trade sanctions have been introduced or that a customer has been targeted by trade sanctions. Institutions should monitor negative media coverage of their clients to keep abreast of any changes in their risk profile.

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