Sanctions: What It Really Means
The term sanctions have been heard by many across the globe, especially in the news these days, yet what does it really mean, and how are they imposed? As defined in Oxford Bibliographies, Sanctions are “deliberate, government-inspired withdrawal or threat of withdrawal of customary trade or financial relations.” Economically related sanctions include different forms of financial transaction restrictions, tariffs, and trade barriers.
The imposition of economic restrictions has various political, diplomatic, and even national security implications. Under Article 41 of the United Nations Charter, sanctions measures include a broad range of enforcement options that do not involve the use of armed force. In theory, these restrictions are intended and imposed in order to settle peace globally; however, in practice, it is mixed with the political issues of some countries that may have with each other!
Under the limitations of the Security Council, there are comprehensive economic and trade prohibitions that include more targeted measures such as arms embargoes, travel bans, and financial or commodity restrictions. On the one hand, the EU limitations normally restrict economic relations between the European Union and the targeted country that is undergoing those specific restrictions. On the other hand, the stated prohibitions may entail asset freezes and visa bans for certain individuals.
For getting to know more about sanctions’ effect on the economy, read:
FATF Black & Grey: Best Way of Investment Measurement
Different Processes of Imposing Sanctions
Basically, there are different processes of the imposition of the sanctions today from the UN, US, and EU.
The Security Council’s global threat response mechanism is to cut economic ties with both state and non-state groups.
The European Union imposes limitations (known more commonly in the twenty-eight-member bloc as restrictive measures) as a major part of its Common Foreign and Security Policy (CFSP).
More than two dozen existing US restrictions programs are administered by the Treasury Department’s Office of Foreign Assets Control (OFAC).
Another classification of above defined restrictions is based on the number of parties imposing sanctions. This includes unilateral and multilateral sanctions. Unilateral sanctions seem to be riskier, as only one country is on the line for the sanction’s results.
Import sanctions usually take on an immediate effect: the inability to export goods abroad or have a foreign nation purchase them. This could be a crucial matter if the sanctioned country’s economy depends on that exported good.
Financial Sanctions and Banking
This classification of sanctions is intended to punish misconduct by a supervised bank. They serve as a deterrent to the bank concerned and also to the whole banking body of a country. Imposing sanctions can be initiated not only during ongoing breaches but also after the breach has ceased, as long as the limitation period is respected.
You should note that every organization which imposes sanctions may have its own regulations;
For example, in the European Union, in the event of breaches of regulations implementing EU directives, breaches committed by natural persons, or when a non-pecuniary penalty has to be imposed, the ECB may request the relevant national supervisory authority, which is called NCA to open the appropriate proceedings. The NCA conducts these proceedings and decides on the resulting penalties.
Other Sanction Classifications
Moreover, there are other classifications of this specific type of limitation. Secondary sanctions focus on third parties stopping their activities with the sanctioned country by threatening to cut off the third party’s access to that sanctioned country. This is present in the recent US sanctions against Iran. It is still unclear to compliance and regulatory lawyers whether providing legal services to Iranian entities can be sanctionable under the newly issued Executive order (Jan 10, 2020) or not. Upon much research, it is believed that secondary sanctions are the worst out of all the economic restrictions, which include the burden of economic hardship and restrictions upon the nation’s citizens and industries.
It is worth mentioning that when establishing a business in a jurisdiction, compliance with applicable national and international law in regards to these limitations is a really important stage that should be closely taken into consideration. If a sanctioned nation decides to be non-compliant or attempt to circumvent the sanctions, a financial penalty will be issued and might be regarded as a criminal act. As we continue to examine prohibitions, it is also necessary to perform case studies on targeted countries and the sanctions that have been imposed upon them.