Common mistakes in export controls and how to avoid them – #1: financial sanctions

Wed 17 Jun 2020
Posted by: Noelle McElhatton
Features

sanctions

The practicalities of export controls compliance can seem daunting to even the most experienced business. Certain issues, however, seem to continuously trip up exporters, writes Alexandra Turner, Head of Export Controls at Customs Connect Limited and a member of the IOE&IT’s Export Control Profession Board.

To help avoid these pitfalls, the ECPB has compiled a series of “10 common mistakes” articles. Whilst this is in no way an exhaustive list, the board hopes the series might provide food for thought whilst building and enhancing your compliance programme.

Introduction

Most companies are aware of trade sanctions and embargoes, especially those in the news headlines, while the existence of financial sanctions is often overlooked.

The biggest misconception most people have is that financial sanctions apply only to controlled goods. Wrong! All persons and businesses are required to comply with financial sanctions whether or not your products or technology are export-controlled.

Therefore, it is your responsibility as a business to:

  • Conduct screening against the applicable sanctioned and denied party lists before you engage with business partners and at the crucial gateways of a transaction (i.e. negotiation, signing contracts, shipping products, etc).
  • Understand your country’s financial sanctions regulations as they relate to your business activities, and
  • Don’t be fooled be domestic transactions; they could still be subject to the financial sanctions’ requirements.  

The good news is that HM Treasury’s Office of Financial Sanctions Implementation (OFSI) provides detailed guidance and email alerts that you can reference as part of your financial sanctions compliance processes and analysis.

Remember that as an exporter, your business is subject to these financial sanctions at all times, no matter what products or services you provide, and it is your responsibility to know and understand your obligations.

More key facts 

  • In many countries, financial sanctions are implemented through different governmental departments from those responsible for export control licensing or enforcement – though for some countries it is the same organisation.

  • Remember the purpose of sanctions is to force a change in behaviour or as a penalty against individuals, entities and/or countries. They can be:
    - Broad country-based sanctions programmes,
    - Specifically targeted against named individuals, entities or business activities, and
    - Are dynamic and fluid in their scope (i.e. sanctions are implemented, amended or deleted based on multilateral or national decisions).

  • Financial sanctions can include provisions relating to asset freezing, financial assistance, issuance of credit and prevention/blocking of payments, amongst other legal limitations or bans.

  • Sanctions legislation can either require the exporter to seek a governmental authorisation before proceeding or such legislation can implement full prohibitions.

  • Whilst financial sanctions regulations may originate from the multilateral agreements , their implementation scope by countries can be quite different.

  • It is important that all applicable financial sanctions are considered during due diligence activities. Keep in mind that these can also affect domestic transactions!

  • Whilst you may have received a licence from the export control authorities, these licences do not necessarily authorise activities caught by financial sanctions legislation. Therefore, you may require more than one licence for a transaction.

One final consideration: your financial institution or bank

Many financial institutions are sensitive to transactions that affected by these sanctions.

With many transactions falling foul of these regulations and receiving large penalties, some lenders may not permit transactions which are named within financial sanctions legislation, even when you as exporter have obtained a licence, due to the lender’s risk adverse policies.

It is best to check with your financial institution prior to proceeding with licensing to understand their policies.

Alexandra Turner is Head of Export Controls at Customs Connect Limited
customsconnect.co.uk