The Student Lawyer’s Introduction to Sanctions

As prospective lawyers looking to stay commercially aware, you will no doubt be used to seeing the topic of sanctions appearing in the news, often in relation to countries like Iran, Russia, and North Korea.  But what exactly are they, who imposes them, who do they affect and what happens if you breach them?

This article provides an overview for law students to make sure you are fully clued up before any summer interviews.  It is especially relevant for students applying to internationally focused firms or chambers, many of which will have lawyers who specialize in this complex but interesting area.

Who can impose sanctions?

Sanctions are imposed by international and state bodies.  In the UK, parliament may enact sanctions through legislation, although the majority of these are following sanctions imposed by the UN Security Council (of which the UK is a member) and the EU Council (of which the UK is also a member, for now!).  However, the UK does occasionally impose its own sanctions that have not been mandated by the UN or EU.

The US imposes many of its own sanctions via the Office of Foreign Assets Control.  Although US sanctions are generally not binding on people or companies in the UK without a US nexus, as explained below the US sanctions regime may still affect non-targeted countries.

Why are sanctions imposed?

Sanctions are imposed in order to attempt to influence a country or regime to alter its behaviour.  They do this by making it more difficult for the country as a whole or influential individuals or companies within that country to trade or conduct themselves internationally.  For example, sanctions have been imposed on North Korea and Iran in relation to their nuclear programmes.  Russia has also been the target of multiple sanctions since annexing Crimea from Ukraine in 2014.

Depending on the type of sanctions imposed, they may affect important people within a regime or can affect ordinary people.  For example, a recent report by Al Jazeera explained the impact the US sanctions on Iran have had on Iran’s currency and its population.  While the US’ aim is not to punish Iranian people for the actions of its government, they may hope that a regime will be persuaded to alter its conduct in order to reduce the hardship on its people.  However, this is not always the case: the North Korean people have endured a decade of extreme poverty, partly brought on as a result of sanctions against Kim Jong-un’s regime and until recently the regime showed no signs of slowing its nuclear ambitions.

What effect do sanctions have?

The effect of sanctions will differ depending on the type of sanctions imposed.  Sanctions may be divided into two broad categories: financial sanctions and trade or economic sanctions.

Financial sanctions generally target individuals or organisations and freeze any assets that they hold in the country imposing the sanctions.  The UK government publishes a list of all people and organisations who are subject to UK financial sanctions.  If these people hold any assets in a UK bank account, they will be frozen.  It also essentially prevents these people from doing any business in the UK, since any such business would inevitably involve a transaction via a UK bank.

Trade or economic sanctions generally target countries.  They may be limited to certain trade sectors.  For example, the UN and EU have prohibited the sale of arms and dual-use items (items that might have a civilian or military use) to certain countries in order to uphold international peace.  However, they may be broader.  For example, the effect of US sanctions on Iran is to prevent effectively all trade with Iran.  Sometimes trade or economic sanctions may allow trade with sanctioned countries subject to licences issued by the party imposing the sanctions (such as OFAC in the USA).

Who must comply with sanctions and what happens if they breach them?

Sanctions are generally limited by geography and nationality.  For example, EU sanctions apply to any people/businesses within the EU and to EU nationals or EU registered businesses wherever they are located.  Non-EU subsidiaries of EU companies are a grey area, although EU guidance warns against companies incorporating special purpose companies outside the EU in order to get around sanctions.  Breaching a sanction is a criminal offence, which could result in imprisonment or a fine.

US sanctions are generally limited to US personnel and companies in the same way that EU sanctions are, although the US can also impose so-called secondary sanctions, where third-parties can be punished for continuing to deal with countries subject to US primary sanctions.  For example, the USA has recently imposed secondary sanctions on countries that have bought oil from Iran.  Although it cannot impose criminal penalties on people outside its jurisdiction, the US can use its own financial might to enforce secondary sanctions, such as by preventing companies within the secondary sanctioned country from being able to access US financial institutions.

What do sanctions lawyers do?

While every lawyer’s practice will differ depending on their firm and clients, as a general rule sanctions lawyers help their clients avoid breaching sanctions.  This may sound straightforward – if there is a ban on trading with Iran, don’t buy anything from Iran – but with multinational companies with complicated supply chains, it is easy to see how a company could breach sanctions without realizing.  For example, a UK company that sells computers to an aircraft manufacturer in Germany may inadvertently breach sanctions if that computer is incorporated into a fighter jet that is eventually sold to Syria.  Therefore, companies who suspect they may be at risk of breaching sanctions will hire lawyers to conduct extensive due diligence on their operations and supply chains.

Sanctions lawyers may also defend clients who have been accused of breaching sanctions and may even defend individuals or companies who have been placed on financial sanctions lists and are trying to get themselves removed.

Whatever the specialism, it can be a fascinating area in which to practice, especially for those with a keen interest in international relations and politics.  For those interested in reading further TSL articles on the topic of international trade, follow this link.