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Trade/ Economic sanctions are a powerful tool. The rules and regulations dictated by governments for various reasons can majorly impact national economies and affect businesses of all sizes. The war in Ukraine unsurprisingly prompted the President, the US. Treasury Department and other nations to increase sanctions against doing business with Russia.

Sanctions have long been a part of the United States foreign policy and trade negotiations. They are the big sticks governments wave to further humanitarian and other efforts. The nature of some businesses, like finance, lends itself to more inherent risks of violating sanction rules. With increasingly more accessible access to internationally based customers, every business and organization should know the basics and have a preventive contingency plan that aligns with the three R’s – Regulations, Risk and Reputation.

Regulations.

As of November 30, 2022, 12,902 international sanctions were issued worldwide, with Russia receiving the bulk after February 2022. Other top-sanctioned countries include Iran, Syria, North Korea, Belarus, Myanmar and Venezuela. These sanctions apply to every kind of business industry.

Companies that sell to or interact with international customers need to understand the changes in sanctions as they occur regularly. Typically, companies will employ a sanctions compliance officer or personnel that regularly review transactions and compare those against the Office of Foreign Assets Control (OFAC) regulations and other regulating bodies to identify and address potential threats.

Risks.

A business inherently involves a lot of risks. You need to make the bottom line. You need to provide your workers with an environment to grow and thrive. Your business or service might also provide an essential tool or resource that customers depend on for their livelihood. One risk you shouldn’t take is opening your business up to sanction violations.

Doing the job of mitigating these violations harder is that there is no set schedule for sanctions. The rules can change very quickly in response to threats or foreign policy concerns. . Rather than refreshing regulation pages every day, and businesses are increasingly turning to digital tools to help monitor these changes and set up alarms and risk indicators that will let you know when you need to take a closer look.

Reputation.

Once a potential violation is recognized by your company, it is your responsibility to report it. That’s not to say that OFAC and other agencies won’t be investigating you beforehand. Unless it’s an egregious or outright violation of the law, your first violation shouldn’t halt business or result in significant penalties. However, you will be expected to show risk-based steps taken and implemented to decrease the likelihood of future violations. Failure to do so leads to harsh punishments and stops your business entirely. Most of all, it damages your company’s reputation on a large scale.

As a rule of thumb, you must disclose sanction threats immediately. There is a timeline of ten days for you to determine where you might have violated U.S. sanctions. Repeat treats are seen as neglectful.

So, what can you do to prevent potential sanctions violation risks? Invest in tools or develop systems to monitor changes in sanctions regularly. To best understand your business’s customers and vendor relationships, access and assign a system or risk level to all transactions (red-stop, yellow-further assessment, green-go! etc.).

As we approach the first anniversary of sanctions levelled against Russia by the EU, the US and several other nations, the issues surrounding its implementation are no less complex and likely to continue in that direction. As collective participants in a global economy, we will all need to stay informed and prepared.