How Law Firms Help Businesses Navigate Economic Sanctions
What are economic sanctions?
Policymakers use economic sanctions as a tool to respond to major geopolitical challenges. Sanctions can be in the form of asset freezes, arms embargoes, and trade restrictions. Economic sanctions can enforce restrictions on a country’s entire economy, on specific sectors of its economy, or on organisations for activities like their support of terrorism, narcotics trafficking, human rights abuses or the use of certain types of weaponry. They can restrict the provision of certain financial services and limit access to financial markets, funds and economic resources. Currently, with the ongoing issue of Russia's invasion of Ukraine, the UK government and governments around the world have imposed additional sanctions which aim to persuade Russia to withdraw from their position in Ukraine.
The recent additional sanctions the UK announced on 30th September, as a response to Russia's annexation of several regions in Ukraine, prohibit legal advisory services or entities, along with other professional service firms, acting for Russian clients. What is new about this issue is the rapid pace of amendments to existing legislation, resulting in an unprecedented increase in individuals and entities added to the sanctions list. Although this has not been implemented yet, it will have a considerable impact on both Russian and domestic business, with the UK no longer able to provide services required by Russian businesses. Breach of these sanctions could lead up to a maximum prison sentence of 7 years and substantial fines.
Importance of law firms understanding this area
Recognising obligations in this area is critically important for law firms, as a breach of these may put firms and individuals at a serious risk of regulatory action and criminal prosecution. This also means that law firms cannot receive payment from or make funds available to sanctioned individuals or entities. There is also a wider restriction that firms must not “knowingly or intentionally participate in activities that would directly or indirectly circumvent financial restrictions or enable or facilitate the commission of any sanction offence.”
Law firms assist their clients in navigating sanctions by assessing risks and providing practical advice, as well as ensuring policies and procedures comply with export controls. Such controls are proportional to the size and nature of the firm applying a risk based approach. For example, smaller firms with limited exposure may apply manual checks of the free sanctions list, whereas firms with higher exposure will likely need to consider more complex, comprehensive or bespoke solutions.
Important features that law firms often provide businesses are an overview of key sanction authorities, an understanding of restrictive measures, legislation, and guidelines in place, and information from the International Trade team.
What is clear to law firms is that they must provide robust policies, controls and procedures to help identify individuals and entities under sanctions.
Firms will also be required to consider the sanctions regimes that are imposed outside the UK, such as EU and US sanctions. This will be dependent on the firm’s exposure to US and EU entities, as there will be an obligation to consider those other jurisdictions’ sanctions prohibitions.
Therefore, in order to manage risk, law firms provide reliable data and efficient ways to analyse and monitor the data in order to take the necessary steps to mitigate risk and help businesses be compliant.
