International sanctions and expert controls: Is your business at risk?

The importance of international trade to the UK economy cannot be underestimated; in May 2015 UK trade exports amounted to a total of £25.8 billion and around 1.3 million UK SMEs are currently internationally active. Given the volatile global political climate, any business trading internationally needs to be aware of any current international sanctions.

What are international sanctions?

International sanctions are political trade restrictions aimed at specific crises or countries. In the UK, compliance is overseen by HM Treasury and the Department for Business, Innovation and Skills, which deal with financial sanctions and export controls respectively. Sanctions commonly include functions such as:

• Certain goods being subject to export controls.
• Restrictions upon the transfer of funds to the sanctioned country.
• Persons and entities being subject to an asset freeze.

Export controls: Sanctions regularly contain a list of goods subject to controls if they are to be exported to the sanctioned country. As you can imagine, controls are typically placed upon items that could escalate a crisis, such as firearms. However, businesses could find controls placed upon their export of less obviously malevolent goods, such as mobile phones, if those goods could enable activities such as arbitrary detention or torture (commonly referred to as ‘internal repression’).

Restrictions on funds: Where a sanction contains a restriction on funds transfers, every institution within the EU must obtain authorisation prior to making or receiving a restricted transfer. Authorisation could take up to four weeks and so can be highly inconvenient, requiring a business to know all of the relevant parties’ payment information so far in advance and increasing the risk of delay to the transaction. Financial sanctions also tend to have wide application. For example, where a party to the transaction is a company based outside of the sanctioned country but controlled by a resident within that sanctioned country, the party will still be caught by the sanction.

Asset freeze: Sanctions commonly subject foreign persons and entities to an asset freeze. A business trading internationally must therefore ensure that all the parties involved in the supply chain are not included on the asset freeze list, as providing goods or funds to that party will breach the sanction.

What are the consequences of breaching an international sanction?

Breaching an international sanction can result in criminal liability, leading to imprisonment and a fine. Perhaps more significantly, the business in breach could also be subjected to restrictions and suffer considerable damage to its reputation. Likewise, UK banks are reluctant to deal with businesses that have breached international sanctions. Understandably, a business’s ability to enter into future transactions could be hindered as a result and it may similarly find difficulties in performing under some of its current contracts, for example being unable to deliver certain goods or send the payments due under an agreement.

Despite the international sanctions regime, there are ample opportunities in international trade and the number of SMEs engaged in international activity is increasing. Furthermore, a great deal of future growth is expected following the Chancellor’s recent statement that the Government aims to raise exports to China by £5 billion annually. Take full advantage of this expanding international market whilst protecting your business against the risks by seeking professional advice. Mincoffs’ Commercial Team has a wealth of experience dealing with such matters, including the creation of sanctions clauses in commercial contracts.

For further information please contact Antony Hall, Partner and Head of Commercial at Mincoffs Solicitors, on 0191 281 6151 or email ahall@mincoffs.co.uk.