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Navigating the Global Sanctions Landscape in 2020

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Navigating the Global Sanctions Landscape in 2020 Navigating the global sanctions landscape in 2020 Diverging paths, increasing risks October 2019 controlrisks.com Sanctions report Sanctions report Table of contents The global sanctions landscape in 2020 01 Sanctions risk map 05 How can companies manage their compliance with increasingly complex sanctions? 09 Five countries to watch in 2020 11 Iran 13 North Korea 15 Russia 17 Venezuela 19 Syria 21 Beyond sanctions: Foreign investment considerations 23 About us 24 The information contained herein does not constitute a guarantee or warranty by Control Risks Group Holdings Limited, its subsidiaries, branches and/or affiliates (“Control Risks”) of future performance nor an assurance against risk. This report is based on information provided by the client and other information available at the time of writing. It has been prepared following consultation with and on the basis of instructions received from the client and reflects the priorities and knowledge of the client as communicated to Control Risks. Accordingly, the issues covered by this report and the emphasis placed on them may not necessarily address all the issues of concern in relation to its subject matter. No obligation is undertaken by Control Risks to provide the client with further information, to update this information or any other information for events or changes of circumstances which take place after the date hereof or to correct any information contained herein or any omission therefrom. Control Risks’ work and findings shall not in any way constitute recommendations or advice regarding the client’s ultimate commercial decision, which shall, in all respects, remain the client’s own. Copyright © Control Risks. All rights reserved. This document cannot be reproduced without the express written permission of Control Risks. Any reproduction without authorisation shall be considered an infringement of Control Risks’ copyright. 3 Sanctions report Sanctions report The global sanctions landscape in 2020 Sanctions regimes are increasingly Middle East and Asia-Pacific to pursue under US sanctions.1 Partly, this complex and less predictable. US more independent policies to grow reflects Trump’s more unilateral foreign policy under President Donald their own spheres of economic and and nationalist approach to foreign Trump has become markedly more political influence. policy. Geopolitical dynamics protectionist under his “America First” have also made it increasingly There are five key trends shaping mantra, emphasising geopolitical difficult for the UN Security Council global sanctions risks: competition and stark pursuit of to adopt collective sanctions national interests. Growing polarisation 1. The US is introducing and enforcing against governments – think of between the presidency and sanctions more frequently. Syria, for example – that enjoy Democratic-controlled Congress has Sanctions have been perceived the protection of Russia or China. also resulted in more personalised as a low-cost and low-risk foreign However, while the US can afford and contested policy outcomes. policy tool since the Barack to impose unilateral sanctions US relations with traditional allies Obama administration, but that has because of the centrality of the (particularly in Europe) have deteriorated become much more acute under US dollar to the global financial amid disagreement over a suite of President Trump. The US is also system and commerce, their lack of strategic issues, including sanctions making extensive use of so-called international legitimacy and buy-in on Iran and Russia. Meanwhile, secondary sanctions aimed at complicates their implementation US and European retrenchment is pressuring non-US companies and antagonises the US’s allies. encouraging regional powers in the to stop business with countries Source: The U.S. Department of The Treasury (https://www.treasury.gov/resource-center/sanctions/CivPen/Pages/civpen-index2.aspx) Fig.1 The numbers: OFAC enforcement actions by year (2011-2019) 1.4 30 1,2 25 1.0 20 0.8 15 0.6 10 0.4 0.2 5 0 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 Cases Cases (non finance) Fines (USD billions) 1 Primary sanctions are restrictions applied to US persons, while secondary sanctions apply to non-US persons and are designed to prevent non-US persons from doing business with a target of primary US sanctions. They have mainly been used in connection to Iran, North Korea and most recently Venezuela. There is very limited precedent for the enforcement of secondary sanctions. However, the prospective penalties that secondary sanctions could impose on non-US organisations is often enough to encourage compliance with them. 5 01 Sanctions report Sanctions report 4. The US is encouraging its allies enforce these measures, and US responsible for or complicit in to adopt their own sanctions. sanctions regimes will probably human rights violations or – notably Gulf states have joined this trend, continue to be the most relevant for – corruption. Five other countries developing blacklists of their own. businesses operating in the region. – Canada, Lithuania, Estonia, While most of these are designed International financial hubs (such Latvia and the UK – have since to target terrorism financing, others as Switzerland, Hong Kong and passed similar provisions, with the are driven by foreign policy aims. Singapore) have also traditionally EU and Australia also considering For instance, the Terrorist Financing maintained independent sanctions proposals along these lines. While Targeting Center (TFTC), which regimes to counter terrorist financing, these measures have had only comprises the US, Bahrain, Kuwait, money laundering and other limited direct impact on business, Oman, Qatar, the UAE and Saudi transnational threats, though these designations will not remain static Arabia, in May 2018 imposed are mostly aligned with the UN. and will continue to reflect human sanctions against the leader of rights and corruption investigations, 5. Extraterritorial sanction regimes the Lebanese Shia movement as well as broader geopolitical are proliferating. Extraterritorial Hizbullah, Hassan Nasrallah, considerations. Being able to better regimes that apply to persons in and other entities and individuals assess the likelihood that a current countries not otherwise subject affiliated with the movement. These or prospective business partner to sanctions are likely to continue are intended to counter Hizbullah’s will feature on a Magnitsky list in to spread. The US was the first political power in Lebanon and the future will allow organisations country to adopt sanctions to reduce Iran’s influence across the to make more informed, forward- punish human rights abuses (the Middle East; Hizbullah is widely looking decisions about new Magnitsky Act in 2012, which viewed as acting as an Iranian business relationships. targeted Russia specifically), and proxy. However, Gulf countries 2. There is disagreement within 2017 enacted the Countering US also disagree on the targets for in 2016 it expanded their reach are still building the capacity to the US on the use of sanctions. America’s Adversaries Through sanctions, which means companies to any foreign nationals deemed Policymaking under Trump often Sanctions Act (CAATSA) over now need to comply with two sets shows differences between Trump’s objections, and then tried of blacklists. The EU has sought the president’s intentions and to prevent him lifting sanctions to save the nuclear deal since members of his administration and on Russian company Rusal this the US withdrawal by updating the Republican Party. This political year. Conversely, Congress also its Blocking Statute (to forbid EU polarisation in Washington means wants more sanctions on Saudi entities from complying with US that significant differences over Arabia but is split over sanctioning sanctions on Iran and to allow sanctions policy exist between Europe for the Nord Stream gas them to recover any associated Authors: the Trump administration and pipeline from Russia. Congress damages) and setting up a special Congress, particularly after the is generally aligned with the purpose vehicle (the Instrument opposition Democrats’ gains in administration behind Iran and for Supporting Trade Exchanges, the November 2018 midterm Venezuela sanctions. or INSTEX) to enable certain election. In short, Congress is transactions with Iran. However, the Henry Smith 3. The EU and US are growing trying to “codify” sanctions – or bloc has been unable to offset the Sorana Parvulescu Partner apart on sanctions policy. require Congressional review – to impact of US secondary sanctions; Senior Partner Compliance, Forensics, Divergence between Trump’s US make them more difficult for the EU businesses will not risk their Global Risk Analysis and Intelligence and key European allies on major administration to remove. This relationships and businesses in the foreign policy issues – above all, more aggressive stance shows US for Iran. Over the longer term, Iran – is increasing sanctions risk Congress trying to regain control the EU will be looking to increase and complicating compliance for over foreign policy, after having its economic autonomy from the companies. The US’s exit in May delegated much of it to the White US, including through its own use 2018 from the nuclear deal has Jonathan Wood House over the decades. The of sanctions and measures that exposed EU companies to sector Director division has been stark when it give the euro currency a greater wide US restrictions. The EU or
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