Sanctions - The Diplomatic Substitute For Military Action?

Sanctions are a growing problem on the desk of every international trading business and bank. The introduction by the European Union (EU) of wide-ranging sanctions against Iran in 2010 signalled the start of a significant growth in compliance concerns. This year the US Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA) escalated those issues by widening the pool of affected parties and confirming a clear trend for governments to use sanctions as a foreign policy tool and the financial services sector as their enforcement arm.

To facilitate debate around the issues raised by international sanctions and to shed some light on current experience, Clyde & Co's commodities team held a seminar in London on 13 November 2012 attended by around 50 commodity producers, intermediaries, insurers and bankers.

Panellists at the debate, which was conducted under Chatham House rules, included Jonathan Marsh, Head of Legal at Vitol, Andy Wragg, Senior Manager, International Regulatory Affairs at Lloyd's and Clyde & Co's Clare Hatcher, Douglas Maag and Patrick Murphy.

This newsletter provides a brief summary of the discussion and the issues raised. The key topics covered included:

Complexity – recent sanctions regimes have been typified by an absence of consensus in adoption and a rapid introduction

ITRA – the use of sanctions on one sector to impact another has been powerful. Companies are still working through the implications

Enforcement – with sanctions regimes now well established, enforcement is being pursued more rigorously

Operational implications – given the complexity and fluidity of sanctions, companies are still working out how to improve understanding at the "coal face"

We are delighted to provide further advice and insight on request.

Complexity – the nature of the beast

The discussions of issues around sanctions fell into three main categories:

speed of introduction, which often creates significant problems different applications in different jurisdictions drafting of the legislation All of these make for a difficult and complex operating environment.

Speed

When the EU introduced sanctions against Iran in 2010, one panellist had to advise on a review of a major contract portfolio and facilitate rapid service of force majeure notices within a very tight timeframe.

Lack of international consensus

The second complicating factor is the absence of an international consensus. Historically, sanctions have been driven by UN resolutions...