European Union (EU) Sanctions Explained
Imagine that you've just made the biggest sale in your career. Your business is booming and you're already planning a long-deserved vacation. But suddenly you're slapped with a huge fine because of… sanctions.
Everyone has probably heard of sanctions but not everyone knows what they are, how to be compliant, and what can happen to your business if you’re not careful and don't do your due diligence. Unknowingly working with sanctioned entities can put you in hot waters. We’re here to make sure that doesn’t happen.
In this article, we’ll discuss the European Union (EU) Sanctions List and how it impacts your business.
What are sanctions?
Before we dive into specifics, let’s define what sanctions are and what’s their purpose.
International sanctions are a governance tool that countries use to enforce rules.
Sanctions are meant to create pressure on individuals, businesses, and countries (sanction targets) to stop harmful activities and change their policies. The responsible international organizations keep track of the sanctions’ targets on sanctions lists. These lists are distributed to the Member States of the international organizations.
The purpose of EU sanctions isn’t to punish but to prevent dangerous and unlawful behavior. The EU aims to decrease their effects on blameless citizens with a more targeted approach. So now the sanctions are made to avoid the so-called blanket embargoes and to be appropriate for the goals they want to achieve.
EU sanctions are a tool for reaching the objectives set by the Common Foreign and Security Policy (CFSP). They are used to:
- Preserve peace;
- Safeguard EU values, fundamental interests, and security;
- Consolidate and support democracy, the rule of law, human rights, and principles of international law;
- Prevent conflicts and strengthen international security.
What are the types of EU sanctions?
Targeted financial sanctions are the type most commonly used in the EU. They prevent anyone from carrying out transactions and financial services with sanction targets. This type of sanction includes asset freezes, which means that all of the target’s assets are blocked.
Every business has to make sure that their customers’ and partners’ funds come from legitimate sources. Otherwise, you’re putting yourself at risk of breaching sanctions.
Restrictions on movement most commonly prevent specific people from traveling in the EU.
Targeted trade and economic sanctions include coercive measures such as banning the import and export of goods, and also arms embargoes. They can prohibit certain kinds of transactions and business deals. For example, providing equipment or loans in specific business sectors.
Who is on the EU sanctions list?
Altogether, the EU has placed around 30 countries on their sanctions list. This list includes:
- Some countries and governments that are outside of the European Union;
- Businesses and companies that aid policies the EU is opposed to;
- Organizations or groups, for example, terrorist groups;
- Individuals that are involved in terrorism or aid policies the EU is opposed to.
Who has to comply with EU sanctions?
You need to comply with EU sanctions if you're:
- Within the EU territory;
- In any vehicle under the jurisdiction of an EU Member State;
- A national of any EU Member State (inside or outside of EU territory);
- Doing business in or with the EU.
Non-compliance issues are investigated by the appropriate Member State’s competent authorities.
What are the penalties for non-compliance?
The possible penalties for sanctions violations in the EU are criminal, including imprisonment up to 8 years, administrative and supervisory penalties for up to 10 years, restricted access to markets, and monetary fines.
For example, Standard Chartered (a UK bank) was fined £20.5 million for giving loans to a sanctioned Russian-owned bank. Another example of sanction violations is the case of Euroturbine BV and Euroturbine SPC. These companies were fined €600,000 and €4 million respectively for exporting goods to Iran without the proper licenses.
Also, violations significantly damage the perpetrators’ reputations. People are cautious to do business with companies whose name is associated with sanction targets in any capacity.
Do other sanctions apply in the EU?
Within the EU, only EU sanctions apply. The EU doesn't recognize extraterritorial sanctions of non-EU countries. However, other countries can still impose sanctions on the EU and its Member States.
To protect their businesses from other countries' sanctions, the EU implemented the blocking statute. It prohibits the EU Member States from abiding by non-EU sanctions and court rulings that enforce them. For example, the OFAC has placed secondary sanctions on Iraq, which means that the US prohibits other countries to do business with Iraq. Without the blocking statute, EU Member States would have to abide by OFAC's sanctions.
How to make sure your business complies with EU sanctions?
To be compliant, you have to make sure that your customers and business partners haven’t been sanctioned. Risks of non-compliance are grave and can ruin your business.
For example, your business may be fined several hundred thousand euros for sanctions violations just because you didn't do your due diligence. Most businesses can't live through such harsh consequences.
The Sanction Guard checker is made to minimize the risk of non-compliance. It integrates with your store and automatically checks incoming orders against the most common sanctions lists, including the EU, UK, and OFAC lists.
When we find something suspicious, you’ll be notified. You still make the final decision of serving or denying orders but now without any guesswork.
Check out the Sanction Guard checker for your ecommerce business.
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