Sanctions and economic and financial pressure campaigns have
proven effective tools in national—and global—economic
security. Over the last four years, the Trump administration ramped
up several sanctions programs. It is likely the Biden
administration will have a similar view of sanctions as a national
security and economic tool, with some differences in approach and
strategy on a program-by-program basis.
Despite a shift in the sanction landscape, it will take time for
enforcement activity to catch up. As a result, organizations should
regularly examine their exposure with business partners around the
globe and consult with counsel and third-party compliance experts
to assess weak points and risk.
Businesses engaged in global commerce should ensure that they have
a robust sanctions compliance program in place, aligned with
elements identified by OFAC as essential to an effective sanctions
compliance program.
Examining Sanctions on a Program-by-Program
Basis
Russia. A general uptick in this program can
be expected. Further, the Biden administration will likely shift
targets, moving away from secondary sanctions and those involving
U.S. allies, such as Germany over Nordstream II, to a more direct
pressure campaign on Russia, particularly in response to the
SolarWinds hack and the December 2020 attack against U.S agencies.
It is also likely that United States and other relevant authorities
will take a more proactive approach to counter Russia's
malicious cyber-attacks and authoritarianism.
Iran. During a recent press
statement, President Biden indicated that he will not provide
sanctions relief to the Iranian government unless the it stops
enriching uranium and abides by the limits previously laid out in
the Joint Comprehensive Plan of Action (JCPOA). The Biden
administration may rejoin or restart denuclearization talks with
Iran, therefore, relieving certain sanctions on Iran. However,
effectively unwinding sanctions on Iran will be challenging because
businesses are going to be very reluctant to engage with Iranian
markets. With Congress already divided about this approach, it will
likely become an even more partisan issue, with Republican members
of Congress opposing any initiative.
Venezuela. While there is likely to be
continued sanctions enforcement as it relates to persons supporting
the Maduro regime and certain sectors of the Venezuelan economy,
there will also likely be at least a slight pullback to provide
humanitarian relief to the country. Additionally, it is likely
there will be newly invigorated efforts to negotiate with the
Maduro regime, potentially accompanied by limited sanctions
relief.
Cuba. The Biden team has signaled that it is
going to roll back several of the changes undertaken by the Trump
administration to the Cuba sanctions program, including potentially
reversing the recent state sponsor of terrorism designation. The
Biden administration will likely aggressively use general licenses
to permit otherwise prohibited activity as a means of empowering
the Cuban civil sector, similar to the approach adopted by the
Obama administration.
China. As the second largest economy in the
world and a powerful competitor, China will remain a key focal
point for the Biden team's foreign policy. It is likely that
the team will keep in place a number of the actions taken by the
Trump administration targeting China. For example, Biden's
administration has made human rights a hallmark of its early public
statements and conversations, and the business sector should
anticipate that the Xinjiang and Hong Kong sanctions will remain in
place. Likewise, while some elements of the recent Chinese
Communist Military Companies Executive Order may be adjusted, the
overall prohibitions will likely remain in place. One area where
change may emerge relates to the likely forced divestment of
China's holdings in certain social media companies and other
state-owned enterprises.
North Korea. The Biden administration will
likely apply an aggressive sanctions campaign against DPRK and will
take a more aggressive designation and enforcement posture when
dealing with the country than the one adopted by the Trump
administration after the commencement of
negotiations.
What This Means for Business
Businesses should ensure the following five elements identified by
OFAC as essential to an effective sanctions compliance program are
addressed:
1. Management Commitment. Organizations must
ensure current senior management supports a significant investment
in upgrading sanctions compliance programs. This includes
confirming that compliance staff have the relevant background and
training, resources, and authority to design and implement robust
policies and procedures. Establishing a clear tone from the top
ensures that every employee knows that they are responsible for
preventing sanctions breaches, and that leadership, including the
board of directors, will take reported issues seriously.
2. Risk Assessment. OFAC encourages
organizations to conduct risk assessments to adequately account for
sanctions-related risks across customers, products, services,
supply chains, intermediaries, counterparties, transactions, and
geographies. Organizations should update their risk assessments to
account for changes in business activities or deficiencies that are
identified through these audits. Regularly updating risk
assessments also helps identify blind spots and emerging
risks.
3. Internal Controls. Effective internal
controls ensure that an organization has implemented a compliance
program in a way that can prevent, detect, and respond to actual or
suspected prohibited conduct. Policies must be translated into
day-to-day activities that allow front-line employees as well as
back-end finance team members to effectively manage risks,
including sanctions risks. Establishing well-designed manual and
automated controls around key business processes is key. This
includes monitoring new business development, vendor or third-party
onboarding, and sales and payments to ensure that business is not
conducted with sanctioned persons or entities.
4. Testing and Auditing. Once in place, a
company's compliance program needs to be independently tested
and audited to confirm its continued effectiveness and to help it
respond quickly to implementation gaps. This process should include
an evaluation of the control functionality, frequency, sufficiency
of resources to manage potential exceptions, and independence and
authority of those with the responsibility to escalate issues to
the board, audit committee, or executive leadership.
5. Training. A firm's compliance staff
requires regular and structured training to reinforce an
understanding of the risks they are facing and the actions they are
required to follow. Training may also extend to other business
relationships, including clients, suppliers, and business partners.
Compliance staff also need opportunities to learn about changes in
legal or regulatory frameworks governing sanctions, which can occur
frequently. Training keeps staff at the cutting edge of a rapidly
changing risk environment.
As OFAC has made it clear that these five elements are critical to
ensuring that companies remain on the right side of the law,
organizations looking to stay abreast of the latest changes should
take advantage of available resources. The Treasury Department,
through OFAC, regularly shares official alerts on changes to
programs and designations that can be subscribed to via email.
Additionally, organizations can subscribe to specialized law
firms' and risk consultancies' client alerts and insights
to stay informed.
With change on the horizon, entities should prepare their sanctions
compliance programs to respond and mitigate risks that may
arise.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.