AML POLICY contributing to the instability in a country). Typically, they also contain clauses that cover assistance to those participating in the specified activities, as well as provision of financial or technical support to them. In addition, a number of sanctions programs target specific exports or even entire industries in the sanctioned country.
Choosing to add listings to a sanctions program, or refraining from doing so, permits the sanctioning country to balance the relative amounts of“ stick”( i. e., amount of pain in conducting financial affairs) and“ carrot”( i. e., providing incentive to change behavior so that sanctions could be loosened at a future date). And this is not merely a theoretical bargaining chip. For example, the U. S. chose not to add names to the Myanmar sanctions program, despite recommendations from the State Department to do so, because it was conducting negotiations in secret with the ruling junta on democratization of that society.
What is sanctioned?
The next thing to determine is what sort of restrictions apply. There is more variation than one might expect.
The bulk of economic sanctions imposed on specific targets are“ do not do business” type of prohibitions. However, even here there are two very different types of sanctions, each associated with a different goal of sanctions. The most common sanctions are asset freezing or blocking sanctions, where the assets associated with an account or transaction are made unavailable to all parties( i. e., both the account holder / transactor and any counterparty). Such sanctions are intended to prevent the use of assets by seizing them. In contrast, certain sanctions result in funds being returned to the party wishing to effect a transaction. In these cases, assets can be utilized for the intended purpose— just not in the sanctioning country’ s financial systems or broader economy. As appropriate examples, the U. S. imposes a number of these sorts of sanctions, including the sectoral sanctions imposed on Russian energy, defense and financial services firms( as does the EU), and for example, the parties on OFAC’ s Non-SDN Palestinian Leadership Council( NS-PLC) List( part of the Consolidated Sanctions List). While there is certainly inconvenience in such sanctions, the desired business can still be conducted elsewhere, perhaps at greater cost. If such restrictions are imposed unilaterally by a country rather than by a larger, more global coalition of nations, their effect is more of a slap on the wrist than an effort to inflict true economic hardship. Thus, while NS-PLC restrictions are largely symbolic, the sectoral sanctions, which were also adopted in the EU, have a significant impact on the designated sectors of the Russian economy.
Generally, a sanctions designation prevents all manner of transactions involving the targeted individual or company( or cargo vessel or aircraft, in OFAC’ s case).
The bulk of economic sanctions imposed on spe cific targets are“ do not do business” type of pro hibitions
However, sanctions can be restricted to specific classes of transactions. This allows the impact of the restrictions to be more finely calibrated— both the impact on the sanctions target and the consequences of those sanctions on the customers, suppliers and business partners of the target. The sectoral sanctions imposed on elements of the Russian economy is an apt example. These sanctions only prohibit dealing in long-term capital market issues and specific types of energy exploration activities. By doing so, Russian energy firms can continue to perform their current business activities but— because the sanctions impede the raising of capital via the securities markets— they will face challenges trying to finance the expansion of their business. In addition, even if they could continue to perform, they would be unable to obtain outside technical or other assistance in the actual exploration activities due to the prohibitions of OFAC’ s Executive Order 13662 Directive 4 and its EU equivalent. However, by not actually sanctioning all business with these firms, while these firms’ strategic planning for their business will be impacted, they will still be able to sell their current set of goods to Western Europe, which relies on their products. Had the sanctions been more comprehensive, Europeans might have struggled to meet their energy needs.
Beyond these financial sanctions— which largely( with the exception of the aforementioned energy exploration restrictions) revolve around restricting the flow of financial assets— once a sanctions program expands to encompass a country’ s economy and not merely specific citizens, an even broader spectrum of economic sanctions can also be applied.
Perhaps the most notable of these restrictions are sector-specific or blanket restrictions on international trade, as well as transactions using the sanctioned country’ s cargo vessels. An adjunct to these prohibitions is the one usually imposed on actions that facilitate third-party transactions. These include provision of approvals or guarantees, financial transactions such as financing or insurance related to the transactions, as well as any services that help advance the transaction, such as providing advisory services. In addition, investments in a country’ s economy are also typically prohibited.
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