Why Sanctions Matter in International Trade
For companies involved in international trade, navigating the complex landscape of sanctions is not just about following regulations—it’s about protecting their reputation, assets, and partnerships. Governments worldwide, including the U.S., implement sanctions to address threats such as terrorism, illicit trade, and human rights abuses. These measures aim to curtail activities that undermine global peace or violate international norms.
The recent expansion of U.S. sanctions targeting Iran’s energy sector underscores how rapidly sanctions can evolve in response to geopolitical events. Financial institutions and companies must stay vigilant, adopting stringent compliance practices like customer screening, risk-based monitoring, and robust due diligence processes. Ignorance or negligence in these areas can result in significant financial penalties and reputational damage, as seen in the recent case of Vietnam Beverage Company Limited (VBCL).
We breakdown both of these latest economic sanctions and trade restriction updates, and more below.
BIS publishes guidance for financial institutions (FIs) to comply with EAR
The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) has issued guidance for financial institutions to enhance compliance with the Export Administration Regulations (EAR). This guidance emphasizes the importance of due diligence, ongoing transaction monitoring, and effective real-time screening to prevent violations.
Financial institutions are encouraged to regularly vet customers against the U.S. Consolidated Screening List during onboarding and throughout the business relationship. This proactive approach helps identify and mitigate risks associated with potential violations. Additionally, institutions should encourage clients involved with EAR-regulated items to certify their adherence to these regulations, ensuring a higher standard of compliance across the board.
Implementing systems to detect and investigate red flags post-transaction can further prevent future violations and enhance overall compliance. Adopting these practices enables financial institutions to mitigate risks in export transactions and ensure compliance with U.S. export controls.
The BIS guidance helps financial institutions navigate economic and trade sanctions, avoid significant penalties, and maintain their reputations.
US Treasury Expands Sanctions on Iran’s Energy Sector Amid Regional Tensions
On October 11, 2024, the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) expanded sanctions on Iran’s petroleum and petrochemical sectors in response to Iran’s October 1 attack on Israel. This action aims to intensify financial pressure on Iran by limiting its ability to earn critical energy revenues that could undermine regional stability and support hostile activities.
The Treasury identified the petroleum and petrochemical sectors of Iran’s economy under Executive Order 13902, enabling broader targeting of activities related to Iran’s trade in these products. Additionally, the Office of Foreign Assets Control (OFAC) designated 10 entities across multiple jurisdictions and identified 17 vessels as blocked property for their involvement in shipments supporting Iran’s National Iranian Oil Company (NIOC) and Triliance Petrochemical Co. Limited. The U.S. Department of State also designated six entities and identified six vessels for significant transactions involving Iranian petroleum.
OFAC announces an $860,000 settlement with Vietnam Beverage Company Limited (VBCL)
VBCL has agreed to pay $860,000 to settle potential civil liabilities for apparent violations of U.S. sanctions on North Korea. Between April 2016 and October 2018, VBCL’s subsidiaries exported alcoholic beverages to North Korea, receiving approximately $1,141,547 through U.S. financial institutions, thereby causing these institutions to export financial services to North Korea. The settlement reflects the non-voluntary disclosure and non-egregious nature of the violations, as well as VBCL’s cooperation and subsequent implementation of robust sanctions compliance measures
Updated maritime advisory targets sanction evasion risks
OFAC has issued an updated Maritime Oil Industry Advisory for both government and private sector actors involved in the global maritime industry. The Price Cap Coalition, comprising G7 nations, the European Union, Australia, and New Zealand, has updated its advisory for the global maritime industry. This revision offers enhanced best practices to promote responsible operations, disrupt sanctioned trade, and ensure compliance with established price caps. Key updates include guidance on international obligations, due diligence in tanker sales, avoiding sanctioned entities, and raising internal awareness. Additionally, the U.S. supports the UK’s “Call to Action” addressing risks posed by Russia’s shadow fleet, aiming to coordinate responses to these challenges.
FinCEN issues alert on Hizballah financing risks
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued an alert to financial institutions, highlighting the need for vigilance against activities supporting Hizballah, a U.S.-designated Foreign Terrorist Organization. The alert emphasizes Hizballah’s involvement in illicit financial networks, including oil smuggling, money laundering, and illegal weapons procurement. Financial institutions are advised to monitor for suspicious activities, such as transactions with entities linked to Hizballah or its affiliates, and to report any findings to FinCEN. This initiative aligns with FinCEN’s ongoing efforts to combat terrorist financing and protect the integrity of the financial system.
OFAC issues new guidance for maritime shipping industry
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) has released updated guidance for the maritime shipping industry, emphasizing the importance of robust sanctions compliance. The guidance highlights deceptive practices such as vessel location data manipulation, document falsification, and obfuscation of vessel ownership, which are increasingly used to evade sanctions. OFAC advises stakeholders—including commodities brokers, insurers, ship management services, and port authorities—to adopt a risk-based approach to compliance. This includes conducting thorough due diligence on vessel ownership and implementing enhanced tracking systems for vessels and cargo. The guidance provides scenario-based examples to help industry participants identify potential sanctions evasion tactics and implement best practices to mitigate associated risks.
Navigating the sanctions landscape: Protecting trade, empowering integrity
Sanctions are more than just regulatory requirements—they’re a safeguard for ethical and secure international trade. By proactively embracing compliance, businesses shield themselves from legal and financial pitfalls while reinforcing their reputations as trusted global players.
Beyond risk mitigation, adhering to sanctions helps curb illicit activities, from unauthorized trade to terrorist financing. In an interconnected world, staying ahead of evolving regulations isn’t just smart—it’s essential for fostering resilience, transparency, and a commitment to global stability.
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