A sanctioned entity is a company, country, or individual that is prohibited from conducting business in a certain jurisdiction. In many cases, intergovernmental bodies, like the United Nations, and individual countries will create a sanctions list to place financial and economic strain on a country or individual.
Being placed on a sanctions list means the business or individual is prohibited from engaging in certain transactions and deals. There are different types of sanctions that businesses face when placed on a consolidated sanctions list, including:
Economic sanctions can include both trade and financial sanctions. A sanctioned entity cannot participate in importing or exporting to certain countries and has limitations in financing from other countries. Economic sanctions make it more difficult for a sanctioned entity to conduct business.
Diplomatic sanctions prevent a country’s in-charge officials, individuals, or businesses from visiting other countries and participating in political events. Sanctioned countries have difficulty partaking in world events and foreign policy decisions.
This type of sanctions program is put in place after a business, individual, or country commits environmental or social crimes, such as human rights violations. Penalties for these sanctions can include loss of operating licenses, bans, and the elimination of public funding.
Sanctions are put in place for a variety of reasons. Let’s cover some of the reasons why countries impose sanctions.
One of the most common reasons for sanctions is political motivation. For example, the United States might not agree with the policies of the Central African Republic. As a result, U.S. National Security might refuse to provide aid and financial support to the Central African Republic.
Every country will have its own consolidated list of countries and jurisdictions with sanctions. It’s also important to note that sanctions can occur within the United States. If a state department doesn’t agree with a business decision, they could place the company on the sanctioned entity list, preventing them from conducting business in other states and securing funding.
Sanction regulations can also occur due to military aggression. The recent invasion of Ukraine by Russia is an example of military aggression sanctions. Once countries started choosing sides, sanctions were put in place against the opponents to limit trade and economic activities.
Sanctions are common following illegal activities, especially money laundering. If an individual or business is found to be breaking the law, they will be placed on a consolidated list. Additionally, acts of terrorism will subject an individual or country to sanctions.
Each country and jurisdiction controls its own sanctions. For example, the Office of Foreign Assets Control publishes a Specially Designated Nationals list, known as the SDN list. This list contains the listing of individuals, entities, and groups that have sanctions in place and are prohibited from certain activities.
Additionally, sanctions are generally regulated by the threat of more sanctions and fines. One example would be the threat of high fines and penalties for engaging in trade or business with a sanctioned country, entity, or individual.
Similarly, countries risk more sanctions if they refuse to abide by the requirements set forth by the issuing agency. For example, the U.S. Department of Justice might launch a formal investigation with fines and penalties for a company that doesn’t comply with U.S. laws and existing sanctions.
Running a business in the global realm has become increasingly easier due to technological advancements and the rise of e-commerce. This makes it important to check sanctions lists before creating a contract with overseas businesses and entities. Doing business with a sanctioned entity is a criminal offense in many countries, which can result in monetary penalties, criminal convictions, damages to your reputation, and prison time.
The good news is that most countries will have a sanctions list that you can view. First, create an unverified list of your customers and clients that you have not researched. Then, check sanction lists to make sure their business is in good standing. Taking a few extra minutes during the contract creation or onboarding process could save your business thousands of dollars in fines and penalties.
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