SANCTIONS: A LEGAL LABYRINTH FOR BUSINESS LAWYERS

March 5, 2025 at 1:21 pm

Don’t Let Sanctions Uncertainty Put Your Business at Risk

As international sanctions continue to evolve rapidly, companies across industries face growing pressure to navigate conflicting rules, avoid violations, and protect their global business operations.

Business lawyers dislike uncertainty. Nevertheless, many business lawyers describe various sanction regimes as vague and inconsistent. In addition, conflicting sanction regimes create headaches for international businesses operating across borders.

Despite the common belief that sanctions are primarily a concern for the financial sector, they have quietly evolved into a significant business risk for companies across all industries. As a result, businesses of all sizes must identify and manage the various applicable sanction regimes to minimize both financial risks and the reputational damage caused by sanctions violations.

Further complicating compliance, sanction lists are frequently updated—sometimes daily—and are issued by different governmental and international bodies. These lists are not always harmonized across different regimes, adding yet another layer of complexity.

Navigating the legal labyrinth of sanctions has become a daily reality for multinational and multi-jurisdictional companies. To support businesses in tackling this challenge, we have compiled a brief guide addressing key questions about sanctions and how to comply with them.

What are sanctions? | Introduction

Sanctions are preventive measures designed to influence the policies or actions of certain high-risk individuals, groups, or states when such policies or actions pose a threat to international peace and security.

Sanctions may target the government of a specific state, as well as individuals or entities affiliated with that government. They may also target specific groups or industries. In addition to these, sanctions can restrict the availability of certain products, services, materials, technologies, or know-how that might otherwise contribute to the targeted activity.

Sanction regimes | Legal labyrinth

Various sanction regimes exist, each implemented and enforced by different sanctioning bodies, for example:

Sanction Regime	Who It Applies To	Key Restrictions	Enforced By
EU	EU companies	Asset freeze, trade bans	EU Commission
OFAC	US companies* + USD trades	Comprehensive bans, secondary sanctions	US Treasury
UN	All UN Nation states	Targeted asset freezes, travel bans	UN Security Council

*) OFAC sanction list applies to corporate entities constituted in the US, any entity that trades in US dollars, uses US goods or components, has a US parent, subsidiary or affiliate, works through a local agent or supplier with a US connection.

In addition to these, counter-sanctions further complicate the landscape. For example, Russia has introduced its own counter-sanctions in response to measures imposed by the EU and the US.

Checklist for businesses. Sanctions Compliance Process | Key to mastering multiple regimes

To mitigate the risks associated with sanctions, companies must adopt a structured approach to compliance. Below is a step-by-step workflow to ensure due diligence and compliance with various sanction regimes:

1. Screen Business Partners

Conduct thorough Know Your Customer (KYC) and Know Your Supplier (KYS) checks.
Use automated screening tools to verify counterparties against global sanction lists (e.g., OFAC, EU, UN).
Identify potential secondary sanction risks (i.e., indirect exposure via partners linked to sanctioned entities).

2. Assess the Product or Service

Verify whether the goods, services, or technology being traded are restricted or require special licensing.
Check for dual-use goods (products with both civilian and military applications).
Ensure compliance with sector-specific sanctions (e.g., energy, defense, telecommunications).

3. Evaluate the Destination and End-Use

Determine whether the destination country is subject to sanctions.
Conduct due diligence on the end-user—sanctions may prohibit indirect sales to certain parties.
Be cautious of re-export risks (where goods are legally exported but later transferred to a sanctioned country).

4. Review Financial Transactions and Payment Flows

Ensure that payments do not involve sanctioned financial institutions or individuals.
Be aware of secondary sanctions that might apply to financial transactions even if the company itself is not directly sanctioned.
Monitor cross-border transactions to avoid accidental exposure to restricted entities.

5. Establish a Compliance Policy and Ongoing Monitoring

Implement a Sanctions Compliance Policy that sets clear internal procedures.
Train employees, sales teams, and suppliers on sanction risks and compliance obligations.
Continuously update sanction lists and screen transactions to remain compliant with changing regulations.

Our recommendations | To-Do list

When drafting and implementing a Trade Compliance Policy, companies should:

✅ Review all applicable sanction regimes relevant to your business activities.
✅ Draft and implement a comprehensive Sanctions Compliance Policy—and update it frequently.
✅ Integrate sanction screening tools into operational processes.
✅ Follow best practice principles, including strong documentation to support compliance decisions.
✅ Adopt a conservative interpretation of sanction rules to reduce legal risk.
✅ Engage with a trusted business law partner for legal guidance and industry-specific know-how.

Our team at LKOS Law Office is at your disposal for any questions regarding sanctions, trade quotas, or international trade.

Need help with your company’s sanctions compliance? Contact Oscari Seppälä today for expert advice tailored to your industry.