Financial sanctions are a foreign policy tool to coerce a state or a regime to change its behaviour. They can be imposed on individuals or companies and can take the form of an asset freeze and/or a travel ban or more targeted restrictions such as denying access to key resources. Failure to adhere to sanctions can result in reputational damage, loss of insurance cover as well as huge fines and/or imprisonment.
Over the last few years, sanctions imposed by the UN, EU and US have greatly impacted the shipping industry directly and also through financial institutions and insurers, including P&l clubs.
UN sanctions derive from UN Security Council Resolutions which require member states to implement them in their domestic legislation. In the EU they are implemented through Regulations which have direct effect in EU member states.
EU Sanctions are imposed as part of the EU Common Foreign and Security Policy. They apply:
- within the territory of the EU (including its airspace);
- on board any aircraft or any vessel under the jurisdiction of an EU Member State;
- to any person inside or outside the territory of the EU who is a national of an EU Member State;
- to any legal person, entity or body, inside or outside the territory of the EU, which is incorporated or constituted under the law of an EU Member State;
- to any legal person, entity or body in respect of any business done in whole or in part within the EU.
US sanctions are implemented under Presidential powers (Executive Orders) and domestic legislation. They apply to:
- US citizens and permanent residents wherever located;
- US entities organised under US law and their foreign branches;
- persons physically in the US (regardless of citizenship);
- foreign entities owned or controlled by a US person
The club is able to provide members with preliminary information on the different sanction regimes and has a panel of specialist sanctions lawyers in England, the US and other key jurisdictions, whom it is able to recommend to members needing legal advice.
A key part of most sanctions measures is an assets freeze against named individuals, companies and other entities. Please note that US sanctions also apply to ‘entities directly or indirectly owned 50% or more in the aggregate by one or more blocked persons’ (i.e. sanctioned individuals or entities) The US Treasury ‘urges caution when considering a transaction with an entity ... in which one or more blocked persons have a significant ownership interest that is less than 50% or which one or more blocked persons may control by means other than a majority ownership interest’ (according to Guidance issued on 13 August 2014). Similarly, EU sanctions apply to entities owned 50% or more by a sanctioned individual or entity. They also apply to entities ‘controlled’ by a sanctioned individual or entity. The EU Council has issued guidelines on the criteria to be taken into account when assessing ownership or control by a sanctioned entity; and when considering whether a party is affected by asset freezes, read more here.
The current consolidated list of asset freeze targets designated by the UN, EU and UK under legislation relating to financial sanctions regimes, can be found on the HM Treasury website.
The current list of sanctioned entities (also known as Specially Designated Nationals or SDNs) in respect of US sanctions can be found on the US Treasury website.
Under many of the sanctions, there is a defence where a party does not know, or has no reasonable cause to suspect, that its actions would infringe restrictive measures. However, to protect themselves, owners and charterers need to have proper procedures in place to identify trades or other dealings that may put them in breach and to avoid these. Such due diligence issues, including protective sanctions clauses, are discussed in an article in the Standard Bulletin: Navigating the complex maze of sanctions.
Members should be aware of the club’s sanctions rules (i.e. P&I rule 4.8, 6.22 and 17.2(5) or their equivalent) which are set out in full in the club’s rule books here.
We urge all of our members to ensure that their sanctions compliance procedures are up to date, robust and proactive. If members have any questions in relation to sanctions, they may contact either their usual club contact or the club’s sanctions team on Sanctions.Pandi-SanctionsTeam@ctplc.com. This team includes representatives in our London, New York and Singapore offices familiar with applicable likewise sanctions in their respective regions.
EU implements new UN sanctions against the Democratic People's Republic of Korea (''DPRK'') - March 2017
New US Sanctions legislation against Iran, Russia and North Korea - August 2017
US takes steps to revoke sanctions against Sudan - January 2017
US revokes sanctions against Sudan - October 2017
Other useful web links
Consolidated list of persons, groups and entities subject to EU financial sanctions
Consolidated list of financial sanctions targets in the UK
Frequently asked questions of EU restictive measures
Restrictive measures factsheet
Update to the EU best practices for the effective implementation of restrictive measures
Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy
Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy - new elements
European Parliament recommendation to the Council of 2 February 2012 on a consistent policy towards regimes against which the EU applies restrictive measures, when their leaders exercise their personal and commercial interests within EU borders
Financial sanctions: consolidated list of targets
Current arms embargoes and other restrictions
Office of Financial Sanctions (OFSI) Implementation
OFAC Sanctions list
Specially Designated Nationals List (SDN)
Useful lawyer websites
European Sanctions blog
Clyde & Co
Freehill, Hogan & Mahar LLP