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USA, Russia, EU, Europe, China and UAE are among many jurisdictions that have recently imposed economic sanctions on foreign companies and individuals, in response to alleged human rights violations, geopolitical tensions or breaches of international law. Any company operating internationally could face legal and financial penalties if they or their third party are found to be in breach of such sanctions. However, companies that can best identify and manage sanctions risks will be better able to expand into new markets with confidence.
In our latest blog, we look at how organizations should navigate global sanctions – and how data and technology play a crucial role in this process.
Sanctions regimes range from supranational sanctions imposed by institutions like the UN and EU to local sanctions by individual countries. Companies seeking to operate globally or partner with firms from other jurisdictions are expected to navigate this complex web to ensure they are not doing business with sanctioned entities or individuals. Firms found in breach of sanctions face series consequences such as legal action and financial penalties. For example, in April 2024 a Thai plastics firm was fined $20 million for allegedly breaching US sanctions against Iran.
This risk is heightened because of the unprecedented pace of change in global sanctions regimes in the past three years, making it extremely difficult for organizations to stay compliant. A primary driver has been the conflict in Ukraine, which led to a back-and-forth of new sanctions involving Russia, the US and European countries. This ever-evolving situation threatens to involve even more nations. For example, the US sanctioned entities in China, South Africa, the UAE and Turkey in June in relation to alleged assistance for Russia’s war effort in Ukraine. While the Chinese government recently protested against UK sanctions against five Chinese companies over alleged involvement in the Ukraine conflict.
This demonstrates another feature of sanctions risks: they are inextricably bound up with geopolitical developments such as military conflict and political polarization. Countries representing 60% of the world’s GDP planned to hold national elections in 2024, and changes of government can bring instant changes in sanctions regimes. While future changes to ongoing military conflicts in the Middle East, Myanmar and Sudan could also trigger new or lifted sanctions. Understanding sanctions exposure requires organizations to acquire a much broader view on geopolitical and financial trends.
Gaining insight on sanctions is not simply a matter of risk management; it is also critical for finding new opportunities. Entering new markets often brings the risk of dealing with sanctioned entities, and companies who lack confidence in their sanctions screening may simply avoid this market altogether. By clearly and accurately identifying sanctioned entities and ensuring compliance with regulations, an organization or company can confidently move into or pursue new business relationships in lucrative markets.
MORE: Technology and data to monitor global risks and find new
A company’s exposure to sanctions will vary according to the jurisdiction and industries in which they operate or are involved. For example, a financial services firm with clients in Russia and China is likely at a higher risk than a retail firm offering services in Germany. You should seek to understand your company’s potential exposure to sanctions and decide how far you are prepared to seize opportunities of entering new markets, even if that means additional sanctions screening.
To understand your sanctions exposure, it is essential to obtain accurate and up-to-date lists from every relevant sanctions regime. However, this alone is not sufficient to capture the entirety of sanctions risks. One challenge is that a sanctioned company might be on a sanctions list under its official legal name, but you only know it by a more informal trading name. Additionally, shell companies are often used to hide an entity's true beneficial owner. To develop a deeper understanding of these risks, organizations should use data on companies, executive biographies and beneficial ownership. News and media data can also help in anticipating political changes and developing military conflicts and their potential impact on sanctions.
Once you have obtained good data on sanctions, companies and news, you should set up a due diligence process which screens all current and prospective third parties against this information. A risk-based process is recommended, in which third parties who are flagged as higher risk should be subjected to further investigation.
Entities are constantly being added and removed from sanctions regimes. If companies are checking against the official sanctions lists themselves, this is very time-consuming and risks them continuing to do business with a newly sanctioned entity for several weeks before realizing the development. Technology tools such as Nexis® Diligence+ can screen your current and prospective third parties against multiple data sources on an ongoing basis, and alert you when new and relevant information comes to light.
If you detect a potential sanctions breach, you should act quickly to seek further information and, if necessary, cease doing business with them and inform the relevant regulator. Likewise, if monitoring reveals a lifting or relaxing of sanctions in a jurisdiction or industry, you can plan to target your services to that market.
MORE: How to successfully navigate and respond to today’s financial and geopolitical trends
Managing risks and harnessing opportunities around sanctions starts with having the right data on historic, current and emerging geopolitical and financial trends. LexisNexis offers a broad range of reputable data sources to help you surface relevant and impactful geopolitical and financial insights. Our datasets are enriched to power the latest technologies, and include:
Nexis Diligence+ combines sophisticated technology with a wide collection of data, helping you to conduct due diligence at scale to identify threats and opportunities. It provides automated alerts and produces tailored reports so you can act on new information with clarity and confidence.
Download our free ebook, How to Do Business in the Challenging Global Environment of 2024/25, to learn more about the how your company can better exploit geopolitical and financial opportunities and manage risks.