Sanctions and Embargoes
How Sanctions Work
Sanctions are restrictive measures imposed by states or multilateral bodies (e.g., UN, EU, national authorities such as OFAC in the US or OFSI in the UK) to change behavior or constrain activity. Know the main types: asset freezes (funds of designated persons must be frozen, not returned), targeted financial sanctions, sectoral sanctions (restricting specific dealings, e.g., certain financing or technology), trade embargoes (country-wide bans), and travel bans. Understand listing/designation and the concept of ownership and control: a company may be caught even if not itself listed, where a designated person owns or controls it (often tested with percentage thresholds, but control can exist below those thresholds).
Screening, Traps, and Rule of Thumb
Screening covers customers, beneficial owners, counterparties, payments, vessels, and goods. Traps: assuming name screening is sufficient (it is not - ownership/control and indirect dealings matter); confusing sanctions (prohibitions, often strict liability) with AML (suspicion-based reporting); thinking frozen assets can be released to the customer (they generally cannot without a license); and forgetting strict liability - intent is often irrelevant to a breach. Also watch for secondary sanctions risk and circumvention red flags such as sudden changes in payment routes, use of intermediaries in unrelated jurisdictions, or mismatched goods descriptions.
Rule of thumb: For any sanctions scenario, ask: Is a designated person involved directly, through ownership, or through control? Is there a license? Is the activity a freeze, a prohibition, or a sectoral restriction? If no license and a nexus exists, stop and escalate; do not process and report later.
Worked example: A payment names a non-listed shipping company, but its majority shareholder is a designated individual. Direct name screening passes; ownership analysis fails. The correct outcome is to block/hold the payment, freeze if funds are held, and report to the competent authority.