Steptoe LLP | Alexandra Melia | Elliot Letts
European Union | Global | United Kingdom | USA
This article is an extract from Lexology Panoramic: Sanctions 2025. Click here for the full guide.
Sanctions have been a significant feature of international relations for many hundreds of years, with examples of the use of sanctions stretching back to ancient Greece. In the modern era, the context in which sanctions have been deployed, and the purposes underpinning their imposition, have morphed over time. In the nineteenth and early twentieth century, sanctions were deployed as a tool during wartime such as the continental system administered during the Napoleonic Wars or naval blockades imposed during World War I. During the interwar period and into the mid-twentieth century, the use of sanctions as a multilateral means of responding peaceably to threats to international peace and security was conceived of, and given effect by, the League of Nations and, latterly, the United Nations (UN). From the late-twentieth century onward, sanctions increasingly have been used to achieve foreign policy and national security objectives on a unilateral basis by individual nation states. For many twenty-first century policymakers, sanctions have become the tool of choice to respond to major geopolitical challenges from terrorism to conflict or human rights abuses.
Since their inception, sanctions have reflected at different times the policy objectives of individual nations and the international geopolitical scene. Their composition also has evolved and been refined over time from the use of trade embargoes, through financial sanctions affecting a target’s ability to raise funds and conduct business using the international financial system, to tailored sanctions that target particular individuals, entities or sectors of a target country’s economy or political system. These vicissitudes underscore that sanctions are not an end in themselves; rather, the withdrawal of customary trade or financial relations is used as a tool to alter the strategic decisions of state and non-state actors that threaten the sanctioning party’s interests or are considered to violate internationally accepted behavioural norms. To that end, sanctions can be used to coerce, chasten, deter or punish, depending on the particular reason for their imposition.
In recent decades, globalisation has offered nation states an increased opportunity to bring economic leverage to bear over those whose conduct they wish to change through the deployment of unilateral sanctions. In tandem, growing concern as to the broader humanitarian consequences of unilateral sanctions regimes has prompted a shift toward the greater use of ‘smart sanctions’ that seek to mitigate collateral harm and unintended consequences by directly targeting those whose behaviour the sanctions are intended to change.
An increasing number of countries are turning to autonomous sanctions as a means of advancing their national interests. For example, in recent years, the People’s Republic of China (PRC) has begun to implement autonomous sanctions, raising the prospect of a significant new player in the sanctions field over time. The Russian Federation (Russia) also has imposed travel restrictions on individuals from various countries over the past few years, as well as bringing forth a range of counter-sanctions measures that include prohibitions on specified commercial dealings with designated persons from unfriendly states and restrictions on the activities of certain foreign investors in Russia.
As the number of nation states imposing autonomous sanctions increases, the accompanying divergence in sanctions policy between states has increased the potential for a conflict of laws to arise. The European Union (EU) and United Kingdom (UK) continue to impose blocking legislation in relation to certain specified sanctions against Cuba and Iran administered by the United States of America (US) and new regimes imposing counter-sanctions continue to emerge such as those implemented by the PRC and Russia. The conflicting obligations created by these various regimes require deft navigation as there often are limited remedies available to businesses and individuals caught in their cross hairs.
While the prominence of sanctions as a tool of statecraft is well established, their elevation in the public consciousness is a relatively recent occurrence that can be traced back in large part to the unprecedented response of a coalition of nations to Russia’s invasion of Ukraine in February 2022. The package of financial and trade sanctions measures that this coalition has imposed against Russia, a permanent member of the UN Security Council, is unparalleled in the modern era in terms of both its size and scale. The package of measures has included the widespread use of financial sanctions targeting specified individuals and entities, as well as the use of novel and, at times, highly complex trade sanctions measures, such as restrictions on the provision of specified professional services and a price cap mechanism in relation to the maritime transportation of Russian oil and related products. As the conflict enters its third year, this package of measures continues to evolve and expand, with recent US and UK action targeting the Russian energy sector.
For businesses operating internationally that already were familiar with the need for sanctions compliance controls such as robust sanctions screening protocols and due diligence checks on business partners, products and transactions, the magnitude and speed of administration of these sanctions measures seriously tested existing risk identification and mitigation frameworks due to the extent of Russia’s interconnectedness with the global economy at the outset of the Ukraine war. The range of industries targeted by the sanctions also pulled many businesses into meaningful engagement with sanctions compliance for the first time.
As major sanctions regimes increasingly are being administered outside the UN Security Council’s ambit, there has been a growing focus on collaboration and the coordination of unilateral sanctions measures to enhance their efficacy through multilateral adoption. In the Russia context, this coalition has encompassed the G7 member countries, as well as Australia and the EU. While these efforts in part aim to ameliorate the compliance burden placed on businesses and individuals by the obligation to comply with multiple sanctions regimes, it cannot be completely eliminated. For example, the legislative framework within which coordinated sanctions measures are implemented at a national level varies, which can result in differences in the selection of sanctions targets and timing of designation decisions, as well as variance in the interpretation of individual restrictions, availability of exceptions to specific prohibitions and the circumstances in which otherwise prohibited activity can be authorised by licensing. The ensuing compliance complexity faced by businesses operating internationally has been further amplified by the continuing trend toward sanctions covering an increasingly broad range of activity and the inclusion of greater numbers of individuals and entities on sanctions lists. This trend underscores the importance of businesses adopting a holistic approach to sanctions compliance that maps and reflects the sanctions applicable to their activities.
The success or efficacy of sanctions in achieving their objectives is an often vexed and contentious question. As a tool of statecraft, sanctions rely upon the rigour of commercial parties’ compliance for their ability to incentivise behavioural change, whether they are imposed by nation states or international organisations. As a result, the key determining factors in the success of sanctions measures typically are the importance, value and volume of the commercial activity that can be withdrawn in compliance with the sanctions imposed and the rigour with which those required to comply with the sanctions do so. For these reasons, the US has long led the pack in terms of the potential reach and impact of its sanctions measures. It leverages its sizeable domestic market, as well as the dominance of the US dollar in international transactions. With regard to ensuring compliance, the US has a well-established track record of aggressively enforcing violations of its sanctions. It also makes use of secondary sanctions powers that deny access to its markets to extend the reach of its sanctions by requiring compliance from those over which it typically would not have primary sanctions jurisdiction.
When sanctions are administered unilaterally (even when coordinated), a further pertinent factor impacting efficacy is the extent to which third countries elect to align with the spirit of the measures imposed by the sanctioning countries. The importance of this element can be seen in the efforts of teams from the EU, UK and US to engage with third countries such as the United Arab Emirates and Türkiye to enlist their support in tackling Russia-related sanctions evasion, as well as in the development of measures designed to tackle this issue head on such as No-Russia clauses to limit the re-export of sanctioned items to Russia, the EU-imposed ‘best efforts’ obligation that requires EU parent companies to ensure their non-EU subsidiaries do not undermine certain EU sanctions on Belarus and Russia, and the development by the UK of designation grounds with secondary sanctions-like effect to target those in third countries that continue to trade with Russia.
The enforcement of sanctions is an area where the US has historically been materially more active than other countries. However, other nations increasingly are establishing frameworks to support more robust enforcement, flexing their enforcement muscles, or both. Following Brexit, the UK has articulated its intention to grow both its imposition, and enforcement, of sanctions. A strict liability standard for the civil enforcement of financial and certain trade sanctions has been adopted across all UK sanctions regimes and the first civil penalties have been imposed, and criminal prosecutions initiated, under the UK’s Russia sanctions regime. Additionally, the importance of intelligence in identifying and efficiently investigation sanctions breaches has been recognised and acted upon. The range of firms required to submit mandatory reports of sanctions breaches to the Office of Financial Sanctions Implementation (OFSI) has been further expanded to include new sectors (eg, art market participants and high-value dealers from May 2025). OFSI also entered into a memorandum of understanding with the Office of Foreign Assets Control of the US Department of the Treasury in October 2024 to facilitate information sharing between the agencies supportive of the investigation, enforcement and promotion of compliance with UK and US sanctions. The EU also has taken steps to harmonise criminal offences and penalties for breaches of EU sanctions across EU member states, with the intention of making the investigation and prosecution of violations easier. Singapore too has been active in enforcement, charging several nationals with evading UN sanctions imposed on the Democratic People’s Republic of Korea.
There is also an increased focus on the enforcement of trade sanctions. The Netherlands has prosecuted companies and individuals for their role in the construction of a bridge across the Kerch Strait in Crimea between 2014 and 2017. In the UK, a new trade sanctions enforcement body, the Office of Trade Sanctions Implementation, was launched in October 2024 with a mandate to pursue civil enforcement of trade services sanctions violations, a development that is likely to result in an uptick in UK trade sanctions enforcement activity (particularly in relation to the UK’s Russia sanctions regime).
The current sanctions landscape is characterised by a fast pace of change, a trend that is likely to continue for the foreseeable future. Global trade currently stands at a crossroads. The multilateral trading system that fuelled globalisation for much of the past century is under strain from conflict on several continents, as well as the complex and ever-changing power politics between the world’s largest economies. Predicting future developments in sanctions policy and enforcement can, at times, appear a fool’s errand, particularly as the new US administration’s sanctions policy is still coming into view. However, a number of trends are likely to be discernible in the months ahead.
First, a continued focus on Russia-related sanctions. President Trump has indicated an intention to impose more sanctions if Russia refuses to end the war in Ukraine and other sanctioning states continue to tighten existing sanctions measures, as well as weigh up the introduction of additional sanctions.
Second, an increase in enforcement. Businesses should expect the spotlight increasingly to move to civil and criminal enforcement actions as countries imposing sanctions (particularly, but not exclusively, in the context of Russia) seek to demonstrate the efficacy of those measures and deter non-compliance. Given the significance of trade sanctions to the overall package of sanctions targeting Russia, enforcement action in relation to these measures is particularly likely.
Third, as the application of various autonomous sanctions regimes receives an increase in judicial scrutiny following a transformational uptick in the imposition of sanctions measures over the past few years, we are likely to see an increase in both commercial and investor-state disputes relating to sanctions, as well as a further refinement of the guidance issued by national agencies responsible for sanctions implementation and enforcement.
Fourth, an increased focus on areas adjacent to sanctions such as export controls and national security issues. A particular area of focus is likely to be the intersection of these areas in relation to emerging technologies such as artificial intelligence, semiconductors, quantum computing and additive manufacturing equipment, with both trade and investments in these technologies potentially impacted. As activity in these areas in increasingly unilateral in focus, these developments have the potential to create compliance complexities for companies with international operations that are required to navigate the requirements of multiple regimes.
As sanctions risks continue to evolve and the risk of enforcement and reputational harm associated with a breach of sanctions escalates, businesses (particularly those operating internationally) must ensure that they have a holistic understanding of their sanctions risk profile that takes into account all applicable sanctions regimes, as well as adjacent areas of risk. Businesses also should check that their sanctions compliance programmes are fit for purpose and effective at identifying and managing the financial and trade sanctions risks posed by their activities. Remaining on top of actual and potential developments is also key to ensuring a timely response to the imposition of new sanctions regimes and measures by re-evaluating relevant risks and making any necessary adjustments or enhancements to existing compliance controls. Given the current outlook in terms of both the increased use of sanctions and their likely enforcement, businesses will need to remain attentive to sanctions compliance for some time to come. These efforts also will need to address the commercial risks associated with sanctions compliance in a fast-changing environment and, in particular, the risk of potential future disputes concerning the impact of sanctions compliance on business and commercial relationships.
This article first appeared on Lexology | Source
