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Since February 2022, Western countries have rapidly tightened their sanctions policy against Russia, which has become the undisputed leader in terms of the number of restrictive measures imposed on it. The United States has shown the greatest zeal and determination in this regard. At the same time, Washington continued to expand restrictions on China, especially in terms of export controls. The policy of reducing China’s access to technology through the introduction of export restrictions is accompanied by targeted financial sanctions on individuals and legal entities, investment restrictions and other measures. The United States has maintained momentum in terms of imposing sanctions on Iran and other countries.
Washington continued its policy of strict application of existing sanctions regimes. It is characteristic that in this regard, not only persons from third countries, but also American citizens and companies have come under attack. At the same time, the use by the United States of the instrument of fines, which performs several functions at the same time, is particularly indicative. In particular, for those persons who are subject to punitive measures, they can serve as a signal that they should accept the conditions of US regulators, otherwise there may be more serious consequences, such as blocking. For organizations that have not faced enforcement measures, fines serve as a warning to comply with the sanctions regime. As a result, in a number of cases, companies have improved compliance programs and independently monitor the status of partners, thus adopting US sanctions. Along with other agencies, and in some cases in direct cooperation with them, penalties are systematically used by the US Department of the Treasury’s Office of Foreign Assets Control (OFAC).
US Treasury sanctions are a type of enforcement that is undertaken in response to a violation of financial sanctions, and implies that the facility, in order to settle the violations committed by participating in the settlement agreement, assumes the obligation to pay a fine imposed by the US Department. . Violation in this context refers to the conduct of transactions prohibited under US regulations. According to RIAC, in the period from January 1, 2009 to October 20, 2022, 262 individuals and legal entities were fined. About 30% are organizations operating in the financial sector, which, due to the specificity of their activities, face an increased risk of enforcement. In particular, they regularly perform a large number of transactions. Consequently, they may lack the resources, financial, technological or human, to verify these transactions, but intentional breaches cannot be ruled out.
Interestingly, the Americans are the leaders in terms of receiving fines from the US Treasury: 76% of the people who faced this type of enforcement during the observed period were US companies or their joint ventures. This fact once again highlights the difference between sanctions, which burden companies, and trade wars, which mainly aim to create better market conditions for their companies.
The experience of applying penalties against Chinese companies is noteworthy. The fines can be impressive. For example, in 2017 the Chinese company ZTE entered into an agreement with OFAC to pay $100 million for transactions that violate US sanctions on Iran. At the same time, the criminal cases themselves are not widespread, despite the constant growth of the Sino-American confrontation. In the observed period, there were three of them. In addition to ZTE, Hong Kong Sojitz Limited in 2022 and Jereh Group in 2018 were fined in 2018.
This is partly due to the Treasury’s active use of blocking secondary sanctions, as well as the fact that the US Department of Commerce plays a leading role in this area, as sanctions against China more heavily affect issues of technology and “dual-use goods”.
The total amount of all payments to the US Treasury amounted to slightly more than 5.7 billion dollars, of which 5.3 billion dollars were paid by financial sector companies, mainly from the European Union, Switzerland and Great Britain. Bank BNP Paribas paid a record fine – more than 963 million dollars, for violating the US sanctions regime against Sudan (then in force), Iran, Cuba and Myanmar. The bank conducted 3,897 prohibited transactions through US financial institutions. Management was aware of this, which was an aggravating circumstance in this case, because OFAC takes into account a number of criteria when calculating the penalty, including management’s awareness. Moreover, there was collusion, which was the reason for the involvement of the US Department of Justice in the investigation. As a result, in total the bank had to pay about 9 billion dollars.
It may seem paradoxical that US individuals and entities, which accounted for 76% of punitive damages for the period 2009-2022, paid less than 5% of total payouts, or about $260 million, while their allies bear the brunt. However, this asymmetry may be due to the fact that EU companies were more involved in working with sub-sanctioned jurisdictions, for example, with Iran. In addition, it is important that a large part of the companies from Europe and Great Britain that have been punished represent large banks that have committed hundreds and thousands of violations. The first ten companies that paid the highest fines account for 54,783 violations. In 74 cases, the number of violations by US individuals and legal entities does not exceed ten, and the companies themselves are willing to cooperate with the US regulator: for example, Western Union voluntarily reported minor violations to OFAC and cooperated with the investigation.
Meanwhile, concerns remain in the United States about the damage American businesses are suffering as a result of the sanctions. The U.S. Treasury Department’s 2021 Sanctions Policy Review noted the intent to tailor sanctions to smaller companies that may not have the resources to effectively comply, and as a result, according to the regulator, tend to forgo opportunities to develop business relationships such as would avoid such costs. It is difficult to translate this idea into reality. Moreover, we are not talking about refusing to apply coercive measures.
However, OFAC still reserves the right to consider all of the company’s circumstances when making its decision.
As a rule, companies facing fines start from the assumption that they cannot avoid a fine, but they can influence its final amount. 143 companies cooperated with OFAC during the investigation, eight did not. The most popular measures to “correct” behavior are upgrading software (in 38 cases), organizing staff training (in 60 cases), as well as hiring new employees in specialized departments, conducting an external audit and investing in a compliance program.
Thus, the US is still guided by the goal of increasing the effectiveness of sanctions, which is considered an essential condition for ensuring compliance with existing regimes through coercive measures. American legal entities (and less often natural persons) are often covered, but the largest amounts are paid by European financial companies. This causes discontent among allies and encourages them to look for ways to protect business, however, on a global scale, it does not affect Euro-Atlantic solidarity in terms of the application of sanctions against other countries.
From our partner RIAC
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