Legal update from Triton 1-2019
The long arm of the law
Sanctions have increasing impact on international trade. There are several reasons - sanctions no longer concern only obscure states but also major trading nations such as Iran, Russia and Syria, for example. In addition modern sanctions legislation targets businesses that enable the underlying prohibited activity.
For instance, it has proven more efficient to pursue ship operators, banks and insurance companies involved in the transport chain instead of solely focusing on the true wrongdoer buying and selling a prohibited product. This is understandable – we all have responsibilities towards making the world safe and sustainable. As a lawyer, however, one cannot help but make certain observations about the increasing use of sanctions.
Sanctions and sovereign states
In its purest form, sanctions are uncontroversial in that they – according to United Nations resolutions – should be used to safeguard peace and international security. However, as soon as sanctions are imposed for purposes that are not clearly within that remit problems start to arise.
The first question one should ask is ‘against what entity do the sanctions apply?’ States are generally prohibited in dictating what other states (or persons and companies outside their jurisdiction) should or should not do according to fundamental public law principles, one being the nonintervention principle. Sanctions that apply outside a state’s territory - extra territorial sanctions - are therefore inherently problematic from a public law perspective if they do not directly serve the purpose of safeguarding peace and international security.
Fear of non-compliance
Sanctions are also in the spotlight due to the severe consequences for noncompliance. It is reported that sanction evaders have paid hundreds of millions of dollars in fines. In addition, a sanction breach can restrict access to financial institutions and payment systems. This has prompted companies in the financial sector to apply very strict sanction controls in their businesses. For banks this includes checking the purpose of the payment and also the parties involved in the payment. From a practical perspective this is a clever undertaking considering the millions of payments that are processed yearly.
Avoid over-shooting the target
The sanction checks clearly have to be automated and to be on the safe side raise warning flags at even the slightest suspicion of a problem. For example the Club has experienced issues with stopped payments to local correspondents only because the vessel involved has called into Iran previously, or because the initials of the claims handler resemble the name of a company on a sanction list. Sanction filters therefore tend sometimes to over-shoot the target and as a result create unpredictability in the payment system.
Should this development continue there is a risk that sanction compliance will have less to do with the law and instead be more a question of meeting companies’ risk policies. Such a development would be unfortunate, with commensurate negative effects on global trade.
Previous Legal Corner articles
Improved visibility in the muddy waters of sanctions - Triton no 3 2018
Redefining the role of the lawyer - Triton no 2 2018
IMB membership for FD&D members - Triton no 1 2018
Adaptability vs continuity - Triton no 3 2017
The importance of context - Triton no 2 2017
The strive towards clarity - Triton no 1 2017
Use your head - Triton no 3 2016
Leading OW Bunker case finally decided - Triton no 2 2016
Guidelines on place of refuge - Triton no 1 2016
It’s not what you do, it’s how you do it - Triton no 3 2015
Reflections - Triton no 2 2015
A wreck removal convention ahead - Triton no 1 2015
We need to talk - Triton no 3 2014
What it is all about - Triton no 2 2014
The Shipping Blue(s) - Triton no 1 2014