International Sanctions: Impact, Regulation, and Compliance Strategies

Understanding International Sanctions and Embargoes in the EU

International sanctions and economic embargoes are restrictive measures imposed by the European Union (EU) to influence the behavior of states, entities, or individuals that pose threats to international security, human rights, or the rule of law. These measures may include trade restrictions, asset freezes, travel bans, and prohibitions on financial transactions.

Types of Sanctions

Sanctions can be classified into three main types:

1. Country-Specific Sanctions – Restrictions imposed on specific nations due to human rights violations, terrorism, or threats to peace. Example: the embargo on North Korea or sanctions on Russia.

2. Sanctions Against Individuals and Companies – Applied to individuals or companies involved in corruption, terrorism, or human rights abuses. Example: Asset freezes and entry bans in the EU.

3. Sanctions on Products or Services – Restrictions on the export and import of specific goods, such as dual-use technology, weapons, or energy resources.

Real-World Examples

• Integral Concierge Services Limited (ICSL): Fined £15,000 in 2024 by the UK’s OFSI for violating sanctions against Russia.

• TransferGo Limited: Fined £50,000 in 2021 for conducting transactions that breached restrictions on Russia.

• Standard Chartered Bank: Fined in 2020 for providing loans to Denizbank A.Ş., a sanctioned Turkish entity.

• Telia Carrier UK Limited: Fined £146,341 in 2019 for facilitating calls to a sanctioned entity in Syria.

• Travelex (UK) Ltd: Fined in 2019 for violating EU sanctions against Egypt.

• Case in the Netherlands: A company was fined €200,000 in 2023, and its director was sentenced to 18 months in prison for exporting electronic goods to Russia in violation of EU sanctions.

Current Legislation in Europe

EU sanctions are based on a robust legal framework:

• Article 29 of the Treaty on European Union (TEU) – Allows the Council to adopt decisions to impose sanctions.

• Article 215 of the Treaty on the Functioning of the European Union (TFEU) – Provides the legal basis for adopting regulations that implement economic and financial measures.

• Directive (EU) 2024/1226 – A harmonized rule defining offenses and sanctions for violating EU sanctions, requiring Member States to transpose it.

More details about the 40+ international sanctions regimes currently in force can be found on the European Commission’s website. The Council of the EU decides unanimously on the adoption, renewal, or lifting of EU restrictive measures (sanctions) based on legislative proposals from the High Representative of the Union for Foreign Affairs and Security Policy.

Impact on Businesses and Commercial Operations

Sanctions directly affect companies engaged in international trade, particularly in the following areas:

• Export and Import Restrictions – Companies must ensure their products, technologies, and services do not reach sanctioned entities or jurisdictions.

• Financial Transactions – Engaging with sanctioned banks or individuals can result in asset freezes and legal liabilities.

• Supply Chain Compliance – Businesses must verify that suppliers and customers comply with EU sanctions policies.

• Third-Party Risks – Companies working with intermediaries or partners in sanctioned countries face increased regulatory scrutiny.

Non-compliance can result in severe penalties, reputational damage, and operational disruptions.

New Developments: Directive (EU) 2024/1226

The recently adopted Directive (EU) 2024/1226, in effect since May 30, 2024, strengthens the EU’s sanctions framework by:

• Enhancing Compliance Requirements – Companies must implement stricter due diligence and monitoring mechanisms.

• Harmonizing Criminal Sanctions Across Member States – Uniform enforcement measures ensure the effectiveness of sanctions.

• Increasing Corporate Executive Liability – Expands personal liability for executives who fail to prevent sanctions violations.

• Stricter National Enforcement Mechanisms – Requires Member States to impose severe penalties and criminalize intentional violations.

Compliance in Spain and Upcoming Regulatory Changes

Spain must transpose the directive into its national legislation by May 20, 2025, which will introduce:

• Increased Penalties – Although fines have not yet been specified, sanctions violations will be classified as criminal offenses.

• Criminal Liability for Executives – Business leaders may face up to five years in prison for intentional non-compliance with EU sanctions.

These changes will require Spanish companies with international operations to adopt stricter compliance measures to mitigate risks.

Risk Mitigation Strategies for Businesses

Risk Assessment and Due Diligence

• Conduct risk assessments for international transactions.

• Apply due diligence to high-risk individuals and entities.

• Screen clients, suppliers, and partners against sanctions lists (EU, U.S., UN, OFAC, etc.).

Development and Implementation of Policies and Procedures

• Establish internal policies aligned with current regulations.

• Design monitoring and control processes to prevent illicit transactions.

• Train employees and executives on compliance requirements.

Immediate Response to Non-Compliance

• Implement early detection systems.

• Take immediate corrective actions in case of violations.

Mitigating Risks in Mergers and Acquisitions

• Assess sanctions risks before mergers or acquisitions.

• Implement safeguards in cross-border corporate transactions.

Continuous Monitoring and Regulatory Updates

• Monitor changes in sanctions and embargo regulations.

• Conduct periodic audits to ensure compliance effectiveness.

• Seek legal advice in response to regulatory investigations.

Company-Wide Compliance Integration

• Ensure subsidiaries and branches understand international sanctions regulations.

• Train employees to identify and address red flags in operations.