COVID-19 sanctions

Watching the effects of COVID-19 these past several weeks and the resulting impact on our global economy, it is clear that many companies now face uncertain futures and/or have to rethink their business models. In such unprecedented circumstances, combined with the increased pressures on supply and demand in many industries that are typically subject to sectoral sanctions, businesses are potentially exposed to increased economic crime risk and fraudulent actors. Therefore, it is more important than ever to maintain oversight on operations to proactively address any potential compliance issues.

However, the question is, how do we strike the right balance on compliance matters when our companies are in “survival mode” – i.e., potentially focused more on operational and financial related implications and less so on compliance?

Further, should the introduction of any additional measures and/or the enforcement of existing sanctions regimes be temporarily relaxed?

Sanctions must still be respected during the COVID-19 pandemic

As of now, and until relevant government departments indicate otherwise, COVID-19 should not be used as an excuse to disregard sanctions compliance. Despite the current circumstances, companies must still comply with relevant requirements and be able to provide meaningful, documented evidence of such compliance.

This has prompted some confusion, and difference of opinion, across companies who are impacted by various sanctions regimes, and who are otherwise concerned about how best to mitigate sanctions risk during uncertain times. For example:

• How do current travel restrictions, lockdowns and inability to conduct “business as usual” (BAU) impact the practicalities of managing and mitigating sanctions risk?
• How do we revise our sanctions compliance programmes to better help identify, mitigate and manage sanctions risk, given the new BAU environment (especially for those companies who have already downward adjusted compliance spend)?

Should these restrictions stay in place during the current COVID-19 crisis?

Currently, there is a healthy debate over whether broad sectoral sanctions should urgently be re-evaluated in countries facing the coronavirus pandemic, in light of their potentially debilitating impact on the health sector and human rights. In particular, the UN High Commissioner for Human Rights, Michelle Bachelet, has called for the urgent re-evaluation of sectoral sanctions in countries dealing with the impact of COVID-19, alongside broad and practical humanitarian exemptions to sanctions measures, including authorisation for medical equipment and supplies.

Some academics and industry specialists maintain that sanctions may impede medical efforts in Cuba, North Korea, Venezuela, Zimbabwe and Iran, which have vulnerable health systems, and that easing sanctions could allow for resources to be allocated to treating and preventing the pandemic.

On a macro level, it is worth considering whether the US Office of Foreign Assets Control (OFAC) and its peers across the world have the equivalent of a “force majeure” provision, for unprecedented events of this kind, that allow for a pause of certain restrictions and compliance requirements. In addition, whether enforcement agencies can show leniency if there are potential instances of non-compliance during this time, where companies are more focused on immediate response measures to COVID-19, such as business continuity. If not, should they?

What do you think?