Being an aspiring commercial lawyer often means being confronted by complex, often abstract, concepts leading to an often impenetrable wall of jargon for students and trainees. Next up in our Legal Lingo series, which we've introduced to help break down this jargon, is an explanation of what sanctions are.
Sanctions are, broadly speaking, financial and trade restrictions imposed by nation states and intergovernmental organisations to advance political, economic, and national security objectives. The United States, the European Union, and the United Kingdom, amongst other countries, maintain economic sanctions frameworks with corresponding legal enforcement measures. The growing imposition and enforcement of sanctions has shaped investors’ risk appetites in cross-border transactions.
What are the different categories of sanctions?
Sanctions regimes could generally be categorised in the following buckets:
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Comprehensive, country-based sanctions: prohibit transactions involving specified countries and/or territories, effectively creating a trade embargo that restricts any business dealings involving government institutions, state-owned enterprises, and persons in the sanctioned jurisdiction.
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Broad, sectoral, and activity-based sanctions: prohibit transactions involving specified industries or activities within a certain country, commonly targeting the energy, defence, and financial services sectors. Sectoral sanctions often do not prohibit all dealings, but instead restrict specific activities.
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Targeted, list-based sanctions: prohibit transactions with named entities and individuals, regardless of nationality or residence. The US maintains a Specially Designated Nationals List, the EU and the UK maintain respective designated persons lists, and the United Nations also maintains a Security Council Consolidated List.
Why are sanctions important?
Sanctions are coercive, and sometimes protective, legal tools that operationalise economic and political policies. Penalties depend on jurisdiction, the nature of the violation, the parties involved, and the surrounding political context. Companies and individuals may apply for licences authorising transactions that would otherwise be prohibited, and lawyers enable such processes by drafting filings and liaising with government agencies.
How does this impact transactional legal practice?
Cross-border mergers and acquisitions involving touchpoints with sanctioned jurisdictions and persons require specialist advice. Lawyers typically tailor trade compliance provisions, including representations, warranties, covenants, termination rights, and licencing/consent arrangements within share purchase agreements, shareholder agreements, joint venture agreements, and related transactional documents to align with clients’ risk appetites and objectives.
