Cautious! How do foreign trade companies respond to international sanctions? Three risks to be aware of
For domestic enterprises, the most important focus in the face of external conflicts is how to respond to the risks brought about by the economic sanctions imposed by Western countries such as the United States and Europe on other countries, because these international sanctions will bring the country and its trading partners. The serious impact may also affect some of the international trade business of Chinese companies. How companies can avoid disasters under the sanctions must be cautious when engaging in international trade.
International sanctions usually include the inclusion of banks in other countries on the list of asset freeze (SDN), correspondent bank account prohibition (CAPTA), financing prohibition (NS-MBS), etc. Chinese enterprises should pay attention to three major risks in response to such sanctions.
Domestic enterprises, especially foreign-invested enterprises investing in China, often have cross-border capital transactions with foreign parent companies or multinational customers. Once these cross-border funds involve sanctioned persons, as long as the funds pass through the country that issued the sanctions, they are likely to be frozen or returned. ;
For export-oriented enterprises, it may lead to financial losses that are difficult to recover the payment for;
For import-oriented enterprises, they will also face the failure of remittance routes and the inability to pay for goods, which brings the risk of default.
If an enterprise conducts business transactions with the sanctioned person in the process of conducting cross-border transactions and violates the sanctions laws and regulations, it may be subject to a huge civil fine or even criminal responsibility.
In recent years, there have been many cases of being forced to sign huge settlement agreements with the U.S. Treasury Department due to violations of U.S. sanctions, and even leading to the detention of company executives.
Associated Sanctions Risk
If an enterprise conducts major business dealings with certain countries or sanctioned persons, it may be implicated in serious cases and be included in the sanctions list together, and face the risk of being delisted from the international economic and financial system.
To prevent sanctions risks, companies must take these key actions in place:
Know yourself and the enemy, do a good job in risk assessment
In fact, the premise of managing and controlling the risk of sanctions is to first understand what the risk exposure is.
Taking U.S. sanctions as an example, for companies, the key to judging U.S. sanctions risk exposure is in two aspects:
The first is the degree of association between the company and the United States, including whether the product is originated in the United States, whether the cross-border business funds are mainly denominated and settled in US dollars, and whether the company employs US executives, etc. That is to say, the higher the degree of association with the United States, the The greater the responsibility for complying with U.S. sanctions, the greater the consequences of noncompliance;
The second is the degree of contact between the company and the sanctioned person. The closer it is with the sanctioned person, the greater the exposure to sanctions risk.
Establishing an enterprise-appropriate sanctions risk management framework
Sanctions risk management requires costs. Therefore, companies must first understand their own risk exposures, and use this as a basis to establish a sanctions risk management framework that matches their risk exposures, business scale and costs, and risk appetite to avoid “excessive compliance”. Regulations” instead make sanctions risk management a mere formality. For details, please refer to the OFAC Compliance Commitment Framework issued by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC).
Embed sanctions risk management measures into the whole process of the company's business activities
Sanctions risk management cannot be limited to writing and slogans. The key lies in execution. Therefore, the senior management of the enterprise must embed the sanction compliance requirements into the whole process of the enterprise's business activities.
For example, strict order management is the most fundamental means to reduce the risk of sanctions, from all links before, during and after the signing of an order, to the counterparty of the order, the country where the counterparty is located, freight forwarding companies, transportation companies and even ships. etc., all-round sanctions and sanctions list screening must be done to ensure that none of the parties involved in the transaction involve the sanctioned countries, regions or persons.
In addition, it is also very important to do a good job in product evaluation. Enterprises must first identify the degree of association between the company's products and the sanctions-implementing countries, including the origin, raw materials, key technologies, etc., and avoid exporting goods from the sanctions-implementing countries to the sanctioned countries.
Finally, it is the design and arrangement of legal texts such as contracts, which is also the main work of managing and controlling the risk of sanctions. Enterprises need to find ways to implement sanctions compliance clauses in the signed contracts and agreements, clarify the details of the rights and obligations of both parties, and especially add the right to suspend contracts involving sanctions, so as to avoid their own legal risks.
In the complex international relations and geopolitics, sanctions have become an increasingly important tool for resolving political, diplomatic and economic disputes between countries, and even become another invisible weapon. Under this situation, foreign businessmen in China Investing companies must face up to the risks that economic sanctions may bring to their own operations, and take effective measures to prevent them in advance.