Latest Developments on Sanctions
In light of the recent sanctions imposed against Russia, this article explores what sanctions are, and what businesses should look out for when transacting with such entities.
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What are sanctions?
Sanctions come in many different forms, to achieve different purposes. To name a few, there are trade sanctions, financial sanctions (including freezing of assets), travel bans and aircraft and shipping sanctions. Due to the wide reach of the applicability of sanctions and the various types of sanctions, an individual or company transacting with sanctioned entities may face the risk of being exposed to, implicated in or impacted by such sanctions indirectly and unknowingly.
In light of the recent sanctions against Russia, the issue of sanctions is increasingly relevant as those transacting with sanctioned persons or entities have no choice but to cease their business dealings despite suffering losses, or risk facing penalties.
While in general, the risk of a local small business having ties to sanctioned persons or entities may be low, in a global digital economy where services and payments are offered instantaneously through the internet, the risk of exposure to sanctioned entities is increasingly pertinent.
In light of the recent sanctions against Russia, the issue of sanctions is increasingly relevant as those transacting with sanctioned persons or entities have no choice but to cease their business dealings despite suffering losses, or risk facing penalties.
While in general, the risk of a local small business having ties to sanctioned persons or entities may be low, in a global digital economy where services and payments are offered instantaneously through the internet, the risk of exposure to sanctioned entities is increasingly pertinent.
Who creates and enforces sanctions?
United States (US) Sanctions
The Office of Foreign Assets Control (“OFAC”) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals. Such sanctions are targeted against individuals, foreign countries and regimes, that OFAC deems to be terrorists, international narcotics traffickers, or engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the US.
United Kingdom (UK) Sanctions
The Sanctions and Anti-Money Laundering Act 2018 and more recently, the Russia (Sanctions) (EU Exit) Regulations 2019 relating to sanctions against Russia, provides the main legal basis for the UK to impose, update and lift sanctions. Various departments in the UK work in tandem to enforce different types of sanctions. For example, the Department for International Trade (“DIT”) implements trade sanctions and is responsible for trade sanctions licensing, while Her Majesty’s Revenue and Customs (“HMRC”) is responsible for enforcing the licensing restrictions and investigating suspected offences. The Office for Financial Sanctions Implementation (“OFSI”) is responsible for ensuring that UK sanctions are implemented and enforced on behalf of HM Treasury, which administers financial sanctions such as asset freezes and restrictions on the transfer of funds.
The Office of Foreign Assets Control (“OFAC”) of the US Department of the Treasury administers and enforces economic and trade sanctions based on US foreign policy and national security goals. Such sanctions are targeted against individuals, foreign countries and regimes, that OFAC deems to be terrorists, international narcotics traffickers, or engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the US.
United Kingdom (UK) Sanctions
The Sanctions and Anti-Money Laundering Act 2018 and more recently, the Russia (Sanctions) (EU Exit) Regulations 2019 relating to sanctions against Russia, provides the main legal basis for the UK to impose, update and lift sanctions. Various departments in the UK work in tandem to enforce different types of sanctions. For example, the Department for International Trade (“DIT”) implements trade sanctions and is responsible for trade sanctions licensing, while Her Majesty’s Revenue and Customs (“HMRC”) is responsible for enforcing the licensing restrictions and investigating suspected offences. The Office for Financial Sanctions Implementation (“OFSI”) is responsible for ensuring that UK sanctions are implemented and enforced on behalf of HM Treasury, which administers financial sanctions such as asset freezes and restrictions on the transfer of funds.
Who needs to comply with the various sanctions regimes?
US Sanctions
All US citizens and permanent residents (wherever situated), persons and entities located physically within the US, and US incorporated entities including their foreign branches are required to comply with the US Sanctions regime. An entity that uses US goods or components, has a US parent, subsidiary or affiliate and/ or US connection may also be subject to compliance to the US Sanctions regime. Hence, businesses trading from Singapore could be required to comply with US Sanctions as well if it falls within any of the categories above.
UK Sanctions
The UK Sanctions regime applies to all individuals and legal entities undertaking activities within the territory of the UK, and to all UK nationals and entities established under the UK law (wherever situated). A business trading from Singapore could, likewise, be required to comply with UK Sanctions.
UN Sanctions
Singapore is a member of the United Nations (“UN”) and implements resolutions passed by the UN Security Council (“UNSC”). As such, the UN’s resolutions may be adopted and incorporated into our domestic laws and/or regulations. For example, under Regulation 6(1)(b) of the Regulation of Imports and Exports Regulations, the import into, export from, transhipment and transit through Singapore of certain goods which contravene the UNSC Sanctions are strictly prohibited.
All US citizens and permanent residents (wherever situated), persons and entities located physically within the US, and US incorporated entities including their foreign branches are required to comply with the US Sanctions regime. An entity that uses US goods or components, has a US parent, subsidiary or affiliate and/ or US connection may also be subject to compliance to the US Sanctions regime. Hence, businesses trading from Singapore could be required to comply with US Sanctions as well if it falls within any of the categories above.
UK Sanctions
The UK Sanctions regime applies to all individuals and legal entities undertaking activities within the territory of the UK, and to all UK nationals and entities established under the UK law (wherever situated). A business trading from Singapore could, likewise, be required to comply with UK Sanctions.
UN Sanctions
Singapore is a member of the United Nations (“UN”) and implements resolutions passed by the UN Security Council (“UNSC”). As such, the UN’s resolutions may be adopted and incorporated into our domestic laws and/or regulations. For example, under Regulation 6(1)(b) of the Regulation of Imports and Exports Regulations, the import into, export from, transhipment and transit through Singapore of certain goods which contravene the UNSC Sanctions are strictly prohibited.
What precautions can I take to avoid dealing with a sanctioned person or entity?
Businesses should make sure to remain up to date with fresh information on which persons or entities are facing sanctions. In terms of checking whether entities they are transacting with are facing sanctions, businesses should ensure not to just look at which persons or entities are facing sanctions locally, but also the US, UK and UN Sanctions, due to its extra-territorial nature.
It is important to conduct due diligence checks prior to trading with any person or entity. Checks against the various sanctions lists, sanctions programs, or nationals’ lists on an ongoing basis are required as these are regularly expanded and updated.
It is also important to keep a record of the due diligence checks conducted and the results generated (even if no results are found) to show that you have fulfilled your due diligence obligations.
It is important to conduct due diligence checks prior to trading with any person or entity. Checks against the various sanctions lists, sanctions programs, or nationals’ lists on an ongoing basis are required as these are regularly expanded and updated.
It is also important to keep a record of the due diligence checks conducted and the results generated (even if no results are found) to show that you have fulfilled your due diligence obligations.
What can I do if I need to deal with a sanctioned person or entity?
Exemptions or licenses may be granted to companies to deal with sanctioned persons or entities, which would otherwise be prohibited under the relevant sanctions legislations and/or regulations. Specific criteria have to be met for the regulatory authority to grant the exemptions or license.
For example, regulating agencies would generally grant a license if the proposed transactions are for covering basic necessities such as food and medicines. Therefore, prior to entering into transactions with sanctioned entities, it is important to determine if the intended transaction falls within any of the categories for a licence application to be made pursuant to.
In addition to the existing sanctions and sanctioned entities, Singapore has, in 2022, imposed financial sanctions on Russia in response to its invasion of Ukraine. If businesses are considering transacting with any sanctioned person or entity, it is pertinent to seek legal advice on the requirements for compliance, permit application, timeframes and exceptions under the prevailing laws and regulations.
For example, regulating agencies would generally grant a license if the proposed transactions are for covering basic necessities such as food and medicines. Therefore, prior to entering into transactions with sanctioned entities, it is important to determine if the intended transaction falls within any of the categories for a licence application to be made pursuant to.
In addition to the existing sanctions and sanctioned entities, Singapore has, in 2022, imposed financial sanctions on Russia in response to its invasion of Ukraine. If businesses are considering transacting with any sanctioned person or entity, it is pertinent to seek legal advice on the requirements for compliance, permit application, timeframes and exceptions under the prevailing laws and regulations.
What are the recent sanctions Singapore has imposed against Russia?
On 28 February 2022, Minister for Foreign Affairs Dr Vivian Balakrishnan announced in a Ministerial Statement that Singapore does not condone the invasion of Ukraine, and has taken a firm stand by imposing sanctions against Russia.
The two categories of sanctions are:
1. export controls on items that may be used as weapons to inflict harm and subjugate Ukrainians or to contribute to offensive cyber operations, implemented through the Strategic Goods (Control) Order 2021; and
2. financial measures targeted at designated Russian banks, entities and activities in Russia, and fund-raising activities benefiting the Russian government, implemented through the Monetary Authority of Singapore Act 1970.
The Monetary Authority of Singapore (“MAS”) issued MAS Notice SNR-N01 and MAS Notice SNR-N02 on 14 March 2022. With the introduction of these notices, financial institutions are prohibited from dealing with designated entities, the Russian government and the Central Bank of the Russian Federation. Financial institutions are also prohibited from entering into financial transactions and providing financial assistance or services to certain sectors in Donetsk or Luhansk, including but not limited to the transport, energy and telecommunications sectors. It is important to flag that digital token transactions are also prohibited under MAS Notice SNR-N01.
However, MAS Notice SNR-N02 sets out certain categories of payments and transactions which are excluded from the scope of financial measures in MAS Notice SNR-N01. This includes transactions such as processing or facilitating of any payment or transfer of funds, financial assets or economic resources, where such payment is necessary for the payment of basic expenses, or exclusively for the service charge or fees for holding frozen assets and other reasonable professional fees and associated expenses for the provision of audit, tax, legal or payroll services.
The two categories of sanctions are:
1. export controls on items that may be used as weapons to inflict harm and subjugate Ukrainians or to contribute to offensive cyber operations, implemented through the Strategic Goods (Control) Order 2021; and
2. financial measures targeted at designated Russian banks, entities and activities in Russia, and fund-raising activities benefiting the Russian government, implemented through the Monetary Authority of Singapore Act 1970.
The Monetary Authority of Singapore (“MAS”) issued MAS Notice SNR-N01 and MAS Notice SNR-N02 on 14 March 2022. With the introduction of these notices, financial institutions are prohibited from dealing with designated entities, the Russian government and the Central Bank of the Russian Federation. Financial institutions are also prohibited from entering into financial transactions and providing financial assistance or services to certain sectors in Donetsk or Luhansk, including but not limited to the transport, energy and telecommunications sectors. It is important to flag that digital token transactions are also prohibited under MAS Notice SNR-N01.
However, MAS Notice SNR-N02 sets out certain categories of payments and transactions which are excluded from the scope of financial measures in MAS Notice SNR-N01. This includes transactions such as processing or facilitating of any payment or transfer of funds, financial assets or economic resources, where such payment is necessary for the payment of basic expenses, or exclusively for the service charge or fees for holding frozen assets and other reasonable professional fees and associated expenses for the provision of audit, tax, legal or payroll services.
What are the consequences of dealing with a sanctioned person or entity in breach of the UN Act?
In Singapore, Section 5(1) of the United Nations Act 2001 (“UN Act”) stipulates that every person who commits, or attempts to commit, or does any act with intent to commit, or counsels, procures, aids, abets, or incites any other person to commit, or conspires with any other person (whether in Singapore or elsewhere) to commit any offence against any regulations made under the UN Act shall be liable on conviction, to a fine not exceeding S$500,000 or to imprisonment for a term not exceeding 10 years or to both. Corporate entities can be fined up to S$1 million if found guilty of violating Section 5(1) of the UN Act.
In line with the penalties provided under the Terrorism (Suppression of Financing) Act 2002, the 2014 amendments to Section 5(1) of the UN Act materially increased the maximum fine for individuals was increased five-fold (from S$100,000 to S$500,000) and the maximum imprisonment term was doubled (from five years to ten years). On the other hand, the maximum fine for corporate entities was increased ten-fold (from S$100,000 to S$1,000,000).
In line with the penalties provided under the Terrorism (Suppression of Financing) Act 2002, the 2014 amendments to Section 5(1) of the UN Act materially increased the maximum fine for individuals was increased five-fold (from S$100,000 to S$500,000) and the maximum imprisonment term was doubled (from five years to ten years). On the other hand, the maximum fine for corporate entities was increased ten-fold (from S$100,000 to S$1,000,000).
What can I do if I suspect that I am currently dealing with a sanctioned person or entity?
The first step to take when there is a suspected violation of the sanctions regime by you or your company is to seek legal advice on compliance and statutory interpretation of the prevailing laws on sanctions. Depending on the circumstances, legal services that may be required may include, among other things, legal representation for voluntary self-disclosure and representation in Court.
Practical Tip: Stay updated with the developments on sanctions throughout the course of your business transactions.
