Read our latest World in Transition content
Our views on changing dynamics in energy, ESG, finance, globalization and US policy.
Lenders, companies and others transacting business with potential US sanctions targets: Look out for new, shifting priorities
Although the Biden Administration’s use of broad US sanctions will likely differ from the prior administration, sanctions will remain a critical US foreign policy tool, and use of more targeted sanctions may continue to grow.
The Biden Administration is likely to take a more multilateral approach to sanctions implementation and to consider potential unintended consequences and collateral damage of individual sanctions measures. One can expect more tit-for-tat US responses involving expanded use of a coalition of allies to perceived actions by Russia and others, a potential regrouping with Europe and Japan to address Iran, and maybe seeking a grand bargain on Iran’s activities outside of nuclear technology in exchange for sanctions easing. The US Treasury Department’s Office of Foreign Assets Control (OFAC) is asserting expanded enforcement jurisdiction, including restricting use of the US dollar and narrowing exemptions for informational materials. We can also expect to see more countermeasures and continued skepticism from governments and companies outside the US in response to the impact of US sanctions measures on international business transactions with no US nexus. The question remains whether these reactions and countermeasures might eventually compromise the primacy of the US dollar in the global marketplace.
What this means for you
Potential sanctions targets should expect closer correlation between sanctions measures and White House statements. Markets should expect fewer broad sanctions actions that cause large market disruptions. Humanitarian and international organizations should expect more sanctions exceptions that make their work in sanctioned locations easier, as well as fewer new sanctions actions that frustrate their work. US targeting priorities may shift away from Cuba and Venezuela and toward Russia. Human rights and corruption should remain high priorities. Foreign companies that do business with sanctioned persons or in sanctioned locations—and use US dollars to do so—could find themselves the subject of an OFAC investigation. Knowing this, lenders may continue to tighten sanctions provisions in credit agreements. In addition, trade in artwork may be circumscribed, as interpretations of the exemptions for informational materials narrow.
Steps to take now
This is an opportune time to implement or enhance sanctions compliance policies and procedures. Lenders might consider adjusting the sanctions provisions in their credit agreements to take into account OFAC’s expanded jurisdictional reach, and borrowers might review any potentially sanctions-related activities to ensure that they comply with their existing representations, warranties and covenants. Non-US companies that work with sanctioned persons or involve sanctioned locations should ensure that they do so in compliance with US sanctions laws and without triggering designation or secondary sanctions risks. Businesses and individuals that rely on sanctions exemptions for informational materials (including artwork) should make sure they can show their trade in these materials is legitimate and not a means of evading sanctions restrictions.
This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2021 White & Case LLP