Sanctions 1: A Brief Overview of International Sanctions

Following from the recent geopolitical developments in Ukraine, there has been a heightened interest in international sanctions. Through this series of articles, we aim to provide a general overview of the notion of sanctions, consider the local framework through which sanctions function in Malta, illustrate the general obligations which subject persons are required to observe vis-à-vis sanctions and discuss a general overview of the sanctions imposed by the EU against Russia.

In this first article, we shall provide a general overview of sanctions and the different types of international sanctions.

What are sanctions?
International sanctions, although not strictly defined under Maltese law, may be described as restrictions which are established to target regimes, companies, or individuals as a means of supporting the political settlement of conflicts, nuclear non-proliferation and as a means of combatting against any breaches of human rights. Indeed, international sanctions may range from comprehensive economic and trade sanctions to more targeted measures, such as arms embargoes, travel bans and financial restrictions.

Why are sanctions imposed?
The intention of imposing sanctions on a regime, company or individual, is fourfold. The first reason is to coerce the offending regime or individual into changing their behaviour by increasing the cost on them to such an extent that they decide to cease the offending behaviour. The second intention is to constrain the offending regime or individual by denying them access to key resources which are beneficial towards their offending behaviour, such as financing of terrorism and nuclear proliferation. The imposition of sanctions also signals the disapproval of other states to the offending regime or individual, stigmatising them and potentially isolating them. Sanctioning regimes or individuals is also a method of sending a broader political message both on a national, as well as on an international front. International sanctions also aim to protect the value of any assets which may have been misappropriated from a country until such time when such assets may be repatriated.

EU sanctions on Russia date back to 2014, following the unilateral annexation of the peninsula of Crimea to Russia. Recent developments in Ukraine have resulted in the EU issuing eleven waves of sanctions (to date), which build on the sanctions imposed in 2014. The extent of these sanctions includes travel bans, asset freezes, the restriction on access to capital markets, and dual-use goods and technologies.

Who may be subjected to international sanctions?
Individuals, entities, and corporate bodies may be subject to international sanctions. It should be noted that, when considering corporate entities, attention should be had to the corporate structure behind them, and their beneficial owners, subsidiaries, and shareholders. When an individual or entity becomes subject to international sanctions, that designated party is included in a specific list which is made available to the public to ensure that such status is made known to as many people as possible to maximise its application and consequent effects.

Who may impose international sanctions?
International sanctions are primarily imposed by states and/or an organisation of states. The first category of international sanctions are those which are implemented by the United Nations (UN), through resolutions of the United Nations Security Council. The second type are those sanctions which are implemented by the European Union (EU), which has direct legal effect in all Member States through EU Regulations.

EU sanctions (including where such sanctions also implement UN sanctions) apply within the territory of the EU and to all EU individuals, wherever they may be in the world and irrespective of where their activities take place. Consequently, in view of the direct application of EU sanctions, all individuals and legal entities established under Maltese law, or which undertake activities within the Maltese territory must comply with such sanctions which are in force.

The third category of international sanctions are those which are limited to the jurisdiction issuing them, such as, for example, the sanctions implemented by the Office of Foreign Assets Control (OFAC) in the United States of America. In this regard, it should be noted that these types of international sanctions such as OFAC sanctions, are not legally binding in Malta. This point was confirmed in two separate court judgments delivered by the Maltese First Hall Civil Court, namely World Water Fisheries Limited vs Bank of Valletta plc and Darren Debono vs HSBC Bank (Malta) plc.

It should also be noted that international sanctions may take various forms. By way of example, international sanctions may attempt to freeze assets against designated parties, with the aim of restricting access to funds and other economic resources.

What is the “Consolidated List”?
Parties who are subjected to international sanctions are included on a public list known as the “consolidated list”. This consolidated list includes all individuals or entities who or which are subject to sanctions implemented by the EU or the UN. There are various consolidated lists which are available to the general public, such as the consolidated list of persons, groups and entities which are subject to EU financial sanctions, as well as the consolidated list relative to sanctions imposed by the United Nations Security Council. It should, however, be noted that these consolidated lists do not include Maltese restrictive measures and sanctions.

These consolidated lists are a useful tool for individuals when carrying out sanction checks in the conduct of their commercial activities, as they provide a variety of information on the designated persons, such as name, surname and aliases, date of birth and nationality.