Sanctions: the risks of over-compliance

At the 54th session of the United Nations Human Rights Council (September-October 2023), Professor Alena Douhan, UN special rapporteur on unilateral coercive measures and human rights, voiced concerns that unilateral sanctions are having a detrimental impact on the health of many individuals in sanctioned countries.

She argued that health systems around the world are vulnerable to the implementation of such sanctions. This situation is intensified by compliance with sanctions often going beyond what is required – known as 'over-compliance,' she said, and by financial institutions ending or restricting business relationships with clients to avoid, rather than manage, sanctions-related risk.

In her report to the Human Rights Council, Professor Douhan emphasised this combination of factors poses serious challenges to the procurement and delivery of medicines, medical equipment and other humanitarian goods. Such items are exempt from any sanctions-related restrictions.

The various forms and types of sanctions being imposed, coupled with the penalties for alleged circumventing of sanctions has, she said, had serious negative implications for human rights of those living in sanctioned countries, including their right to adequate and timely health care.

Professor Douhan has questioned whether existing humanitarian exemptions are effective enough. They face difficulties posed by complex and overlapping sanctions regimes, unclear authorisation and licensing procedures, financial restrictions, and the fear many have of civil or criminal penalties for alleged violations of sanctions. As a result, the development of health facilities, the training and numbers of health workers, access to scientific knowledge and research, use of technology and software and disease prevention and control all face hindrances.

According to Professor Douhan, imposing and enforcing unilateral sanctions and the resulting efforts to avoid sanctions-related risk – known as zero-risk or de-risking policies - violates numerous international treaties, standards and conventions.

The introduction and application of various sanctions regimes generates both uncertainty and unpredictability for businesses around the world. This is what invokes the business world to follow the path of minimum risk, which leads to the problems Professor Douhan has highlighted.

Even if a business seeks the assistance of legal counsel, the question of whether a given transaction or activity violates sanctions - and what steps need to be taken to remove the risk of such sanctions non-compliance – can still prompt sharp debate and disagreement. If a business does all it believes it can do to be sanctions compliant, there is still a chance sanctions enforcers such as the US Office of Foreign Assets Control (OFAC) or the UK’s Office of Financial Sanctions Implementation (OFSI) might not agree with its interpretation, thus evoking possible enforcement action.

When factors such as mounting compliance costs, reputational risk and concerns about directors and employees facing civil or even criminal action are considered, it is perhaps unsurprising that some companies over-comply with sanctions or choose to cut or reduce all ties with those where there is a perceived sanctions risk. The unfortunate consequence of this is that the humanitarian impact of sanctions is also felt, often severely.

In practice, humanitarian exceptions within sanctions regimes have often proved too restrictive and difficult to be effective. When applying for licences to conduct their operations, civil society groups and aid workers are faced with many layers of bureaucracy. The process is complicated and the punishment for inadvertently violating the sanctions can be so severe that NGOs are often reluctant to take the risk of operating in the area where they could be of such valuable use.

Moreover, many banks may still refuse to execute payment transactions in such areas, despite being permitted to do so. Such humanitarian payments might be refused due to being too small an amount that even moderate compliance costs make them unprofitable for the bank. Such set of circumstances that has led, as Professor Douhan has argued, to sanctions overcompliance making access to fuel, food and medicine virtually impossible for millions of people.

Angelika Hellweger is legal director at Rahman Ravelli