Secondary sanctions
Also called extraterritorial sanctions
Secondary sanctions are penalties a country imposes on foreign firms that deal with its sanctions targets, even when those firms have no link to its jurisdiction. The US uses them most. The main threat is loss of access to the US financial system and US dollar clearing.
How it works
Primary sanctions bind US persons. Secondary sanctions reach further. They allow Treasury to sanction a foreign bank that conducts significant transactions for a listed Russian defence supplier or Iranian oil buyer. Non-US banks therefore screen against US lists and apply US risk tests to business that never touches a dollar or a US branch.
The cost of being hit is severe. A bank can lose its US correspondent accounts, which cuts it off from dollar payments. Executive Order 14114 extended this risk in December 2023 to foreign banks that support Russia's military-industrial base. The EU Blocking Statute bars EU firms from complying with certain US measures, which creates direct conflicts for multinational groups.
The rules
Lets Treasury sanction foreign banks that conduct or facilitate significant transactions involving Russia's military-industrial base.
Foreign financial institutionsMandates or authorises sanctions on foreign persons engaging in specified transactions with Russian, Iranian and North Korean targets.
Non-US persons dealing with Russia, Iran and North Korea targetsProhibits EU operators from complying with listed extraterritorial third-country sanctions and lets them recover damages caused by those measures.
EU operatorsCommon questions
How are secondary sanctions different from primary sanctions?
Primary sanctions bind a country's own persons and transactions with a jurisdictional link, such as dollar payments. Secondary sanctions target foreign persons for conduct outside that jurisdiction. The penalty is usually exclusion from the sanctioning country's market or financial system rather than a fine.
Which countries impose secondary sanctions?
The US is the main user, with measures covering Iran, Russia and North Korea. Other jurisdictions rarely impose them. The EU and UK generally apply sanctions only to their own persons and conduct within their territory.
What did Executive Order 14114 change?
Signed on 22 December 2023, it allows Treasury to sanction foreign financial institutions that conduct significant transactions involving Russia's military-industrial base. Penalties include blocking or a ban on US correspondent accounts.
How does the EU Blocking Statute affect banks?
It bars EU operators from complying with listed US extraterritorial sanctions unless authorised by the Commission. Banks with US and EU operations can face conflicting obligations. Those decisions are typically escalated to legal and senior management.
