Economic sanctions
Also called financial sanctions, restrictive measures
Economic sanctions are restrictions governments and international bodies impose on countries, organisations or individuals to change behaviour or punish actions such as aggression, terrorism or human rights abuses. They include asset freezes, bans on financial dealings, trade and export restrictions, investment limits and travel bans. Breaching them is a criminal offence in most jurisdictions.
How it works
Sanctions come from the UN Security Council and from national or regional regimes, mainly the US, UK and EU. Financial sanctions freeze designated persons' assets and bar firms from making funds available to them. Sectoral sanctions restrict specific activities, such as lending to certain banks or providing services linked to Russian oil above a price cap. Each regime publishes its own lists and licences.
For banks and insurers, sanctions compliance means screening, blocking prohibited transactions, reporting frozen assets and applying for licences where an exemption exists. US secondary sanctions can also target non-US firms that deal with sanctioned parties. Programmes change frequently, so firms track new designations daily and update their controls to prevent evasion through third countries and front companies.
The rules
Allows the Security Council to impose measures short of armed force, including economic sanctions, which member states must implement.
UN member statesLets ministers make sanctions regulations imposing financial, trade, immigration and transport sanctions, enforced by OFSI, OTSI and HMRC.
UK persons and conduct in the UKProvides the legal basis for Council regulations imposing restrictive measures, which apply directly across member states.
EU persons and business conducted in the EULets the President block property and prohibit transactions after declaring a national emergency; OFAC administers most resulting programmes.
US persons and transactions with a US nexusCommon questions
What is the difference between financial and trade sanctions?
Financial sanctions restrict dealings with money and assets, such as asset freezes and bans on providing loans. Trade sanctions restrict the movement of goods, technology and services, such as export bans on dual-use items.
Who enforces sanctions in the UK?
OFSI, part of HM Treasury, enforces financial sanctions. OTSI handles trade sanctions on services, and HMRC enforces trade sanctions on goods. Serious breaches can be prosecuted as criminal offences.
What are secondary sanctions?
Secondary sanctions are US measures that target non-US persons for dealing with sanctioned parties, even when the activity has no US nexus. They work by threatening access to the US financial system rather than through direct jurisdiction.
Do UK firms have to follow US sanctions?
UK firms are legally bound by UK sanctions. US sanctions apply where there is a US nexus, such as US dollar payments, US persons or US-origin goods. Many global banks apply both regimes in practice.
