The term is not a definite legal one but often comes up in discussions about export regulations and sanctions.
Since it’s often used, it’s helpful to describe the important aspects surrounding these countries and civil penalties.
Sanctions are typically imposed in response to the actions of the target country, which are deemed to be a threat to international peace and security, or in violation of international law. For example, sanctions were imposed on Iraq following its invasion of Kuwait in 1990.
Some of the most notable sanctioned countries include:
- North Korea
These countries have been prone to sanctions for many years to address their involvement in activities such as nuclear proliferation and terrorism.
Nations which are subject to certain sanctions under several regulatory schemes including the Export Administration Regulations (EAR), the Office of Financial Assets Control (OFAC), and several executive orders fall under this category.
Note that these may also apply to certain sanctioned individuals who are referred to as specially designated nationals.
The actions of these foreign governments are considered to pose a greater threat to international peace and security. So, they are subject to more comprehensive boycotts than other countries.
In some cases, sanctions may only restrict trade with the target country. However, in other cases, sanctions may include measures such as:
- Freezing assets
- Banning international traffic
- Limiting financial transactions of a certain industry
Sanctions can cause suffering for innocent civilians, and may not be effective in achieving their desired results.
However, supporters of sanctions argue that they are a necessary tool for holding accountable countries which pose a threat.
Why Are Foreign Countries Red Flagged?
Countries and individuals are typically sanctioned for illicit behavior (breaking the law) or for national security reasons.
For example, Iran has been sanctioned for its involvement in nuclear proliferation. Syria has been sanctioned for its export of insurgents and other extremist entities outside the country. Arms regulations are imposed to decrease the chance that violence is further financed.
Besides losing export privileges, their main shipping route is monitored for attempts to break the imposed restrictions on said government. Services are another export that fall under scrutiny when a violation occurs via the internet.
How long do sanctions last?
The duration varies depending on the circumstances, but they can last for many years.
For example, sanctions against Iran have been in place since 1979. This is due mainly to their continual dealing with terrorism networks across the globe.
During World War II, the government of Japan was one of the targeted countries by the Allies. For two and a half years, the world’s seventh largest economy shrunk.
More recently, the UK’s financial restrictions on Russia’s government will impact this superpower for a decade to come. Global firms and other powerful entities have joined in this boycott as well.
What are red flag indicators?
Ultimately, these signals help you catch possible violations of the EAR. Suspicious activity of any kind should cause you to proceed with caution.
Why? Because your company’s reputation is at stake.
As one example, the Commerce Department’s list of denied persons may be similar to the customer or its address.
A few others:
- Purchasing agent hesitant to discuss how items will be used
- Product’s final destination is written down as a freight forwarding firm
- Buyer’s line of work doesn’t match the product’s capabilities
- Customer decides against routine installation in country
Should any of these situations present themselves, a quick call to the Department of Commerce will get it reported.
Who is responsible for identifying red flags?
Anyone doing business internationally should be well aware of red flag indicators and be prepared to take action to protect their business as you can be held responsible for transactions with sanctioned parties.
If you have a solid business background, you generally will have the ability to identify red flags and should take steps to have a process in place for due diligence in every international transaction. Should you fail to identify any red flags and your transaction violates sanctions, you will be held responsible and could face massive fines or even jail time.
Who is on the OFAC sanctions list?
Parties found to be high risk can face OFAC regulations. A quick search of this fluid list will reveal individuals added from such illegal activities as money laundering.
Any Specially Designated Nationals or other persons unfortunate enough to land on this directory have their property blocked.
Presently standing at almost 2000 pages, US companies can’t offer services to these people. Zeroing in on the electronics industry, they can’t sell sophisticated computers or provide assistance at the technical level.
The risk they present necessitates that citizens and companies have this index available for their domestic use.
How do red flag indicators help with compliance?
Let’s say semiconductor manufacturing equipment and accompanying technical data are being requested by a nation without an electronics industry.
And they offer to pay cash for the purchased product. This very expensive item faces negative compliance issues should the seller not do their due diligence.
A search of OFAC’s list will likely reveal the buyer and their stated method of payment are enough to warrant communication with the correct US department.
Or if the customer and the requested destinations for delivery seem off, ensuring compliance should be a top priority.
There are certain exceptions where license requirements from OFAC may allow dealings with a restricted government.
- Traveling to Cuba
- Releasing blocked funds
As one of many way destinations for tourists, Cuba can be visited under specific circumstances.
Reidel Law Firm Assisting International Businesses
As experts in international trade law, we can help you handle the legal aspects of any sanctions issues to meet delivery dates.
Our international trade law division also supports:
- Import Compliance
- Export Compliance
- Litigation before the Court of International Trade (Section 337, anti-dumping/countervailing, and other trade related cases)
- Trade Compliance Audits and Training