Economic sanctions, the Damocles sword on international corporations?

Economic sanctions, a true non-military coercion, aim to create financial instability and worsening economic conditions for targeted individuals or groups. In reality, these are economic sanctions such as asset freezes and capital bans directed at eligible entities, or even commercial sanctions such as embargoes, boycotts and trade blockades. For example, comprehensive sanctions on Iran’s oil boycott in 1995 and Iraq after the 1990 invasion of Kuwait were extended until 2003, after which sectoral embargoes and asset freezes on specific listed individuals were implemented. I did.

International companies are also suffering

There is no doubt that economic sanctions will have a direct impact on international companies. International companies play a central role in the application of these restrictions by suspending or restricting activities with stakeholders and organizations. These companies must comply with both the regulations of the countries in which they operate, as well as the regulations of the countries in which they operate. The risk of heavy fines, bans on practice, dissolution, and even imprisonment.

Permanent challenges for companies doing business internationally

International companies need to constantly monitor their activities with respect to laws, export control regulations, and economic sanctions. Specifically, this involves the ongoing deployment of both human and legal resources to ensure the establishment and sustainability of a sound compliance program.

First of all, this translates into a pre-contract check of the new contract, which allows, among other things, verification of a public list of the names of individuals and groups subject to sanctions. These checks also include an advanced search for proposed counterparty identities to identify shareholders and individuals or entities that may own or control potential counterparties. In addition, this management is intended to continue for the life of the contract. This includes ongoing staff training, permanent monitoring of geopolitical and economic news, and updates during these validations in the case of long-term commerce. ..

Limited contractual protection

The imposition of economic sanctions and the promulgation of export control regulations, by their very nature, have a direct impact on the performance of contracts, but are beyond the control of the parties. For this reason, force majeure is often seen as a defensive measure that helps a party disclaim liability if it fails to meet its contractual obligations to a party subject to economic sanctions.

However, this defense technology makes it almost impossible for the parties subject to sanctions to trust it, especially due to lack of externalities or even if departmental restrictions do not oppose the full performance of the contract. There is a specific flaw. This is why contract practices have evolved towards elaboration of the provisions inherent in economic sanctions. The sole purpose of these provisions is to organize contractual relationships regarding legal and economic sanctions compliance by developing a system that exempts contractual liability while imposing a certain amount of information and due diligence on the parties. am. Risks resulting from possible violations of economic sanctions.

Resolutely inadequate contractual protection against financial risks

While effective in limiting co-contractor liability to sanctioned counterparties, the above contractual protections have no effect on the economic risks faced by international companies.

In fact, even if these companies comply with economic sanctions by suspending all sanctioned activities and avoiding criticism, the fact remains, among other things, that they are exposed to significant economic loss associated with them. increase. To the loss of the market, the loss of invested capital, and the loss of possible strategic position and competitive advantage. In addition, these contractual protection technologies do not affect international companies that are restricted by sanctions on legally attached countries unless they are directly subject to economic sanctions. This is especially the case with Qatar Airways, where access to the airspace of the United Arab Emirates, Bahrain, Saudi Arabia and Egypt was denied after the blockade of Qatar in 2017.

Ultimately, and even if this is not considered much today, international corporations are undoubtedly the central actors in the application of public policy at the international level today, which bears most responsibility through the implementation of economic sanctions. Permanent risk that has the effect of incurring. Is this a legitimate result of expected globalization, or conversely, an imbalanced delegation of coerced coercion? Between the natural evolution of private responsibility and the unfair transfer of state responsibility, the problem remains unresolved!

Katia Bennadji

Legal Negotiator Middle Northeast Africa-Oil and Gas TotalEnergies