Immediate action is essential when a (potential) sanctions incident occurs

Sanctions regimes are constantly evolving in response to the geopolitical climate. At the national level, the Netherlands is modernising its legal framework through the new Wet Internationale Sanctiemaatregelen (WIS). Companies should assess whether their internal processes are fit for this new framework.

Against the rapid changing geopolitical climate, enforcement is intensifying, with a particular focus on sanctions circumvention. Indirect exposure is a risk that is easy to underestimate. Unusual routes, complex payment structures and illogical end destinations are all red flags that companies should learn to recognise. Distributors and agents are often a weak link: the picture you have of your clients must be risk-based and continuously updated. Investing in supply chain transparency and understanding who ultimately controls your external relationships is essential. Accountability cannot be outsourced.

Sanctions are no longer just a legal or compliance issue. They affect the entire business, including:

• supply chains and logistics;
• financing arrangements;
• contracts and insurance;
• customer relationships; and
• corporate reputation.

Following an incident, organisations should consider:

• reporting obligations to regulators;
• stakeholder communications;
• contractual implications; and
• interactions with banks, auditors and insurers. Companies that treat sanctions compliance as a core business risk are better equipped to respond effectively when issues arise.

A (potential) sanctions incident, such as an unexpected screening hit, a transaction involving a sanctioned party or indications of sanctions circumvention, requires immediate action. But what should organisations do in practice when a potential sanctions incident arises? In short: make sure you act quickly, document thoroughly and escalate in a timely manner.

An effective response requires rapid fact-finding, immediate escalation to legal and compliance teams and, where necessary, activation of a crisis response team. Organisations that have clear escalation procedures in place before an incident occurs are significantly better positioned to manage risk under pressure.

Companies should have crisis protocols in place before an incident occurs: know who the first responder is if authorities arrive. Escalation lines must be prepared in advance: know who decides what, and on what basis. Rehearsing and discussing crisis scenarios with management and relevant teams is a concrete and effective best practice that is often underestimated.

In sanctions matters, making the right decision is only part of the challenge. Organisations must also be able to demonstrate how and why decisions were made. Thorough documentation of available information, internal assessments and decision-making processes is essential. Sanctions compliance must therefore be embedded in corporate culture from the top down, with clear reporting lines and demonstrably active oversight by management.

A robust audit trail can prove crucial when dealing with regulators, banks, insurers, auditors and other stakeholders. In many cases, the quality of the documentation will be just as important as the underlying decision itself.