Navigating International Sanctions: A Guide for European Companies

by Marcello Mantelli, Avvocato in Milan and Turin

Companies in the European Union operating internationally must pay particular attention to the risk of incurring international economic sanctions in the course of their import-export activities. International sanctions can in fact have serious consequences for companies, including:

i- Loss of turnover: the inability to export to certain countries or sell to specific foreign entities can lead to a significant loss of business in order to operate in compliance with the law. Another negative effect is that of so-called over-compliance. For example, one avoids selling to a customer based in Russia fearing that it is prohibited, when in fact the export of that certain good to that customer is fully legitimate.

ii- Criminal and administrative sanctions: the violation of the regulations on sanctions could constitutes a crime in certain countries and will soon become so for all EU countries. It also entails the application of substantial administrative sanctions by the Public Authority.

iii- Damage to reputation: if the company brand is linked to violations of sanctions, the company’s reputation and customer trust can be damaged. To minimize or eliminate the risk of incurring international sanctions, all companies should adopt some basic precautions, including: i- Inquire about international economic sanctions regulations: it is necessary to acquire all the necessary information and be updated on any changes to the legal framework of reference. ii- Implement an effective internal control system for compliance with regulations (Internal Compliance Program): Essentially, companies should implement an internal compliance system that allows them to identify, assess and reduce the risks associated with sanctions. This system should include, among other things: procedures for verifying customers and suppliers, training staff and documenting the control activities carried out.

iii- Use screening tools: There are effective screening tools that allow you to check if business partners or destination countries for exports are subject to sanctions. The use of such tools can help reduce the risk of violations. The mantra in this case is know your customer!

iv- adapt international contracts to the risk of sanctions: Insert specific clauses in international contracts such as sale, distribution and international agency in order to have safe exit routes from the contract in the event of new sanctions that did not exist at the time of stipulation. It should be noted on the point that the force majeure clause does not appear sufficient to guarantee the suspension or termination of the contract with conseguent risks of responsibility for substantial breach of the contract and conseuqnt compensation.

Since the sanctions regime is constantly evolving, adopting these practical guidelines is the first step towards an active and responsible approach to managing sanctions risks in order to operate in the global market with reasonable security.

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Marcello

Dear Aurelia, the information you have provided are not sufficient for an answer which is subject to a professional engagement. In any case, we should study the provisions of the contract and identify governing law of the contract.If it does not provide anything on governing law then conflict law shall apply (in the most part of the countries likely the governing law will be the law of the country where the agent is domiciled). best regards Marcello Mantelli

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Aurelia

I signed a contract with a fashion agency but there were no termination clauses in the contract and decided to withdraw it before one week after signature so sent them an email but after 14 days they sent me an email and asserted that because i didnt withdraw in legal deadlines i have to perform the contract and pay whole money.Noboday told me about any deadlines and nothing was in the contract!! Why did they claim such a thing?

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