Geopolitical Shifts Driving Sanctions, Risks and Business Opportunities

1. Geopolitical Seismic Shifts Ahead, Reshaping the Trade Landscape

Every few decades the world witnesses seismic geopolitical turns and shifts that reshuffle the global trade and investment landscape, without balancing back to the “old normal”. What makes such shifts seismic is that after a period of consolidation, they result in a “new normal”. [1]

To cut to the chase, we will see the world "likely to split into two economic blocs", to quote from a most recent Goldman Sachs report on the state of (de-)globalization[2]. Whereas it is our informed assessment, that we are currently at the beginning of an emerging new normal. This is driven by both the growing ambitions and aggressions of non-Western powers, and a Western “national security” driven strategic counterbalancing.

This counterbalancing deploys economic sanctions (and export controls) as the tip of the US spear. Thus, sanctions from the US and its allies (often seen as a niche concern) are becoming a critical topic to every international business.

To use the language of those who lead US prosecution and in the words Deputy Attorney General Lisa Monaco, sanctions should be seen as "the new FCPA”. [3] Her comments officially outline the Department of Justice´s new national security focus, and the related “whole-of-government” approach. Those who understand the focused US inter-agency concept, will grasp the sternness and effectiveness of the underlying US government strategy. One we will see increasingly unfold.

US sanctions compliance is becoming a global issue. To name just a few currently disclosed cases:

• Initiated by US intelligence, US and German agents raiding physical and digital locations of crypto actors and their infrastructures - in Germany.
• Initiated by US court orders, US and Spanish agents seizing yachts - in Spain.
• Australia's Toll Logistics paying for US sanctions violations outside the US, with international transactions, with the US Dollar system being the only US nexus. (That is, the legal link rendering non-US business as being a matter of US jurisdiction.)

2. From Russia to China

Currently this process is mostly focused on Russia, however, in the long run it seems that China will develop into the main concern for the US.

Since this trend is driven by the national security interests of the US and its allies, it should be observed without being blurred by daily news and partisan coloring. Daily news cycles prefer short flashy stories, personalities, and emotions, with the latter emphasizing partisan positions and playing on internal US policy conflicts. Geopolitics on the other hand unfolds very differently.

The last US administration did not “invent” the need to counter China, nor did the current administration end this approach. Instead, the opposite happened.  Based on a bipartisan trend, due to the geopolitical path, each administration is increasing the efforts of the last.

Accordingly, the published documents of the US National Security Strategy, the guiding strategy of every US White House in regard to its geopolitical (grand) strategies, from both US Administrations since 2017 emphasize a growing strategic rivalry between the US/West, and Russia and China as the new top focus. While US national security officials tend to name China as the one true challenge on the long-run, the Ukraine war did not change the latter long term focus on China.

However, not letting an authoritarian China undermine the US in terms of geopolitical power is an US imperative, that already started to shape in the early 2000s. Back then the US National Security Strategy at the same time welcomed and warned China, stating:

 “We welcome the emergence of a strong, peaceful, and prosperous China. […] In pursuing advanced military capabilities that can threaten its neighbors in the Asia-Pacific region, China is following an outdated path that, in the end, will hamper its own pursuit of national greatness."[4]

3. Avoiding Severe Risks, and Seizing Substantial Opportunities

We assess that the most important scenarios don’t point towards a "de-trading" in the world, but rather a trend of shifting global risk and trade patterns. Trade issues are becoming even more important to most businesses and nations, precisely because trade is not as simple as it has been in the past few decades.

For businesses that either (a) operate internationally, and/or are (b) heavily and directly dependent on international markets, supply, and prices, this means that their leadership must do the following:

• Actively hedge against the new types of existential risks.

(bad investment, partner, or customer decisions; supply chain fails; prosecution and multimillion fees; reputational destruction)

• Identify and assess the seizure of exceptional dynamic market opportunities.

(while competitors make deadly mistakes, or are too paralyzed and overwhelmed by complexity to understand and act decisively).

4. Strategic US Sanctions: The Long Arm of the US vs. Targets and their Partners, Globally

The increasingly deployed US economic sanctions are administered and enforced by OFAC[5]. From their perspective and jurisdiction, everyone in the US, and all U.S. persons/entities no matter where must abide by the following rules:

• May not deal with a target in sanctioned activities. (depending on sanction type this covers all or some commercial activities with targets and/or their assets, and at times even non-commercial activities)
• May not otherwise facilitate dealings with targets.
• Must block or reject the target´s assets. (Property or interests in property)
• Must report sanction incidents/parties, and the status of sanctioned assets. (For some industries that includes the obligation to even report merely suspicious transactions)

Only in the case of the new type of Sectoral Sanctions, dealing with targeted entities is still possible, within strict limits, mostly regarding technologies, products, and financing.

In addition, some of these obligations extend to non-US persons and entities, globally.

There are two ways in which the US executes such a "long arm" (jurisdiction and charging) beyond its territory, to enforce its existing sanctions programs. These are:

• Enforcing Primary Sanctions

In general, OFAC expects everyone everywhere to comply, in case any so called US nexus is given. This nexus can result from most international payments since the US Dollar system is more often involved than most people and businesses realize. Another example is the use of US software services or servers, despite the business itself being outside the US.

• Applying Secondary Sanctions

In some severe cases OFAC has the authority to put foreign persons and entities on sanctions lists because they deal with or aid targets, despite not having any US nexus.

These sanctions create (in instances such as Iran after 2017) some controversies with US partners and allies and can even result in conflicting laws (“blocking regulations”). Thus, a multilateral understanding among allies, can be considered a priority goal for most US administrations. However, the US sometimes pursues such tactics unilaterally.

Some important programs that apply secondary sanctions are:

• Iran programs
• Russia programs:

Secondary sanctions are an already existing escalation option for OFAC, to target entities of Chinese or neutral nations that cross lines in supporting Russia. It is to be seen how these will be applied. For example, in relation to Chinese or Indian oil and carrier companies.

5. The Challenges from Geopolitical Analysis

Overall, in practical terms, businesses are especially challenged by the following US sanctions issues:

1. Understanding and identifying who is sanctioned
2. Understanding what transactions are sanctioned
3. Interpreting ambiguous sanction regulations – and grasping their geopolitical context
4. Coping with the geopolitical sanctions trends
5. Developing and running a risk-based sanctions compliance program and due diligence operations

One particularly difficult challenge that should be highlighted is the understanding of geopolitical trends in relation to sanctions. While many important global trends are understood, geopolitics has been overlooked by too many. Among other issues, this has led leading to organizations making bad business decisions. The reasons for this include the following:

1. Geopolitical forces tend to often “disappear” from markets, however, theyalways came back. Turning markets into geopolitical markets. The financial markets had to relearn these political market cycles and their logic, with the financial crisis of 2007/2008 and again in 2022, when the stock market was not the priority of the US Federal Reserve. In similar ways, all other markets need to relearn what generations of merchants, carriers, businessmen, lawyers, and bankers before understood: International trade is at periods, often cyclically, driven by highly geopolitical markets.
2. Accordingly, businesses and others in the West started to ignore geopolitics in the 2000s and preferred to focus on other important socioeconomical trends. Afterall, humans tend to perceive their recent reality, as being the only relevant reality and that issues such as the Cold War are something resigned to the history books.

All this not speculation or opinion, but rests on the strategies of geopolitical powers that can be observed, analyzed, and translated into contextual business intelligence. This is necessary for better strategic and operational decisions.

6. Delivering Contextual Answers to Business Community: Compliance Projects, Workshops, Webinars, Key Note Speeches

Besides standard compliance and risk intelligence products (see www.rsb-international.com/services), that are based on our 360 degree capabilities that include developing effective US, UK and EU Sanctions Compliance Programs, RSB International offers client-tailored:

• Workshops
• Webinars
• Keynote Speeches

These services are aimed at aspiring corporations and business organizations that want to benefit from high-level assessments of critical situations and trends.

This not only broadens their vital understanding of changing times but also expanded this knowledge throughout their whole organization. This will increase awareness of the right issues and highlight factors that others tend to overlook.

7. RSB International Areas of Expertise

GEOPOLITICAL CONTEXT OF TRADE AND SANCTIONS

· Geopolitical Shifts Driving Exceptional Business Risks and Opportunities

· Sanctions and Emerging Blocks: Russia Today, China Tomorrow?

· Avoiding Sever Risks, and Seizing Substantial Opportunities

· The Lost Business Skill of Navigating Geopolitical Markets

U.S. AND EU SANCTIONS AND EXPORT CONTROLS SPECIFICALLY

· Who Designs, Implements, and Enforces Sanctions – How and Why?

· US and EU Sanctions Becoming an Issue for Any International Business

· Resulting Legal Obligations for US and Non-US Businesses When Facing US Sanctioned Parties

· US Extraterritoriality: Jurisdiction Over US and Non-US Businesses, Operating Anywhere

· The Challenges from Necessary Legal Analysis

· The Challenges from Necessary Geopolitical Analysis, Being the Context for Sanctions

· Selected Sanction Enforcement and Compliance Case Studies

[1] This consolidation to a “new normal” being the cyclically occurring historic process of “re-stabilization”, to apply a concept from a master of grand systems theory, Niklas Luhmann.

[2] (De)Globalization Ahead? (goldmansachs.com)
https://www.goldmansachs.com/insights/pages/de-globalization-ahead.html

[3] New York City Bar Association, April 27, 2022

[4] US National Security Strategy 2001, p. 27

[5] Office of Foreign Assets Control. Part of the US Department of Treasury.