The past weeks and months have brought about tremendous political change in the West, as we move toward a new U.S. administration, a new College of Commissioners in Brussels and a new Polish presidency of the Council of the European Union, while a new Labour government also continues to find its feet in London. Economic sanctions have increasingly become the go-to response to Russian aggression in Ukraine and growing economic and geopolitical tensions in the Middle East and elsewhere. But will the bull market for sanctions continue under new management? In this alert, we provide nine “quick hits” on the key areas to watch in the coming months.
1. Sanctions priorities to remain largely the same in the short term
Even if a second Trump administration makes changes to U.S. assistance to Ukraine, the United States, the U.K. and the EU are likely to continue using sanctions to pressure Russia for the foreseeable future. Specific goals include cutting off revenue sources, decreasing allies’ reliance on Russian commodities and combatting sanctions evasion, all while maintaining market stability. Coordination on enforcement actions, sanctions targeting, licensing and derogation decisions, and other behind-the-scenes intelligence sharing will continue.
2. Enforcement actions are likely to continue to rise
If past is prologue, a second Trump administration is likely to continue aggressively pursuing sanctions-related enforcement. Likewise, enforcement of sanctions violations will remain a key priority in many EU member states and in the U.K., aided by changes to the law to make enforcement easier.
3. Expect a multi-faceted approach to China
A second Trump administration is likely to use a host of economic and trade policy measures to manage the United States’ position vis-à-vis China, including tariffs and incremental increases in export controls and (to a lesser extent) sanctions. It remains to be seen whether and to what extent the U.S. is able (or willing) to coordinate with the EU, the U.K. and other allies on the approach to China.
4. Other sanctions programs will likely gain greater prominence
Priority areas for sanctions policy-making may shift during a second Trump administration. The Middle East region, especially Iran, and thematic sanctions regimes, such as those focused on human rights, corruption and cybersecurity, will likely gain greater prominence. There will likely be spillover in this respect to the U.K. and the EU, but with the potential for policy divergence to emerge.
5. Potential for disagreements on sanctions between the U.S. political branches
Because the use of sanctions as a foreign policy tool continues to garner broad bipartisan, bicameral support in the United States, any decisions to modify U.S. sanctions on Russia (or in other areas) in a second Trump administration may face pushback from Congress.
6. Expanded use of “extraterritorial” sanctions
The United States has long viewed sanctions as reaching activities that occur outside of U.S. territory when they touch the U.S. financial system or cause U.S. persons to violate sanctions, and “secondary” sanctions – with no U.S. jurisdictional nexus whatsoever – have become a prominent feature in the Russia and Iran sanctions programs, among others, as a means to influence the behavior of non-U.S. persons. The U.K.’s and EU’s broad Russia-related sanctions authorities, coupled with trade and financial measures with extraterritorial reach, show they are exploring a similar dynamic. We expect the U.S., the U.K. and the EU to continue to push the outer boundaries of sanctions jurisdiction.
7. Compliance challenges will increase under growing regulatory requirements and expectations
As sanctions and export controls grow more complex and nuanced, and as regulators look increasingly to financial institutions and other companies to ensure effective implementation of those measures, the costs and operational burden of compliance that falls on the private sector have grown apace. We expect regulators and law enforcement agencies around the globe will continue to view the private sector as the “first line of defense,” and organizations should therefore be proactive in assessing and managing risk.
8. Whistleblowing will be a key method of intelligence gathering
Whistleblower laws in the United States that are designed to elicit reports of sanctions violations are reportedly already bearing fruit, and the U.K. is considering enhancing its legal framework in this respect. Companies should ensure they have strong whistleblower policies in place to encourage the reporting of issues internally so they can be investigated and addressed before they make their way to a government regulator.
9. Sanctions will be one (of many) national security-related tools for deployment
For more than a decade, sanctions have seemingly been the first port of call for governments when responding to foreign policy and national security concerns. While sanctions will undoubtedly remain a key tool in the foreign policy toolbox for years to come, we anticipate export controls, foreign investment reviews, supply chain regulations and – in a second Trump administration – perhaps less predictable methods will become increasingly important in the U.S. and beyond. The use of countersanctions and other similar measures by jurisdictions targeted by the U.S. and its partners will likely grow.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.