Guidance Note on Overcompliance with Unilateral Sanctions and its Harmful Effects on Human Rights

As governments increasingly use unilateral sanctions to pursue foreign policy objectives, it has become common for banks and other financial service providers to over-comply with them to reduce legal, regulatory or business risks associated with inadvertent violations. Yet over-compliance with such sanctions has harmful effects on the entire range of human rights.

Over-compliance is a form of excessive avoidance of risk. It may involve blocking all financial transactions with a sanctioned country, entity or individual even when some transactions are authorized by humanitarian exemptions or fall outside of the sanctions’ scope. It may also take the form of deterring authorized transactions by requiring cumbersome, onerous documentation or certification, charging higher rates or additional fees, or imposing discouraging long delays. Over-compliance also occurs when banks decide to freeze assets that are not targeted by sanctions, or deny individuals the possibility to open or maintain bank accounts or to engage in transactions simply because they are nationals of a sanctioned country, even when the individuals are refugees from that country.

Documented cases show that over-compliance with sanctions prevents, delays or makes more costly the purchase and shipment to sanctioned countries of goods, including humanitarian goods and services such as essential food, medicine, medical equipment and spare parts for such equipment, even when the need is urgent and if of life-saving nature Such practices also prevent international organizations and humanitarian NGOs from transferring funds to pay their employees in sanctioned countries, and block people in these countries from accessing their property, meeting their financial obligations, exercising business activities and handling normal day-to-day interactions, including ordering goods, transferring money for or getting money from their families, making simple payments for ordinary needs and purposes, booking flights and hotels, and participating in international cooperation including in the spheres of art, science, sport, culture and many others. They also impede their access to justice, including in national and international courts and investment tribunals, to respond to accusations and defend themselves, thus denying such fundamental rights as the presumption of innocence, due process, the right to defence and to a fair hearing and trial

The complexity of many unilateral sanctions regimes, burdensome administrative processes, extraterritorial enforcement and the magnitudes of financial or business penalties for breaching sanctions are some of the reasons why financial, business and numerous other actors (such as shipping companies, insurances, but also publishers of scientific and academic journals) prefer resorting to over-compliance rather than facing the risk of being sanctioned themselves. Obligations to comply with financial sector regulations aimed at minimizing risk are also a key factor.

Some over-compliance policies of banks do prevent states, international organizations, diplomats and individuals in targeted countries from participation in international cooperation. They do also often result in the cancellation or suspension of membership or voting rights in international organizations. They impede the normal functioning of diplomatic missions, missions of international organizations and the implementation of humanitarian and development projects. They do also prevent foreign diplomats living in these countries to accesses to their own private resources, such as their bank accounts at home, including salaries, import their own private vehicles, or pay school feed for their children studying abroad.

De-risking (avoiding risk) and over-compliance with the requirement of unilateral sanctions by banks force companies and individuals to look for alternative ways to transfer money, making the mechanisms of financial transactions opaque, increasing costs and time for transferring money and goods, creating a flourishing underground economy, giving rise to smuggling, fostering corruption and criminal activities, within the borders of targeted countries but also often outside them in neighboring countries.

In this context, where overcompliance often undermines economic development and fosters impoverishment, ordinary people, men but also often women and girls, seek to escape poverty by engaging in illegal activities, such a prostitution or drug trafficking or fall prey of powerful individuals who traffic them into criminal activities, for which, in turn, they are prosecuted and sanctioned, sometimes with death.

The UN Security Council, in resolution 2615 (2021) relating to its sanctions against individuals, groups and entities associated with the “Taliban” in Afghanistan,[1] decided that “humanitarian assistance and other activities that support basic human needs in the country are not a violation” of the freeze on their assets “and that the processing and payment of funds, other financial assets or economic resources, and the provision of goods and services necessary to ensure the timely delivery of such assistance or to support such activities are permitted (…)” as long as “reasonable efforts” are made to minimize any benefits to the sanctioned individuals and entities.

The Special Rapporteur on the negative impact of unilateral coercive measures on the enjoyment of human rights, recommends to banks and other financial institutions and service providers to act in the spirit of that resolution, and avoid over-compliance with sanctions when it impacts human rights. She recommends them to align their compliance with human rights policy, and to comply with their responsibilities under the UN Guiding Principles for Business and Human Rights[2] and General Comment No. 24 of the Committee on Economic, Social and Cultural rights.[3] She further recommends to states to act in line with their obligations under the international law treaties they have ratified to protect human rights by preventing financial and other private companies under their jurisdiction from over-complying with sanctions, and to adjust regulatory requirements for the financial sector where necessary.

She underscore the illegality under international law of imposing secondary sanctions or threating with secondary sanctions, civil and/or criminal penalties for non-compliance with their sanctions regimes, which are often extraterritorial.

She also emphasizes that under international law, including human rights treaty law, all states are required to observe their international obligations, including in the sphere of human rights, the Special Rapporteur calls of states to review and lift all unilateral sanctions which are not authorized by the UN Security Council, are not in conformity with their international obligations, or the wrongfulness of which cannot be excluded in accordance with the law of international responsibility.

RECOMMENDATIONS

Against this background, the Special Rapporteur recommends banks and other financial service providers:

1. To review their sanctions compliance policy to determine if the restrictions they impose on the provision of financial services are broader than those actually required by the sanctions, and to adjust their compliance to exclude, to the extent possible, any over-compliance.

2. To assess whether any over-compliance with unilateral sanctions has, or may have, a harmful impact on the enjoyment of human rights by individuals for whom it restricts financial services, and by others affected by the consequences of the restrictions, particularly in cases when the restrictions impact financial services for humanitarian actors. The impact assessment should focus on the rights affected and the magnitude of the impact, in line with due diligence responsibilities under the UN Guiding Principles on Business and Human Rights. Whenever negative effects are identified, prompt corrective action should be taken to eliminate or mitigate the harm.

3. To monitor the human rights impact of their sanctions compliance policy on an ongoing basis to eliminate, mitigate or prevent any harmful impact; due diligence relating to the human rights impact of over-compliance with sanctions is both an initial act and an ongoing process.

4. To provide for free flow of payments for goods necessary to guarantee the basic needs of the population in targeted countries such as medicines, medical equipment, raw materials, spare parts, food, seeds, fertilizers, electricity, water, housing, transportation systems, delivery of humanitarian aid and implementation of humanitarian and development projects.

The Special Rapporteur additionally wishes to clarify that:

5. Unilateral blocking statutes adopted in some jurisdictions against the extraterritorial enforcement of sanctions imposed by other states apply only to banking services that are restricted by the sanctions, and not to any over-compliance. Therefore when restrictions on banking and other financial services to sanctioned parties are lifted as a result of complying with blocking statutes, this should also be extended to all parties affected by over-compliance.

6. Banks may not have the internal resources or expertise necessary to evaluate the human rights impact of their sanctions compliance policies and practices, particularly as the impact may occur abroad and in multiple locations at once. In such cases, it is desirable to rely on outside expertise for this information, and banks are urged to engage with existing sources of expertise or experience such as United Nations in the field as well as non-governmental actors that monitor humanitarian and human rights situations around the world. She invites these institutions to engage in dialogue with the mandate in this respect, which might be able to provide useful advice and guidance.

7. Individual banks may minimize the risks and consequences of violating human rights through their sanctions compliance activities, including any over-compliance, by developing collective sanctions compliance policies, for example through banking associations, that address the human rights impact of their policies.

8. States are advised to ensure that banks and other financial service providers under their jurisdiction comply with the UN Guiding Principles, to avoid any negative impact on human rights from their activities, due in particular to over-compliance.

9. States are advised to assess the elements of their financial sector regulations that may encourage banks to over-comply with sanctions, and to reconsider such elements with a view toward removing this encouragement.

10. Last, states are advised to monitor how financial sector over-compliance with sanctions affects critical infrastructures in sanctioned states that are necessary for the maintenance of basic living conditions, and the related enjoyment of human rights by their populations, including in such vital spheres of health care, food security, seeds, fertilizers, housing, electricity, water, gas and gasoline supply; and the ability of humanitarian organizations to perform essential work in those countries and to provide vital aid to those in need without discrimination, while eliminating or mitigating any harm to the beneficiaries.

[1] https://documents-dds-ny.un.org/doc/UNDOC/GEN/N21/413/83/PDF/N2141383.pdf?OpenElement

[2] https://www.ohchr.org/sites/default/files/documents/publications/guidingprinciplesbusinesshr_en.pdf

[3] General comment No. 24 on State obligations under the International Covenant on Economic, Social and Cultural Rights in the context of business activities [Electronic resource]: 10 August 2017, E/C.12/GC/24 // UN Committee on Economic, Social and Cultural Rights. – Mode of access: https://www.refworld.org/docid/5beaecba4.html. – Date of access: 30.05.2022