Foreign direct investment; opportunities and sanctions
John Forrest, Head of Global Trade & Chloe Barker, Senior Associate, DLA Piper LLP
Expansion into new and emerging markets is a key strategy for companies operating across many industry sectors. As a result of the increasingly complex international geopolitical landscape, governments around the world continue to impose an ever expanding and complex network of multijurisdictional financial sanctions and trade restriction targeting investment and commercial activity in specific countries and with certain entities and individuals.
In addition, sanctions continue to be administered and enforced with increased vigour by relevant authorities, and with significant financial and criminal penalties for violations along with associated reputational damage, the stakes are high. In this environment, companies face a challenge with respect to identifying and managing the associated risks.
In many jurisdictions around the world, a company will be required to enter the market place with a local partner or representative and will often have little or no choice as to who that partner is. Prospective partners may be government entities or state owned enterprises or be closely linked to the government or public officials. Sanctions restrictions are often targeted at governments and those entities and individuals who are close to or affiliated to them.
A key component of sanctions regimes is asset freezing or blocking measures, which restrict any dealing in the funds or assets of a sanctions target (a “Designated Person”) and prohibit making funds or assets available directly or indirectly, to or for the benefit of, a Designated Person. Many sanctions regimes, for example those targeting Russia, also restrict investment in key sectors or industries in the target country. Relevant terms are widely defined in sanctions legislation and broadly interpreted to provide maximum scope for relevant enforcement agencies to launch both investigations and enforcement activities.
The UK Office of Financial Sanctions Implementation, along with other competent regulatory authorities, expect companies to take a robust and proportionate response to compliance with sanctions requirements. In terms of ensuring compliance both in the short term and as sanctions measures develop over the longer term, practical tips would include:
- Comprehensive due diligence on any new investment opportunity or transaction in or with a jurisdiction targeted by sanctions measures.
- Screening of potential business partners, targets, customers or wider third parties against consolidated international sanctions lists.
- Reviewing intended investment(s) or proposed commercial activities to ensure they are not specifically prohibited under a sanctions regime.
- Ensuring that no profits, dividends or loans will directly or indirectly benefit a sanctioned party.
- Including robust sanctions representations and warranties in contractual documentation underpinning the investment or transaction.
A risk based approach to enhance due diligence and sanctions screening is a critical component of ensuring sanctions compliance and legal advice should be sought before doing business in or with any country subject to international sanctions.
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