A Comprehensive Guide to Sanctions: Answering Your Top Questions

Behind every international sanction lies a complex interaction between geopolitics, economic power, and strategic planning, in which countries use financial constraints as weapons of domination, deterrent, or diplomacy.

Turkish businessman Taskin Torlak was arrested in Miami in November 2024 because the US government believed that he had helped Venezuela’s state-run oil company while evading American sanctions.

In reality, Torlak was in charge of a group of businesses that helped Venezuela move its crude oil. In this way, Torlak deceived the US bank into processing the funds in violation of its policies.

This case serves as an example of how the US Department of Justice enforces sanctions against lawbreakers.

This article covers “sanctions” in detail through a series of questions, how it is imposed on an individual, and real-life examples of sanctioned entities.

Q1: What is a Sanction, and What Does a Sanction Mean?

The word “sanction” originates from the Latin word “sancire” which means “to decree, or to sanctify.” Sanctions are acts imposed on nations, groups, or people to express disapproval of behavior that violates international agreements.

However, It can also be referred to as an action taken to impose a regulation, especially in case of a penalty for non-compliance.

It is actually an official permit from an authority or a fine imposed on entities or individuals to change their behavior.

These actions include travel restrictions, arms embargoes, bank account freezes, and prohibitions on the sale of specific goods.

Q2: What are the Different Types of Sanctions?

Sanctions can be of different types:

• Economic Sanctions: These sanctions mainly restrict a country’s trade, funding, or international money transfers.
• Military Sanctions: These are the political and military sanctions imposed on the countries and group activities related to military supply or funding.
• Diplomatic Sanctions: Such sanctions are the political policy measures that aim to impact the country, business, and entities diplomatically.
• Environmental Sanctions: These are the political or economic sanctions that have an influence on the environment.
• Cultural and Sports sanctions: These prohibit a nation from participating in international events, so isolating it. This includes actions taken as a form of protest, such as boycotting events and disqualifying people from competitions.

Q3: What is the Best Example of a Sanction?

The best example of a sanction can be when a country imposes trade restrictions against other countries for some reason. For instance, the EU imposed trading sanctions on Russia because of the Ukraine war.

European Union is the main market that fuels Russia’s economy. In 2023, these penalties caused a 24% drop in Russia’s oil and gas revenue, reaching $99.4 billion. That’s how a sanction imposed by a country on another results in reducing the generated revenues.

Q4: What is an Informal Sanction?

Informal sanctions refer to the unofficial binding measures used to pressure a nation just to change its behavior. These are mostly imposed on the countries through social or economic pressure tactics that an authority does not enforce or explicitly state, like diplomatic boycotts, public criticism, or minimized business engagement.

Informal sanctions can be considered as a punishment or a reminder for disobeying the unwritten rules.

Q5: What are the Examples of an Informal Sanction?

There are different types of informal sanctions, which are:

Public Condemnation

Publicly condemned means that international leaders and media criticize a country’s human rights and pressure it to change its policies. A current example of this is the global response to Hong Kong’s act of sentencing forty-five prominent activists to jail for up to 10 years.

Avoiding Events

A nation might not participate in the sporting events or international conferences hosted by a country that is considered unfavorable. This includes actions taken as a form of protest, such as boycotting events and disqualifying people from competitions.

The best example of this is Papua New Guinea’s decision to withdraw from the 2024 UN global climate summit, COP 29, held in Baku, Azerbaijan. The decision resulted from frustration over rich nations’ unfulfilled promises.

Social Media Campaigns

This kind of informal sanction means using social media to spread a country’s negative actions and provoke people to boycott its products. Unilever, a multinational company, sold its Russian operations after being pressured by campaigners who claimed that the presence of the Dove and Ben & Jerry’s owners in the country contributed to the war effort in Ukraine.

Celebrity Boycotts

Celebrity boycotts are a kind of protest where famous personalities use their social platforms to explain their disapproval of the country’s policies and actions.

Novak Djokovic boycotted on-court interviews at the Australian Open because of derogatory comments from a Channel Nine reporter. The boycott remained until he received an apology from the reporter. This is one of the most prominent examples of this case.

Business Community Pressure

In this type of informal sanction, most businesses withdraw their investments and limit business dealings with the country because of ethical obligations or external pressures.

One of the most prominent illustrations of these sanctions is Norway’s $1.7 trillion divestment from companies that might be associated with human rights violations in conflict areas.

Q6: What is a Formal Sanction?

Formal sanctions are the penalties imposed by the authorities for some kind of legal violations. These sanctions are mostly documented in policies and enforced on entities so that they can follow the set standards.

Q7: What is the Difference Between a Formal Sanction and An Informal Sanction?

Formal sanctions are mentioned in the policy documents and have official consequences for obeying or disobeying the law.

Whereas informal sanctions are the unofficial penalties that are imposed on a country to change its behavior. These sanctions are not written anywhere; these are just a response to any cultural norm disobedience.

Q8: What is a Positive Sanction?

A positive sanction is imposed on the organizations by rewarding them, and in response, the authorities expect the firms to bring more positive change to their behaviors. These sanctions are very effective in handling the violators appropriately without taking serious actions.

Q9: How Would You Define What a Negative Sanction is? 

A negative sanction is essentially a disciplinary measure used to deter particular behaviors or activities that are against the law or societal standards. It can be informal or formal and are frequently employed as a social control mechanism.

It can be a huge penalty or banning of various business activities. In short, negative sanctions directly punish the individual or entity without giving them any warning.

Q10: What Is A Sanction Check?

A sanctions check is a specific search of government databases, like those kept up to date by the Office of Foreign Assets Control (OFAC), to find people who are forbidden from engaging in particular activities or sectors of the economy or who could be dangerous to organizations if their requested transactions are approved.

These checks are frequently required in regulated sectors like healthcare and finance.

Q11: What Is An Economic Sanction?

Economic sanctions are disciplinary and deterrent measures that one government or multilateral organization (like the United Nations) can apply to another nation, organization, or person.

There are many different types of sanctions, such as trade restrictions, capital limitations, asset freezes, travel bans, arms embargoes, and cuts to foreign aid.

A major component of applying economic pressure to a nation is lowering living standards and public dissatisfaction with the government.

Q12: What is Sanction Screening?

Sanctions screening is the process of determining if a person or organization is on a certain sanctions list or watchlist.

These lists are created by governments and reputable international organizations to identify people or organizations who are in violation of financial sanctions or other limitations due to their affiliations or acts.

Significant fines or other penalties may be incurred when working with people or organizations who are listed on a sanctions watchlist.

Q13: What is a Sanction in Banking?

Sanctions in banking are actually the penalties imposed on the banks in response to KYC/AML law violations. These processes ensure that banks comply with key international regulatory compliance.

Banking sanctions are actually systematic processes that check an organization’s existence, potential clients, business links, and money transfers against various global sanction lists.

The primary objective of sanctions in banking is to detect potential financial risks and protect financial systems from possible money laundering acts.

Q14: What is Sanction Screening in Banking?

Sanction screening in banking is a critical and multi-stage procedure. Here are the steps that are involved in sanction screening in the banking sector:

Identifying the Relevant Sanctions Lists

Since sanctions lists differ by country and sector, focused monitoring is crucial. The UN, EU, and FATF have global lists, whereas national agencies like the UK’s OFSI and the United States OFAC apply sanctions particular to their countries.

Companies with international operations need to track several lists to guarantee adherence and steer clear of legal issues.

Screening Against Globally Sanctioned Lists

The required data is checked against these various sanction lists provided by the national or international regulatory bodies. This comparison prevents companies from associating with the sanctioned parties or organizations.

Detection of Matches

If the automated system detects a match, then the bank takes the appropriate actions based on the severity of the result.

Action on Final Results

The actions that businesses can take after identifying the counterparty as sanctioned are:

• Freezing their assets.
• Reporting the counterparty to relevant authorities.
• Ending the business relationship with that counterparty.

All these sanction screening processes are performed to ensure banking sectors connect with authentic entities globally.

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AML Watcher: Enhancing Compliance with Context-Driven Sanctions Screening

AML Watcher offers an advanced sanctions screening solution, ensuring that businesses remain compliant with evolving global regulations.

• It continuously scans sanctions lists from OFAC (Office of Foreign Assets Control), UN (United Nations), EU (European Union), UK HMT (Her Majesty’s Treasury), DFAT (Australian Department of Foreign Affairs and Trade), FINTRAC (Financial Transactions and Reports Analysis Centre of Canada), and other major regulatory bodies, identifying restricted individuals and entities in real-time.
• It reduces false positives while guaranteeing precise risk detection thanks to AI-driven matching algorithms and automatic list refreshes.
• AML Watcher simplifies compliance with batch screening, continuous monitoring, and API connections, assisting companies in reducing their exposure to financial crime and sanctioned entities.
• AML Watcher allows screening in several languages and character sets, such as Cyrillic, Chinese, Korean, and Arabic, to solve the difficulties associated with multilingual data.