Sanctions, diplomacy and corporate reality

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Ludmila Groch
Lefosse Advogados, São Paulo
ludmila.groch@lefosse.com

Paloma Romero
Lefosse Advogados, São Paulo
paloma.romero@lefosse.com

The United States government has promised US$15m for information that will help in the arrest or conviction of Venezuelan President Nicolás Maduro.^[1] Maduro and 14 other high-ranking members of his administration have been investigated by the US for international narcoterrorism. Such tensions are hardly new, having been preceded by numerous rounds of US sanctions against Maduro and his family, including the freezing of all Venezuela's assets on US soil and the confiscation of the oil company Citho US subsidiary (currently estimated at US$8bn). On 5 August 2019, US businessmen were banned from doing any business in or with the country, under penalty of having their assets frozen by the US government.^[2] On 11 June 2020, the US government also issued an Executive Order sanctioning investigators and prosecutors from the International Criminal Court, as well as their relatives and anyone who assisted them with their investigations in any form, including corporate entities.^[3] Diplomatic sanctions have become a reality for both American companies and those doing business in Venezuela. However, little is being explored about the real and direct impacts such sanctions may trigger on the daily life of entrepreneurs, beyond what is seen in mere journalistic headlines.

Sanctions are repressive measures with legal basis in the United Nations Charter (UN Charter) and whose purpose is the positive affirmation of the basic reasons of the United Nations itself: the maintenance of peace and international security. Both recalcitrant Member State and even non-state agents, under section 39 of the UN Charter, are subject to sanctions, which are applicable by the Security Council.

Although the Charter uses the term 'measure', and not sanction, this is the usual foreign policy tool to force Member State agents, among them Brazil, and other non-state agents to follow imperative norms of International Law.^[4]

Section 41 of the Charter states that sanctions shall not involve the use of armed forces, and shall be enforced to give effect to decisions issued by the Security Council, including the interruption, in whole or in part, of economic relations, of communications via rail, sea, air, postal, telegraphic, radio, or any other kind and the severance of diplomatic relations.

With the ratification of the UN Charter, Brazil agreed to submit, immediately, to its guidelines, including the obligation to comply with and execute Security Council resolutions.

In other words, the international requirements resulting from the imposition of sanctions by the Security Council became an immediate obligation for Brazil.

There is also a suggestion of implementation of domestic procedures to comply with, and promptly ‘replicate’ international resolutions,^[5] in accordance with the obligation arising from Security Council Resolution No 1,373 issued in the context of the 9/11 attacks and duly internalised in the national legal system.

At that time, the Security Council determined that all UN Member States are obliged to prevent and suppress the financing of terrorist acts. To this end, the following basic methods were established: criminalising the deliberate provision or raising of funds by their nationals or in their territory (Section 1B); freezing, without delay, funds or economic resources of persons who commit or seek to commit terrorist acts or participate in or facilitate the commission of such acts, including assets of entities belonging to or controlled by them (Section 1C); and prohibition of their nationals or any individuals or entities in their territories from making available any funds, financial assets or economic or financial resources or other related financial services, directly or indirectly, for the benefit of persons who perpetrate, or attempt to perpetrate, facilitate or participate in the commission of such acts.

It is worth mentioning that it was due to the Resolution No 1,373 that the international community first expressed concern about the link between international terrorism, transnational organised crime and money laundering (section 4). In Brazil, this concern was translated by the internalisation of the obligations imposed by the Security Council through the enactment of Federal Decree No 3,976/2001.

International agents and organisations, however, have been repeatedly arguing for the recognition of the incipiency of these obligations,^[6] defending the need to strengthen and make the enforcement of multilateral sanctions imposed by the UN more efficient. As a result, Federal Law No. 13,810 of 2019 was recently enacted in Brazil, establishing the immediate compliance with the UN’s Security Council resolutions, including the freeze of assets.

As an example of the immediate enforcement of such legislation, the Brazilian Securities Commission (CVM) issued Circular Letter No 3/2019, establishing that individuals, who are under obligations imposed by Section 2 of CVM Instruction No 301 must adequate their rules, procedures and internal controls in order to fulfil, immediately and without prior notice to those that are sanctioned, including measures established in the sanctioning resolutions from the UN Security Council pursuant to Federal Law No 13,810/2019, while still observing the duty to comply with judicial determinations of unavailability, also set out in the said Law.

It is clear the sanctions established through the Security Council resolutions began to have a direct impact on Brazilian companies operating in the domestic securities market. Currently, however, bilateral sanctions, especially US ones, have become as important as unilateral ones.

In December 2019, the US Department of Justice (DoJ) issued a rule,^[7] making it mandatory for companies to comply with US foreign policy sanctions, meaning, the bilateral sanctions imposed by the US. The repression of transgressions to the enforcement of such sanctions has become one of the priorities of the DoJ’s National Security Division (NSD).

This rule recognises business organisations and their employees as key players to combat violations of US sanctions. These actors are also considered gatekeepers, who are required to observe the faithful compliance of the law regarding controlled exports of technology, and the US sanctions regime,^[8] having, in theory, a decisive role in the protection of national security.

Faced with such obligations, and recognising the magnitude and challenges surrounding them, the US government sought to strengthen criminal prosecution at the federal level and encourage reporting and cooperation on violations of the controlled export rules and the national sanctions regime. In order to obtain the benefits provided for in the DoJ rule, it is sufficient for the company to: (1) voluntarily report any violation to the applicable legislation; (2) cooperate effectively; and (3) remedy, in a timely and appropriate manner, the violation that it gave rise to.

The company that complies with the established requirements may benefit from: non-prosecution; the recommendation to impose a fine of at least 50 per cent lower than the legally stipulated amount, and; if it is found that the company has an effective compliance programme, it will be exempt from the requirement of monitoring its activities.

In short, the US decided to impose on certain business actors the adherence to a political and legal regime to defend their international security by creating legal obligations for private entities to achieve greater effectiveness in their international security policies. In short, it is evident that the imposition of regulatory obligations seeks to play a role in fortifying a foreign policy.

Brazil does not escape this same pattern. After all, the entry into force of Federal Law No 13,810/19 has as its main condition the partial transmission of responsibility for the effectiveness of multilateral sanctions regime imposed by the UN to its business agents.

Therefore, a political-institutional scenario of satisfaction of national security concerns through outsourcing and capitalisation, towards private entities, of the need for compliance and faithful enforcement of international sanctions is emerging.

What is perceived is that international relations become something to be considered in the corporate world. This is not only because of the macroeconomic commercial scenario and its natural consequences for business, but also due to political and diplomatic issues, since there is increasing recognition of the daily role that business agents play in the peaceful and stable maintenance of these relations.

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