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FINANCIAL SECTOR: Avoiding sanctions trap
SANCTIONS have become a pressing issue in recent times, gaining renewed attention following the re-election of Donald Trump as president of the United States. Many countries and business entities fear that his administration...
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FINANCIAL SECTOR: Avoiding sanctions trap
by Mohammad Zonaed Emran 01 March, 2025, 00:00
SANCTIONS have become a pressing issue in recent times, gaining renewed attention following the re-election of Donald Trump as president of the United States. Many countries and business entities fear that his administration may impose stringent sanctions on political grounds, further weaponising economic restrictions to achieve foreign policy objectives. Sanctions are frequently used as a tool to exert pressure, serving economic and security goals without resorting to military intervention.
The impact of sanctions has been evident in recent years. Following Russia’s invasion of Ukraine in 2022, the United States imposed a series of measures targeting Russian individuals, entities, ports and ships. These included sectoral sanctions, asset freezes and restrictions on financial transactions. The exclusion of seven major Russian banks from the SWIFT system — a crucial network for international banking — further crippled the Russian economy, demonstrating the far-reaching consequences of such actions.
However, it would be naive to assume that only countries embroiled in major geopolitical conflicts face such risks. Bangladesh, despite its status as a developing nation, is not immune. There exists a perception that sanctions from international bodies such as the United Nations or the US Treasury’s Office of Foreign Assets Control are unlikely to directly affect Bangladesh. Yet history tells a different story.
In 2021, the administration of outgoing US president Joe Biden imposed sanctions on Bangladesh’s Rapid Action Battalion and six high-ranking law enforcement officials, citing human rights violations, including extrajudicial killings and enforced disappearances. The sanctions, imposed under the Magnitsky Act, placed the RAB and these individuals on the Specially Designated Nationals and blocked persons list. This move strained relations between Bangladesh and the United States, with the Bangladeshi government making repeated but unsuccessful attempts to have the sanctions lifted. Furthermore, before the last general election, the US government imposed travel bans on individuals accused of undermining the democratic process — an implicit sanction designed to curb election interference.
The sanctions against the RAB had a significant impact, leading to a notable reduction in human rights abuses and extrajudicial killings. Over time, the force’s authority diminished, underscoring the effectiveness of targeted sanctions in compelling behavioural change. However, Bangladesh’s vulnerability to sanctions extends beyond law enforcement. The country’s banking sector remains particularly exposed, especially if financial institutions fail to maintain stringent compliance with international sanctions regulations. Ensuring adherence to global financial norms is therefore critical to mitigating risks.
Sanctions, at their core, are an extension of foreign policy, employed to coerce targeted nations, entities, or individuals into altering their behaviour. They are often viewed as an alternative to war, offering a means of conflict resolution without direct military engagement. Their objectives range from promoting peace and preventing human rights abuses to discouraging illegal activities and exerting economic pressure.
Sanctions vary in nature, scope and purpose. Economic sanctions target a country’s financial and trade activities through restrictions such as trade bans, asset freezes and exclusion from global banking networks. Military sanctions impose arms embargoes and prohibit military aid. Travel sanctions restrict movement by imposing visa bans. Sectoral sanctions focus on specific industries, such as energy or technology, while targeted sanctions home in on individuals, corporations, or organisations. The most severe form, comprehensive sanctions, involves complete trade embargoes, as seen in US sanctions against Cuba and North Korea.
Sanctions can be imposed unilaterally by individual states or multilaterally through organisations like the United Nations or the European Union. International financial institutions such as the World Bank and International Monetary Fund may also enforce sanctions to ensure compliance with economic regulations. The targets of these measures are diverse, encompassing governments, individuals, corporations, economic sectors and even terrorist networks.
The consequences for sanctioned entities can be severe. Financial restrictions include asset freezes and blocked access to international banking. Trade limitations can prohibit imports, exports and investments. Travel bans restrict international movement, while blacklisting prevents companies and individuals from conducting business on the global stage. Violations of sanctions can result in criminal prosecution, hefty fines and irreparable reputational damage.
The extraterritorial reach of US sanctions adds another layer of complexity. American regulations often extend beyond its borders, impacting foreign entities conducting transactions with sanctioned individuals or nations. The case of Huawei, which faced restrictions on accessing American technology, illustrates this principle. Similarly, the French bank BNP Paribas was fined $9 billion in 2014 for violating US sanctions by processing transactions linked to Sudan, Iran and Cuba. Such examples highlight how sanctions enforcement transcends national boundaries, compelling international compliance with US policies.
A particularly potent mechanism is secondary sanctions, which target not only primary sanctioned entities but also third parties engaging with them. These measures deter businesses and governments worldwide from interacting with designated targets, effectively enforcing global compliance. The penalties for violating sanctions are steep, with financial fines reaching millions of dollars, asset seizures, restricted access to banking systems, export bans and even criminal prosecution.
Given the intricate nature of sanctions and their far-reaching implications, Bangladeshi financial institutions must take proactive steps to ensure compliance. Establishing a robust compliance framework is essential. Banks must implement rigorous customer due diligence procedures, verifying identities through know your customer protocols and screening transactions against global sanctions lists, including those maintained by Office of Foreign Assets Control, the United Nations and the European Union.
Advanced transaction monitoring systems should be in place to flag high-risk activities, such as trade with sanctioned countries or entities. Automated screening of financial messages, such as SWIFT transactions, can help identify suspicious dealings. Additionally, financial institutions must stay abreast of evolving sanctions regulations, subscribing to updates from international regulatory bodies and integrating policy changes into their compliance strategies.
Strengthening correspondent banking relationships is also crucial. Bangladeshi banks must collaborate with reputable global partners that maintain strict compliance with international financial laws. Avoiding transactions linked to sanctioned entities, particularly in high-risk jurisdictions like Iran or North Korea, is paramount. Furthermore, financial institutions must provide ongoing staff training to enhance awareness of sanctions risks, ensuring employees can identify red flags and respond appropriately.
Beyond the banking sector, the broader business community in Bangladesh must also remain vigilant. Companies engaged in international trade should establish internal compliance mechanisms, ensuring that suppliers, customers and business partners are not linked to sanctioned entities. Legal teams must conduct due diligence on contracts and transactions to avoid inadvertent violations that could lead to punitive measures.
By adopting these measures, Bangladeshi banks and businesses can safeguard their operations against sanctions-related vulnerabilities, maintain their standing in the global financial system, and uphold international regulatory standards. The evolving nature of sanctions underscores the importance of vigilance — compliance is not just a legal necessity but a strategic imperative for the country’s financial stability and international credibility.
Mohammad Zonaed Emran is a certified global sanction specialist.
by Mohammad Zonaed Emran 01 March, 2025, 00:00
SANCTIONS have become a pressing issue in recent times, gaining renewed attention following the re-election of Donald Trump as president of the United States. Many countries and business entities fear that his administration may impose stringent sanctions on political grounds, further weaponising economic restrictions to achieve foreign policy objectives. Sanctions are frequently used as a tool to exert pressure, serving economic and security goals without resorting to military intervention.
The impact of sanctions has been evident in recent years. Following Russia’s invasion of Ukraine in 2022, the United States imposed a series of measures targeting Russian individuals, entities, ports and ships. These included sectoral sanctions, asset freezes and restrictions on financial transactions. The exclusion of seven major Russian banks from the SWIFT system — a crucial network for international banking — further crippled the Russian economy, demonstrating the far-reaching consequences of such actions.
However, it would be naive to assume that only countries embroiled in major geopolitical conflicts face such risks. Bangladesh, despite its status as a developing nation, is not immune. There exists a perception that sanctions from international bodies such as the United Nations or the US Treasury’s Office of Foreign Assets Control are unlikely to directly affect Bangladesh. Yet history tells a different story.
In 2021, the administration of outgoing US president Joe Biden imposed sanctions on Bangladesh’s Rapid Action Battalion and six high-ranking law enforcement officials, citing human rights violations, including extrajudicial killings and enforced disappearances. The sanctions, imposed under the Magnitsky Act, placed the RAB and these individuals on the Specially Designated Nationals and blocked persons list. This move strained relations between Bangladesh and the United States, with the Bangladeshi government making repeated but unsuccessful attempts to have the sanctions lifted. Furthermore, before the last general election, the US government imposed travel bans on individuals accused of undermining the democratic process — an implicit sanction designed to curb election interference.
The sanctions against the RAB had a significant impact, leading to a notable reduction in human rights abuses and extrajudicial killings. Over time, the force’s authority diminished, underscoring the effectiveness of targeted sanctions in compelling behavioural change. However, Bangladesh’s vulnerability to sanctions extends beyond law enforcement. The country’s banking sector remains particularly exposed, especially if financial institutions fail to maintain stringent compliance with international sanctions regulations. Ensuring adherence to global financial norms is therefore critical to mitigating risks.
Sanctions, at their core, are an extension of foreign policy, employed to coerce targeted nations, entities, or individuals into altering their behaviour. They are often viewed as an alternative to war, offering a means of conflict resolution without direct military engagement. Their objectives range from promoting peace and preventing human rights abuses to discouraging illegal activities and exerting economic pressure.
Sanctions vary in nature, scope and purpose. Economic sanctions target a country’s financial and trade activities through restrictions such as trade bans, asset freezes and exclusion from global banking networks. Military sanctions impose arms embargoes and prohibit military aid. Travel sanctions restrict movement by imposing visa bans. Sectoral sanctions focus on specific industries, such as energy or technology, while targeted sanctions home in on individuals, corporations, or organisations. The most severe form, comprehensive sanctions, involves complete trade embargoes, as seen in US sanctions against Cuba and North Korea.
Sanctions can be imposed unilaterally by individual states or multilaterally through organisations like the United Nations or the European Union. International financial institutions such as the World Bank and International Monetary Fund may also enforce sanctions to ensure compliance with economic regulations. The targets of these measures are diverse, encompassing governments, individuals, corporations, economic sectors and even terrorist networks.
The consequences for sanctioned entities can be severe. Financial restrictions include asset freezes and blocked access to international banking. Trade limitations can prohibit imports, exports and investments. Travel bans restrict international movement, while blacklisting prevents companies and individuals from conducting business on the global stage. Violations of sanctions can result in criminal prosecution, hefty fines and irreparable reputational damage.
The extraterritorial reach of US sanctions adds another layer of complexity. American regulations often extend beyond its borders, impacting foreign entities conducting transactions with sanctioned individuals or nations. The case of Huawei, which faced restrictions on accessing American technology, illustrates this principle. Similarly, the French bank BNP Paribas was fined $9 billion in 2014 for violating US sanctions by processing transactions linked to Sudan, Iran and Cuba. Such examples highlight how sanctions enforcement transcends national boundaries, compelling international compliance with US policies.
A particularly potent mechanism is secondary sanctions, which target not only primary sanctioned entities but also third parties engaging with them. These measures deter businesses and governments worldwide from interacting with designated targets, effectively enforcing global compliance. The penalties for violating sanctions are steep, with financial fines reaching millions of dollars, asset seizures, restricted access to banking systems, export bans and even criminal prosecution.
Given the intricate nature of sanctions and their far-reaching implications, Bangladeshi financial institutions must take proactive steps to ensure compliance. Establishing a robust compliance framework is essential. Banks must implement rigorous customer due diligence procedures, verifying identities through know your customer protocols and screening transactions against global sanctions lists, including those maintained by Office of Foreign Assets Control, the United Nations and the European Union.
Advanced transaction monitoring systems should be in place to flag high-risk activities, such as trade with sanctioned countries or entities. Automated screening of financial messages, such as SWIFT transactions, can help identify suspicious dealings. Additionally, financial institutions must stay abreast of evolving sanctions regulations, subscribing to updates from international regulatory bodies and integrating policy changes into their compliance strategies.
Strengthening correspondent banking relationships is also crucial. Bangladeshi banks must collaborate with reputable global partners that maintain strict compliance with international financial laws. Avoiding transactions linked to sanctioned entities, particularly in high-risk jurisdictions like Iran or North Korea, is paramount. Furthermore, financial institutions must provide ongoing staff training to enhance awareness of sanctions risks, ensuring employees can identify red flags and respond appropriately.
Beyond the banking sector, the broader business community in Bangladesh must also remain vigilant. Companies engaged in international trade should establish internal compliance mechanisms, ensuring that suppliers, customers and business partners are not linked to sanctioned entities. Legal teams must conduct due diligence on contracts and transactions to avoid inadvertent violations that could lead to punitive measures.
By adopting these measures, Bangladeshi banks and businesses can safeguard their operations against sanctions-related vulnerabilities, maintain their standing in the global financial system, and uphold international regulatory standards. The evolving nature of sanctions underscores the importance of vigilance — compliance is not just a legal necessity but a strategic imperative for the country’s financial stability and international credibility.
Mohammad Zonaed Emran is a certified global sanction specialist.
