Secondary Sanctions

Primary sanctions bind a country’s own people and territory. Secondary sanctions try to extend that reach by threatening third parties. The usual penalties are loss of access to the sanctioning country’s financial system, listing of the third party itself, and bans on its imports or on contracts with the government. A foreign bank that helps a sanctioned target can find that it can no longer clear dollars, which for many banks is a severe loss. The aim is to isolate the target by making others afraid to deal with it. Other states often object, and some pass blocking laws to forbid compliance with them, which puts firms between conflicting rules. Secondary sanctions differ from evasion, which is a breach of the primary rules. Firms outside the sanctioning country often avoid the targeted business altogether. Its effect is to carry sanctions risk to firms with no presence in the sanctioning country.

A bank in a third country is asked to finance a gas purchase from a company that another government has said it will penalise outsiders for dealing with. The bank has no branch in that country but relies on banks there to clear its payments. It weighs the possible loss of access against the fee income, declines the deal and tells the client why.