Law Bites – April 2022
It has been several months since sanctions were imposed against Russia. At this point, many companies find themselves having to deal with the disruptions caused to their supply chain and are assessing the impact of the sanctions on their customers and contractual obligations. Nevertheless, companies should, by now, have adopted basic risk management measures in light of the various sanctions regime. We covered the sanctions imposed by Singapore and what it means for Singapore companies in our March 2022 edition of Law Bites
Conduct due diligence and know the applicable regulations
In an interconnected global business environment, companies must exercise caution when it comes to conducting due diligence on the various parties to a transaction. Doing so will enable the company to avoid being denied the right to enforce an existing contract or possibly being subject to secondary sanctions themselves. The importance of conducting due diligence on all the relevant parties cannot be further emphasised. For example, one of the parties to the transaction may be registered as a Singapore company but is indirectly owned by Russian entities or oligarchs that are part of a complex ownership structure.
Apart from local sanctions regulations, companies also need to carry out a risk assessment and determine the different sanctions regime (e.g. the US, the UK and the EU) that they need to comply with. Companies also need to take note of secondary sanctions, such as many of the US sanctions, which have extraterritorial effect and apply to or impact non-US individuals and non-US entities.
Review your contract
For existing business relationships, it is recommended that companies carry out a review of their contractual clauses to determine potential exposure and to make the necessary changes required to safeguard the company in future transactions.
- Sanctions clause
At the very least, a review of the sanctions clause should be carried out to determine the circumstances in which the clause can be relied on and to ascertain whether parties are still obliged to continue performance of the contract in the event that the clause is triggered. A well drafted sanctions clause operates as a safeguard and helps companies avoid liability if, for example, it is discovered in the course of the transaction that the counterparty is a sanctioned individual or entity.
- Force majeure clause
Another clause that parties often seek to rely upon, especially where the contract failed to provide for a sanctions clause, is the force majeure clause. The force majeure clause sets out events or circumstances that are beyond the control of the parties (e.g. an outbreak of hostilities) and the effect of the clause is to excuse the party(ies) from or suspend the performance of all or part of the contractual obligations without liability. It is therefore important to review existing contracts and consider if it is in the interest of your company to amend the force majeure clause for it to apply to a wider array of situations.
- Termination clause
Having a comprehensive termination clause will also increase the chances for the company to exit the affected transaction in a relatively smooth manner.
Implement and review your sanctions programme
Companies should implement a sanctions programme to avoid unknowingly contravening and being subject to sanctions measures. Companies should also review their sanctions programme and strengthen their governance framework as part of their ESG strategy.
A common misconception is that sanctions only affect companies that are of a certain size – the fact is that the sanctions regulations apply equally to all companies. Implementing a sanctions programme need not be complicated and expensive. A basic sanctions programme comprising of features such as a sanctions policy setting out the due diligence measures to be taken, sanctions lists to be screened against, training for employees, etc. goes a long way in demonstrating that the company is aware of and addressing the risks. The existence of a sanctions programme and the documentation of the efforts taken to comply with the regulations often serve as a mitigating factor in instances where there are investigations carried out by regulatory bodies and governments.
For further information, please contact:
JTJB Singapore Office
This update is for general information only and is not intended to constitute legal advice. JTJB has made all reasonable efforts to ensure the information provided is accurate at the time of publication.