The importance of sanctions in combating transnational organised crime and terrorism

by Kerry Grass
TINZ Member with Delegated Authority

The increasing global tensions in wars and conflicts have seen a flurry of economic sanction orders coming into place.

Sanctions are an important international toolkit to penalise those that act against international peace and security. Economic sanctions provide a non-armed response that can target individuals, groups, business entities and countries. Sanctions achieve this by restricting travel and confiscating assets. Sanctions can also stipulate a blanket trade ban with another country, or list the types of goods and services that are prohibited in trade.

Increasing global tensions in wars and conflicts have seen a flurry of economic sanction orders coming into place.

Often used against terrorist groups and countries considered a State Sponsor of Terrorism, sanctions seek to remove or reduce the financial power of the threat. By applying arms embargoes and export controls to prevent the proliferation of weapons of mass destruction, sanctions can target governments that breach international standards of disarmament, including groups engaged in local armed conflicts, terrorism and political violence.

Sanctions can protect violations of human rights by preventing trade with specific countries in conflict resources, such as timber and diamonds. Conflict resources are natural resources commonly exploited, resulting in serious violations of human rights or crimes under international laws. These types of sanctions aim to prevent human trafficking and slavery.

New Zealand’s role in enforcing sanctions

Following the Second World War, New Zealand signed the United Nations Charter and became bound to the principles of the charter.

Article 41 of the charter establishes the Security Council’s right to call on member states to apply measures not involving the use of armed force. New Zealand’s United Nations Act establishes the power to issue economic sanctions in support of Article 41.

How is transnational organised crime linked to terrorism and sanctions?

As sanction orders designate individual terrorists and terrorist groups by name, their ability to access financial resourcing and required commodities becomes extremely difficult.

Sanctioned individuals and entities will therefore seek ways to evade sanctions.

Terrorist groups are known to utilise transnational criminal networks by raising financing or benefiting from logistical support. Their trades may relate to trafficking of arms, persons or drugs. Physical trade in precious metals may take place for the exchange of arms, avoiding the need for transacting through a financial institution.

If whole goods are prohibited from trade, individual components may instead be sought with the purpose of constructing the prohibited good.

Terrorist groups and criminal networks seek the use of technology and data encryption, including involving themselves in threats of cyber-attack. This is influencing the types of technology that sanctions target which may include:

  • Electronic components
  • Computers
  • Telecommunication equipment
  • Drones and software for drones
  • Software for encryption devices

How effective are sanctions?

Sanctions aim to use a persuasive approach and not an armed approach. In doing so they present less harm to civilians.

Following the invasion of Ukraine, sanctions against Russia hit its economy hard. There were reports of soldiers facing food shortages and the Russian army experienced difficulties resourcing needed military equipment. This is evidence that sanctions can work but they take a united approach.

Penalties for breaching sanctions

Every NZ citizen and incorporated entity is prohibited to trade or deal with persons or assets declared in a United Nations Sanction.

Breaches of a sanction by an individual can result in a penalty of up to 12-months imprisonment or a fine not exceeding $10,000. For corporations, a fine not exceeding $100,000 may apply.

Should governments be doing more?

Sanctions are generally well understood by large financial institutions, such as the banking industry. These institutions often operate with automated screening to detect customers and transactions that are subject to a Sanction Order. However, financial firms that are small and medium-sized are not so well equipped.

As prohibited items contained in sanctions can include terminology not commonly understood, such as the scientific name of a chemical, more could be done to assist businesses to simplify their decision-making.

Kerry Grass

National databases should be freely available that enable businesses to enter a name, country, product or service and obtain information on any sanctions that apply. This would assist in reducing sanction compliance costs and decrease the likelihood of a sanction breach occurring.

Kerry Grass

Kerry holds an International Diploma in Anti-Money Laundering and has 20+ years’ experience working in financial crime compliance, specialising in anti-money laundering and countering financing of terrorism.

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