Will Blockchain Technologies Strengthen or Undermine the Effectiveness of Global Trade Control Regulations and Financial Sanctions?

Abstract

Abstract Financial sanctions and trade control regulations are becoming increasingly relevant in the current global situation, characterized by multiple ongoing conflicts, sophisticated terrorist organizations, and serious tensions between international economic actors. The United Nations, under Article 41 of the UN Charter, the United States and Europe, in particular, regularly introduce and enforce a number of tools (e. g., financial restrictions, trade restrictions, arms embargoes, travel bans). Such tools can range from comprehensive, “territory-wide” sanctions against States to targeted sanctions on entities, including individuals, to obtain a change in policy or activity by the target country, part of the country, governments, entities, and individuals, with the ultimate aim of pursuing peace, human rights, democracy, and respect for the rule of law. Recent history proves that companies and financial institutions have adopted complex solutions to conceal transactions with sanctioned countries and entities. Blockchain technology, through the use of distributed digitalized ledgers, grants a high level of transparency, for instance providing real-time updates on the development of an export transaction, and the use of smart contracts can automatize payments, or the triggering of guarantees, etc. While blockchain technology continues to be an area of enormous promise, it is also one of risk, if not managed properly, especially in a transnational, multi-jurisdictional context. Not only might the use of blockchain-based solutions prove challenging for the enforcement of current international sanctions programs by competent authorities, but blockchain technologies developers will also need to set up solutions suitable to comply with the requirements imposed by the various sanctions in place. At the same time, businesses will need to determine which measures and due diligence practices are needed to protect against the risks of a sanctions violation, which can result in significant fines and even criminal penalties. This paper explores how blockchain solutions that may be implemented in the context of international financial and commercial transactions can interrelate (or interfere) with sanctions enforcement and sanctions compliance, highlighting the multiple legal issues that may arise in connection thereto.