The Compliance Corner Podcast Episode 1: SMEs and sanctions - A conversation with Sofia Bournou of BusinessEurope

Intro

Welcome to the EU Sanctions Helpdesk Compliance Corner Podcast. In this series, we get deep into the EU sanctions landscape, all with a focus on helping SMEs with their sanctions compliance. The EU Sanctions Helpdesk is an initiative created by the European Commission. It supports SMEs by providing essential guidance and resources to navigate sanctions compliance and tackle related challenges in their daily business activities. 

Podcast host Ben McPherson 

Thank you for joining us in this second edition of the EU Sanctions Helpdesk Compliance Corner Podcast. I'm Ben McPherson, one of the content managers here at the Helpdesk, and I'm thrilled to be joined today by Sofia Bournou from BusinessEurope. 

Sofia is a senior advisor in BusinessEurope's International Relations Department and counts sanctions among her many areas of expertise. Sofia, thank you so much for being with us today. Now, BusinessEurope is probably familiar to many of our listeners, I'm guessing. But please, Sofia, if you could, tell us a little more about the organisation and specifically your role and work. 

Sofia Bournou 

Thank you, Ben. So, BusinessEurope is the umbrella association of all industrial and employer federations in Europe. And I say Europe because our members are 42 and come from 36 different European countries. 

So, we do not have only members originating in EU countries, but beyond that, which means that we encompass industry representatives from candidate countries to the EU, from the European Economic Area and from the European Free Trade Association. So, our, indeed, membership is broader, and we believe that it is this that actually brings value in the discussions where it comes to policymaking, including in the area of sanctions. 

Now, why sanctions is relevant for us. I think that in the current geopolitical environment, the awareness of companies on the use of policies such as sanctions is increasing. And, of course, this was an area that was traditionally concerning a very small number of companies in a few sectors, perhaps, but it has become more mainstream over the past years. Therefore, an organisation like ours also focusses increasingly on sanctions and their implementation. 

And we have been looking at different regimes over the years, primarily EU measures, but also international regimes that the EU is implementing, of course, as part of its commitments under the United Nations, as well as measures adopted by other countries that have a secondary, let's say, or extraterritorial effect on EU companies. So, we have been looking at a different number of regimes, like, you know, the sanctions against Cuba, Libya, Syria, and, of course, Iran and Russia, which are the most comprehensive and the most recent ones. 

If you allow me, Ben, I wanted to say that as a starting point, European businesses fully stand behind sanctions, because these are foreign policy instruments, and, of course, companies see the need to use them as part of the EU's and allies' response against violations of international law. We are talking about, indeed, the case of Russia's illegal annexation of Crimea and the invasion of Ukraine. This is basically measures that are designed in a way that you want to contain the aggressor and, at the same time, of course, provide support to the targeted countries. So, I think that, indeed, again, as a starting point, this is a very, very important element for us, because this is basically the role that we see ourselves in, focusing on the implementation and the need for the measures and how we can make this workable. 

Ben McPherson 

Carrying on from that, you know the Sanctions Helpdesk has a particular focus on SMEs, small and medium-sized enterprises, and it was actually created by a concrete decision of the European Commission, specifically in order to support these SMEs, EU SMEs, in complying with sanctions and dealing with all the challenges they face, some of which I'm sure we'll get into. 

And you mentioned that maybe traditionally, maybe that's changing now, you know, stuff like this was seen kind of as the domain of huge international corporations, but that's not really the case anymore, which is part of the reason why the Sanctions Helpdesk was created and I'm sure part of the reason for the work that you do as well. So, as far as EU sanctions, how, specifically, do you feel that they have impacted these small and medium-sized enterprises? 

Sofia Bournou 

I think that we can share experiences from two important and more recent sanctions regimes to illustrate the impact on companies, especially SMEs in this case. And of course, I am referring to the regimes against Iran and Russia. These do have a number of similarities, but they also have very important differences. And I think that looking both at similarities and differences offer very interesting lessons for the way ahead in terms of policymaking and implementation. 

The measures related to Iran were, of course, more limited in terms of sectors involved and the mere size of the economy and the overall exposure of the European private sector. Nevertheless, there was an impact that came with the complexity of implementing measures, such as INSTEX, that initiative that was basically put together to allow companies to re-engage with Iran following the gradual lifting of the measures under the Joint Comprehensive Plan of Action. 

And of course, the need for extensive due diligence and the reluctance on the financial sector to facilitate the trade that was allowed, actually, under the measures, for instance, by clearing payments. 

Ben McPherson 

Over-compliance? 

Sofia Bournou 

Exactly, exactly. And these last points are very relevant in other regimes, including Russia, of course. Now, if we look at the case of Russia, more specifically, sanctions have come at an unprecedented size, speed and depth than any other regime before. This is a unique characteristic, if you like, in this case. 

So far, the EU has adopted 17 packages of sanctions. The 18th is expected to be adopted soon. And of course, those measures go much beyond the traditional types of sanctions that we had in the past. They are broad. They are basically covering a very significant part of the economy. Therefore, they have both direct and indirect impacts on SMEs. 

Ben McPherson 

Shifting a little bit, though, what can be done to help? What can alleviate some of this complexity that you've mentioned here? 

Sofia Bournou 

We have to look at the rules themselves. And we need to make sure that those rules are clear and targeted as much as possible. Because we see this basically as the basis of effective implementation and enforcement of sanctions. And I think that the clearer and more targeted the rules, the better this can be achieved. 

Especially in the beginning of the adoption of sanctions on Russia, when we were discussing and implementing the first packages, that was very acute as a problem. Exactly because it came with complications at customs, to offer a very practical example. When you have customs codes in the annexes of the regulations, covering both sanctioned and non-sanctioned goods, you had a discrepancy. It was not very clear what is sanctioned and what is not. We also had situations where banks were over-compliant - we talked about that already. And where legal payments basically were not able to go through. Or looking at the types of services that actually European operators were allowed to provide to their subsidiaries. 

So I think these are three small examples to showcase that clear rules can make a difference. And then of course, beyond the clarity of the rules, what is also very important is clear and streamlined interpretation of the rules within the EU. And I mention that because the enforcement of the sanctions is in the hands of the national authorities. And there are multiple of those in each member state, it's not just one. So we have situations where member states have dozens of authorities in place that are dealing with sanctions on an everyday basis. 

So this could very well lead to fragmentation in the single market, uncertainty, and additional costs for economic operators. Again, I refer to the example of services, the provision of services in entities based in Russia. In those packages, we had situations where different member states followed different approaches when it came to issuing licences, for instance. And this created legal gaps and discrepancies, especially for companies that operate in many different member states. So this is very important. The interpretation has to be the same. The EU regulation is the same for every member state, but we have 27 different interpretations to be very blunt. 

And thirdly, I think that additional guidance that is published in a timely and comprehensive manner is also very important because it contributes exactly to this harmonised approach and streamlined interpretation of the rules. This is very important, both for the authorities and the economic operators, because, besides implementing, we, and when I say we, I mean the companies, I mean the economic operators in Europe, also have monitoring as part of our work. And of course, we use this capacity to feed the Commission with information about the practical issues that we face when we implement sanctions. 

And of course, these questions are taken on board by the Commission, and we are very grateful to the effort that they are undertaking all these years. 

Finally, we come at a very important point, and this is, of course, circumvention and how to address it. I think that everybody agrees that this is a very serious concern for the private sector. I don't know any company, big or small, that from a legal, financial, or reputational risk perspective would like to see its products ended up in the wrong hands, especially when they undertake very serious endeavours through due diligence. So you have situations where companies have management systems in place, they are very diligent about those, and yet there is a risk that their products may end up in Russia, for instance, and be used for the wrong reasons. And this is something that no company that is conscious about the need of having sanctions and of implementing sanctions wants to be found in. 

But at the same time, economic operators, the role, if you like, of economic operators is a little bit different than the authorities, than the state. And I think that we should take the amount of responsibility that corresponds to our role here. And this is an open discussion that we would like to have because here, I think more coordination is needed going hand in hand with the authorities and each playing the role, you know, part in anti-circumvention. 

Ben McPherson 

This has been a fantastic deep dive into the situation, thank you. And it leads to the question, of course, what are some concrete things that can be done to help SMEs out? 

Sofia Bournou 

The number one priority for us would be to actually consolidate the sanctions regulations. The measures on Russia are currently more than 500 pages, unless I am mistaken. So going through 500 pages of measures can be quite, you know, difficult, to navigate, especially if you are not a lawyer or if you do not have the capacity, you know, to go to a sanctions lawyer and experts. So this is becoming a real issue for companies. 

We have consolidated efforts by the Commission, but we really want one regulation where all the measures, you know, that apply against Russia can be found in a very clear manner where we can see the changes from one package to the other. I think this is the top priority for us. So consolidation and codification. 

Secondly, I think, and this is very important, we need more dialogue. We need more dialogue and coordination between the authorities, especially at national level and economic operators, because we need to better understand each other. We face problems when it comes to understanding the rules and to implementing the rules. The authorities also face similar problems. And we need to sit together. 

Ben McPherson 

When you say we need more dialogue, you're talking about national authorities and the companies themselves or support organisations? 

Sofia Bournou 

I think it is a more general, yes, I think it's both. It is a more general observation because, of course, you have business associations, BusinessEurope and others at European and at national level that hear companies, that discuss with them on an everyday basis and that collect this kind of input that is then shared with the authorities. But, of course, it is also of value to have a more direct dialogue and coordination between authorities and companies themselves, companies that are on the ground, companies that can offer insights on how they implement, how they see things on the ground. So I think that this multiple-level dialogue makes sense. And this is definitely one of the areas that we would like to see improved in the future. 

And then, of course, if I can go back a little bit to the beginning of our discussion, because I referred to how companies and how businesses in Europe support sanctions. But, of course, there is a cost related to sanctions. And we are ready to accept this cost, the European economic operators, because we understand the reasons of having sanctions in the first place. This is very clear for us politically. 

But at the same time, we cannot be put at a disadvantaged position vis-a-vis others, including allies, affecting our competitiveness globally. We are global companies, we operate in the same markets and we see situations where we are put at a disadvantage, basically because of sanctions and lack of coordination. So I think that the EU should continue to coordinate with allies. This is very critical for us, exactly because we have global operations there. 

And this even includes SMEs, because even if SMEs do not trade or invest directly, they are usually vital parts of regional and international supply chains. So they provide critical inputs to companies along the supply chain. So one way or another, they are affected by this lack of coordination and competitiveness impact as well. And this is the reason why I wanted to make this point, because this is very important from an SME point of view. 

And then, recognising also the efforts, the diplomatic efforts of the EU in this respect, and the International Special Envoy for the Implementation of EU Sanctions in the face of David O'Sullivan. This is extremely important. 

Ben McPherson 

Of course. 

Sofia Bournou 

And it is actually delivering results, despite limitations, of course, because the EU does not have extraterritorial sanctions and we are not advocating for that either. But of course, there are ways to overcome these issues. I mean, we talked about consolidation and codification. We talked about better coordination with the authorities. But I think that I can also offer you a couple of very practical examples that could be considered in the context of the EU regulations and sanctions and could actually help.

So I think that one element is that, and this is already the approach that the EU is following, but maybe we can have more of those in the future. So what we want to ask the Commission is that indeed, if there is solid proof of operators in third countries that circumvent sanctions on sensitive items, then of course they should be listed, because this is a very clear signal to EU operators with whom they can do business and with whom they cannot do business. So this is point number one. Listing more operators if there is solid proof that they contribute to sanction circumvention.

Then we can look at very practical elements like the HS codes. So customs codes that we identify in, for instance, the list of common high priority items. Because of course, these HS codes sometimes are broad and they cover items that are not relevant for the purpose of the measures. Therefore, how do you approach this? So maybe we need more precise item descriptions in the regulation itself that is perhaps aligned with the dual use regulation of the EU. So I'm just mentioning, you know, an idea here that maybe we need to look at more practical solutions, how to describe better, you know, the items that we really want to capture in the measures. 

And then perhaps to conclude with a few thoughts on the EU Sanctions Helpdesk itself. I think that this is an initiative that we very much welcome from the part of European businesses, exactly because it is offering free of charge services and targeted solutions to individual companies, especially SMEs. I think that everybody agrees that awareness leads to more informed decisions. 

And in our view, this is the value addition of the Helpdesk. Raising awareness and helping companies making informed decisions. And of course, we know that the final responsibility on how to act upon the information that you receive as a company is up to the individual company. But we do hope also that the Sanctions Helpdesk increases its experience and exposure to different types of problems and questions and that they use this feedback, you know, to contribute to the broader debate on EU sanctions implementation and improving legal certainty. 

In that sense, that the service provided to the companies and the input that you get from your interactions with the companies is also, let's say, passed on to the services, to the authorities, so that we can also look, you know, the legal perspective as well, even though, of course, this is not the role of the Sanctions Helpdesk. But I think that this is very important as we move ahead from the part of European businesses. 

And of course, I would like to conclude here by saying that BusinessEurope does promote the Helpdesk as a valuable tool. 

Ben McPherson 

Oh, thank you. 

Sofia Bournou  

Yes, indeed, indeed. And actually, the feedback that we have received is quite positive already. And we have asked our members and the companies that are in our network to share this feedback directly with you, so that the service, you know, continues to be improved in the future. And we will, of course, continue to do so. 

Ben McPherson 

Oh, fantastic. Yeah, that's great to hear. You know, we, as I mentioned, we do awareness raising events and whatnot, and I'll be sure to pass on to my colleagues the importance of that in the eyes of you and an organisation like BusinessEurope. 

But yeah, probably the heart of it is the free personalised support service, which gives direct bilateral, you know, you're talking to a real person, not an AI, support to SMEs that need help with all the questions that you've raised, ambiguous situations, that sort of thing. So that's great to hear that even, you know, still towards the beginning of the initiative, you've heard some good results. 

Sofia Bournou 

Indeed, this is a very comprehensive, good tool that basically companies in the EU can use when it comes to sanctions implementation overall to their due diligence related questions, to understanding their risks, to understanding what kind of questions they need to ask, you know, their suppliers and their customers. 

Ben McPherson 

Absolutely. As we've mentioned, it can be overwhelming, but there are a lot of tools out there. BusinessEurope, what we do as well. And so, yeah, thank you so much for contributing your expertise about the situation in general and about these tools and best practises that SMEs can use to, I don't want to say not worry, but, you know, to fight things like overcompliance, to be able to do business with confidence. It's incredibly important.  

Outro

Thank you for listening to this episode of the Compliance Corner podcast. Are you an SME with questions about sanctions? Then make sure to take advantage of our free, customised support service found at eu-sanctions-compliance-helpdesk.europa.eu.