Economic Sanctions Compliance in an Era of Geopolitical Risk
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At a time of intensifying geopolitical risks and rapidly evolving sanctions regimes, economic sanctions compliance has become an increasingly important and complex challenge for companies and financial institutions. Compliance requires more than list screening: organizations need a multidimensional framework that also integrates AML/CFT, economic security, and Business and Human Rights perspectives.
Corporate Responses to Geopolitical Risk and Global Regulation
Economic sanctions are measures that restrict financial and trade transactions with specified countries, individuals, entities and others. They are generally imposed to achieve policy objectives such as the non-proliferation of nuclear weapons and other weapons of mass destruction, counterterrorism, democracy, and respect for human rights. As divisions among the permanent members of the United Nations Security Council have made UN sanctions more difficult to function effectively, unilateral and coordinated sanctions imposed by individual countries, particularly the United States, have become increasingly important.
In recent years in particular, conflicts and divisions have persisted around the world, while uncertainty has increased through a range of geopolitical developments. Against this backdrop, corporate activities are now conducted in a global regulatory environment in which economic sanctions, export controls, investment restrictions, supply-chain and human-rights regulations, and countermeasures adopted by various countries are increasingly interconnected.
Against this backdrop, in my article “Economic Sanctions Compliance amid Heightened Geopolitical Risks”, published in the August 25, 2026 issue (No. 2288) of Kinyu Homu Jijo (Financial Law Journal), I draw on more than ten years of experience advising companies and financial institutions on global legal compliance, including economic sanctions, to explain recent regulatory developments and practical responses. The article reviews the extraterritorial application of U.S. OFAC rules and secondary sanctions, as well as the strengthening of sanctions under Japan's Foreign Exchange and Foreign Trade Act and related Japanese laws and regulations. It also addresses sanctions DD, integration with AML/CFT, economic security and Business and Human Rights perspectives, and how companies can navigate conflicting regulatory requirements across jurisdictions.
Sanctions Compliance Goes Beyond "List Screening"
U.S. OFAC sanctions include targeted sanctions designating specific individuals and entities, as well as comprehensive sanctions broadly targeting particular countries or regions. Under OFAC's "50 Percent Rule," an entity that is owned, directly or indirectly, 50 percent or more in the aggregate by one or more designated persons is generally treated as sanctioned as well. Indirect dealings, causing violations, evasion or circumvention, and conspiracy are also prohibited.
It is important to distinguish between "extraterritorial application," under which U.S. rules may apply to non-U.S. companies where there is a U.S. nexus, such as U.S.-dollar payments, U.S. persons, or U.S.-origin items, and "secondary sanctions," which can restrict access to U.S. markets and the U.S. financial system based on certain significant transactions with sanctioned countries or persons even where there is no U.S. nexus. Because OFAC civil penalties are generally based on strict liability, sanctions due diligence (sanctions DD) is important not only to prevent violations but also as a significant protective factor in the event of enforcement.
In Japan, cross-border transactions are governed by Japan's Foreign Exchange and Foreign Trade Act (FEFTA), while domestic transactions are subject to Japan's Act on Special Measures Concerning Asset Freezing, etc. of International Terrorists Conducted by Japan Taking into Consideration United Nations Security Council Resolution 1267, etc. (the Japanese International Terrorist Asset-Freezing Act). Financial sanctions are administered by Japan's Ministry of Finance, trade sanctions by Japan's Ministry of Economy, Trade and Industry (METI), and domestic asset-freezing measures by Japan's National Public Safety Commission. Financial sanctions under Japan's FEFTA include asset-freezing measures as well as measures targeting specified countries, purposes, or transactions. Banks and other financial institutions are subject to confirmation obligations, while persons handling foreign exchange transactions, etc. are required to establish risk-based compliance frameworks in accordance with Japanese statutory compliance standards and related government guidelines.
Accordingly, sanctions DD should examine not only whether parties are designated persons, but also their connections with sanctioned countries and regions. Depending on the level of risk, the review may need to cover ultimate beneficial owners, indirect parties, ownership and control structures, products and services, and the flow of goods and funds. Contractual sanctions clauses can also be useful, but representations and warranties, information rights, audit rights, termination rights, and other provisions should be appropriately designed in light of the transaction and its risks.
Five Practical Priorities
1. Integrated response based on the similarities and differences between sanctions and AML/CFT: Both are grounded in risk-based compliance frameworks, and information obtained through KYC and ultimate beneficial ownership checks can be used across both areas. However, while AML/CFT usually focuses on customers and ultimate beneficial owners, sanctions DD may extend to all transaction counterparties, indirect parties, and ownership and control relationships. Companies should use common compliance infrastructure where possible while accounting for differences in applicable laws and regulations, covered persons, and the required scope of review.
2. Enhancing compliance frameworks to respond to geopolitical risk: Because sanctions can change rapidly and unpredictably, ongoing monitoring, scenario analysis, and anticipatory measures are important. Organizations need systems capable of continuously tracking divergent regulatory developments in the United States, the EU, the United Kingdom, Japan, China, Russia, and other jurisdictions, while also analyzing multi-layered ownership and control structures and indicators of diversion, evasion, or circumvention.
3. Integrating sanctions with economic security: Economic sanctions should be considered together with export controls, inward and outward investment restrictions, public procurement rules, and supply-chain regulations. In light of the U.S. Bureau of Industry and Security (BIS) guidance for financial institutions on the Export Administration Regulations (EAR), issued in 2024, it is also important to assess the relationship between transactions and the Entity List and other export-control lists. At the same time, lists under the EAR and the U.S. Uyghur Forced Labor Prevention Act (UFLPA) do not have the same legal effect as OFAC's SDN List; transaction controls therefore need to distinguish the legal consequences of each regime and take a multidimensional approach.
4. A multidimensional approach incorporating Business and Human Rights: Sanctions imposed in response to human rights abuses and human rights due diligence (HRDD) may share tools such as investigations and contractual measures, but they differ in their relevant actors, nature and objectives, and methods of review. Even where a transaction is permissible under sanctions rules, its relationship to adverse human rights impacts should be assessed separately. Decisions to suspend transactions or exit a business relationship should also consider the impact on employees, business partners, and local communities from the perspective of "responsible exit."
5. Finding the optimal solution amid conflicting national regimes: Companies should take into account China's Anti-Foreign Sanctions Law and Blocking Rules, Russian countermeasures, and similar measures, and avoid overly conservative immediate suspensions or exits that may result in lost business opportunities or violations of another jurisdiction's laws. It is important to closely review general licenses, FAQs, and official guidance and to consider the optimal solution not only in terms of whether a transaction can continue, but also through risk-mitigation measures such as enhanced monitoring, revised contractual provisions, and changes to transaction structures.
Cross-Cutting Perspective: Global Compliance / Sustainability / Technology
This topic sits at the intersection of the three priority areas of my work.
• Global Compliance: Economic sanctions should be integrated with AML/CFT/CPF, export controls, investment restrictions, supply-chain regulations, and related requirements. This calls for integrated management of multi-jurisdictional legal exposure, ownership and control structures, and the flow of funds and goods.
• Sustainability: Taking into account the similarities and differences between sanctions based on human rights abuses and HRDD, companies need to reconcile sanctions compliance with respect for human rights through heightened due diligence in conflict-affected areas and other high-risk contexts, as well as through a responsible approach to exit.
• Technology: Key challenges include export controls on advanced technologies such as semiconductors and AI, cyber-related sanctions, and digital transactions involving crypto-assets, as well as the effective use of data and technology to support screening, ownership-structure analysis, and transaction monitoring.
Activities in Global Legal Compliance
For more than a decade, I have worked with professionals in Japan and overseas to support companies and financial institutions across a wide range of industries in global legal compliance, including economic sanctions compliance, drawing on multidisciplinary perspectives spanning law, diplomacy, human rights, and technology. I have also been involved in improving compliance practices and contributing to rulemaking through governments, public institutions, bar associations, research organizations, and other bodies.
I intend to continue supporting and advancing global legal compliance that strengthens the resilience and integrity of companies and financial institutions in an environment of heightened geopolitical risk.
• Officer and Member, Regulation of Lawyers Committee / Anti-Money Laundering and Sanctions Experts Subcommittee, International Bar Association (IBA)
• Chair, Project Team on CSR and Internal Control, Japan Federation of Bar Associations (JFBA)
• Officer and Administrative Representative, Anti-Bribery Committee Japan (ABCJ)
• Alternate Legal Expert, Intergovernmental Working Group on Transnational Corporations and Other Business Enterprises with Respect to Human Rights (OEIGWG), United Nations Human Rights Council
• Member, Working Group on Guidance for Mail Receiving Businesses under Japan's Act on Prevention of Transfer of Criminal Proceeds, Ministry of Economy, Trade and Industry (METI), Government of Japan (2019)
• Invited Researcher, Institute of Japan-U.S. Studies, Waseda University (2010-2025)
• Master of Laws in International Law, The Fletcher School of Law & Diplomacy, U.S. (2010)
• Officer and Administrative Representative, Anti-Bribery Committee Japan (ABCJ)
• Of Counsel, Akrivis Law Group (Washington, DC)
• Advising Partner, TNV Abogados (Mexico City)
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