Difference Between Sanction and Embargo

The terms sanction and embargo are frequently used in economics, and the recent trade sanction on Russia has prompted many people to get confused between the sanction and embargo.


What is a Sanction?

In its economic meaning, a sanction refers to the act of building a barrier in the trade of particular commodities. Economic sanctions are trade restrictions that are used to limit commerce with a certain nation. Economic sanctions are foreign policy instruments applied on other nations and firms, and persons inside those countries by governments or international organizations. Economic sanctions are used to punish illegal actions such as financial crimes, humanitarian crimes, and terrorism, as well as to achieve diplomatic goals. They restrict companies and individuals from doing business in or with certain countries named on a sanctions list. 

 

Types of sanctions: Economic sanctions may be applied in the following ways, depending on diplomatic and political objectives:

 

  • Trade embargoes that restrict products and services from being delivered to another country
  • Tariffs (custom duty) on imported products
  • Quotas on imports and exports 
  • Non-tariff obstacles, such as license or package regulations or standards for imports 
  • Property bans on goods and finances

 

Economic sanctions can be applied in two ways: broadly, which means they target whole nations, or selectively, which means they target specific persons, entities, or groups. Governments or international bodies establish economic penalties, which domestic financial agencies then implement.


What is an Embargo?

An embargo is a commercial barrier that prevents commerce or trade with a single nation or a group of countries in a certain way. Embargoes are legislative restrictions that are viewed as powerful diplomatic measures aimed at eliciting a certain national-interest outcome from the country on whom they are imposed. An embargo prohibits a country from dealing with another country for a certain product, sector, or even all items, implying that they would not import or export any products from that country.


There are two types of embargos, which are:

  • Import embargo: A person or a company would not be able to import goods from a specific nation, such as the United States put an embargo on Cuba. 
  • Export embargo: When a firm or any product manufactured by that company is embargoed, it cannot export to the embargoed nation. This would be similar to the United States placing an export embargo on Syria, prohibiting the export of any items manufactured in the United States to enter Syria.



Difference between Sanction and Embargo

 When it comes to the economy and commerce, sanctions and embargoes are linked since both are regarded as trade obstacles erected by governments against other countries. According to some definitions, the distinction between the words resides in partiality and full prohibition. So, a sanction prevents specific categories of commodities from being traded in different ways with deterrent factors, but an embargo prevents all items from being traded. 




Sanction


Embargo




Definities



Sanction refers to a threatened penalty for disobeying a law or rule.

An embargo is a commercial barrier that prevents commerce or trade with a single nation or a group of countries entirely or partially.



Types

  • Tariffs
  • Quotas
  • Embargoes
  • Non-Tariff Barriers (NTBs)
  • Asset freezes or seizures

  • Import embargo
  • Export embargo


Who can impose sanctions and embargoes? 

 Sanctions can be imposed by the UN Security Council, the European Union, the US Department of Treasury's Office of Foreign Assets Control (OFAC), and other individual nations. Sanctions are usually imposed by the Security Council and then enacted by its member nations as laws or rules. Individual governments can also apply sanctions and embargoes on their own.

 

Importance of Sanctions Screening and Monitoring

Sanctions screening and monitoring are critical for businesses since they want their consumers to have a safe and inexpensive onboarding experience. Companies must, however, protect themselves from risks and comply with AML requirements in the customer onboarding process. As a result, firms conduct customer risk screening to identify their customers' risks throughout the customer account opening procedures, and that therefore companies must use an AML compliance program template that is appropriate for the company's risk levels. 

 

OFAC released a framework in 2019 to assist US companies in implementing and shaping their economic sanctions compliance procedures. The paper offers advice on satisfying compliance requirements, establishing internal controls, and conducting vulnerability audits. With this in mind, companies should consider several key factors when implementing a sanctions program, including:

 

  • Regular updates: Because economic sanctions are issued and removed on a regular basis, businesses must ensure that their screening and monitoring systems are flexible enough to respond to such changes.

 

  • Geographic location: Companies should verify that their sanctions screening methods are appropriate for the jurisdiction in which they operate and that they can distinguish between broad and narrow penalties.

 

  • Data analysis: Companies must check a variety of data in order to filter sanctions lists and monitor changes in risk. To develop comprehensive client profiles, data gathering and analysis tools must be able to support that process rapidly and accurately.


Firms must devote technology, funds, and expertise to AML and economic sanctions compliance, as well as employee training to manage the rising sanctions load. Firms should seek third-party assistance to identify a solution that matches their goals and risk profile to minimize the AML/CTF risks. To find out how our products can help you to comply with the AML/CTF rules and regulations within the framework of global regulators, don't hesitate to contact us and request a demo.

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