Key takeaways:

• • • The US achieved conventional military dominance, but it hasn’t solved the core problem — The navy that was destroyed was never the one controlling the Strait of Hormuz. The asymmetric force that is, the IRGCN, retained 80% of its small-boat fleet and may be able to replenish losses from civilian infrastructure faster than the US can eliminate them.

    • All three pathways to a quick resolution are blocked — The regime has hardened rather than collapsed, the diplomatic positions are nowhere near overlapping, and the US military posture is escalating, including possible ground operations, while allied support remains symbolic.

    • The conflict is likely measured in quarters, not weeks, and the economic difference is not linear — Businesses should be stress-testing against sustained disruption rather than planning for a return to normal, because the conditions required for a rapid resolution would each need to break favorably — and right now, none of them are.

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This is the first of a two-part series on the impact of the war with Iran as the conflict continues. In this part, we look at different ways the war could wind down quickly, and why none of them offer an immediate pathway.

The war with Iran is not going to be over by the end of this week.

That sentence shouldn’t be controversial four weeks into the ongoing war with Iran being waged by the United States and Israel, but it runs against the grain of how markets, policymakers, and many business leaders have been processing this conflict. The dominant assumption, visible in equity markets that have wobbled but not cratered, is that this is an acute shock with a definable end date.

However, very little about the military, political, or strategic picture supports that assumption.

While I make no claim to predict the war’s exact duration, I can lay out why the most likely scenarios point to a conflict measured in quarters, not weeks — and why that difference matters. In the next part of this series, we’ll sketch the economic consequences on a quarter-by-quarter basis, drawing on the latest projections from top economic thinkers. First, however, here is why this war probably drags on.

The wins aren’t winning…

By a surface level scorecard, Operation Epic Fury has been exactly the kind of lopsided success one would expect of a global superpower that’s going up against a regional player. Iran’s Supreme Leader was killed in the opening strikes, Iran’s conventional navy was sunk at anchor before they could sortie, and full air supremacy by the US appears established. If you were grading this on the metrics that won wars in the 20th century, you’d be forgiven for thinking it was nearly over.

Yet it is not nearly over. The Strait of Hormuz remains effectively closed. Daily transits have collapsed from 138 ships to fewer than five. Approximately 2,000 vessels and 20,000 seafarers are stranded in the region with nowhere to go. Brent crude is at $108 per barrel as of March 26, up roughly 50% since the war began. The International Energy Agency has called the current situation the largest disruption to global energy supplies in history.

The disconnect between the military scorecard and the strategic reality comes down to a single, underappreciated fact that the US destroyed the wrong navy. To be fair, it’s not like they had much of a choice. Iran’s conventional fleet had to go, and it went; however, that was playing on easy mode. Iran’s conventional fleet, its frigates, corvettes, and submarines, was a prestige force built for Indian Ocean power projection.

You can find out more about the here

The force actually designed to fight America, however, is the Islamic Revolutionary Guard Corps Navy (IRGCN), and it is something else entirely: a dispersed network of hundreds of armed speedboats, coastal missile batteries, thousands of sea mines, drone systems, and midget submarines spread across dozens of small bases along hundreds of miles of Persian Gulf coastline. The IRGCN’s entire doctrine, training, and equipment procurement were optimized for exactly one scenario, that of denying the Strait of Hormuz to a technologically superior adversary. That is the war Iran is now fighting.

Even though the IRGCN lost its most advanced platforms, those were not the workhorses of their fleet. The IRGCN retains an estimated 80% of its small-boat fleet, the fast boats that hide among fishing dhows, the crews that can scatter onshore and remount on surviving craft. The US is tasked with the mission of hunting small boats hiding among civilian vessels, in a fight in which Iran is willing to lose dozens of them a day to keep the Strait closed. This is not a mopping-up operation; rather, it is a war of attrition that the US is not structured to win quickly, and one in which Iran can replace its losses in ways a conventional navy cannot. For the US, it’s like trying to empty a bathtub while the spigot is still running.

Further, the math of the Strait itself is unforgiving. Iran had an estimated 5,000 sea mines before the war and has begun laying them. The US Navy decommissioned its last Gulf-based minesweepers in 2025 — timing that, in hindsight, looks catastrophic.

Indeed, the US can sink every major Iranian warship afloat and still not reopen the waterway. That, in fact, is roughly what has happened.

…And the off-ramps are blocked

If conventional military victory hasn’t solved the problem, there are three other ways this war ends quickly. As of late March, however, all three are jammed.

1. The regime isn’t collapsing

A US intelligence assessment completed before the war concluded that military action was unlikely to produce regime change even if Iran’s leadership was killed. That assessment has proven accurate. Iran’s constitutional succession mechanism activated as designed, and a new Supreme Leader, the previous one’s more hardline son, was installed within days. Also, protests are not sweeping the streets. Ideological regimes under external threat tend to harden, not fracture. Indeed, both the Taliban and Hamas have survived worse. The Iranian Islamic Republic, whatever else you want to say about it, appears to be surviving this conflict as well.

2. Diplomacy has nowhere to go

Iran rejected the 15-point plan offered by the US and published five counterdemands, including recognition of Iranian sovereignty over the Strait of Hormuz, which is a nonstarter for the US. Iran’s foreign minister says Tehran has no intention of negotiating, even as President Donald J. Trump insists talks are continuing. These positions aren’t close to overlapping, and both sides are staking their credibility on not budging first.

And Iran has good reason to believe time is on its side. The war is deeply unpopular in the US and the same affordability anxiety that swept Republicans into power is now threatening to sweep them out in the midterms. Tehran knows for every day the war goes on, they get to roll the dice that Trump will back out, giving them a strong incentive to get as many rolls as they can.

3. The military posture is escalating, not resolving

Ground troops, including paratroopers from the 82nd Airborne, are en route to the Gulf or have received deployment orders. Reports indicate the White House is weighing a seizure of Kharg Island, Iran’s primary oil terminal, an operation that would put American boots on Iranian soil for the first time. Seven allied nations signed a statement supporting Strait security, but it’s a paperwork alliance, lacking the kind of committed hardware needed to force a solution to the Strait’s closure.

What does this mean for business?

The Iranian regime isn’t folding, diplomacy doesn’t seem to be catching on, and the US military posture is expanding. None of the conditions point to a rapid resolution, and in fact, several of them point to a prolonged conflict.

If this war is measured in quarters rather than weeks, the economic consequences stop being a temporary, albeit painful price spike and start being a structural disruptive event, one that reshapes supply chains, reprices risk, and forces companies to make hard choices about where and how they operate. The difference between a three-week war and a three-quarter war is not a difference of magnitude, it is a difference in kind.

In the concluding part of this series, we’ll walk through what a quarter-by-quarter economic scenario would look like if the war continues.

Key insights:

• • • Different tools, different impacts— Tariffs raise costs but allow business to continue; sanctions create legal barriers that can make transactions impossible, with severe penalties for violations.

    • Scale brings scrutiny— Expansive US sanctions risk diminishing returns as targets develop workarounds and alternative financial systems.

    • Strategic or reactive use?— The core challenge isn’t whether sanctions work, but whether they’re deployed as part of coherent strategy or simply as visible action that avoids harder diplomatic or military choices.

In the foreign policy arsenal of the United States, economic sanctions have become a widely used weapon. As their use expands, so does the debate about how effective they actually are, what additional risks they create, and what unintended consequences they may bring.

Tariffs vs. sanctions: What’s the difference?

In wartime or during high-tension economic crises, both tariffs and sanctions can significantly impact businesses, but the two methods work in different ways.

Tariffs are a form of economic pressure. Governments use them to reduce an adversary’s export revenue, raise the cost of critical imports, signal disapproval of countries that continue doing business with the target, and generate funds for their own efforts. For companies, tariffs usually create friction rather than a full stop. Businesses can often continue importing, but at a higher landed cost. And that can compress margins and force decisions around topics such as renegotiating pricing, passing costs to customers, or shifting to lower-tariff suppliers.

Sanctions are closer to an economic blockade. They aim to isolate the target by banning broad categories of trade, restricting strategic sectors, blacklisting specific entities and individuals, and sometimes pressuring third parties through secondary sanctions. The business impact is often binary. For example, if a counterparty or its majority owner is sanctioned, trading partners generally cannot make the deal work by paying more. The transaction becomes illegal, and violations can trigger severe penalties.

How the difference shows up in operations

Consider a European manufacturing company in March 2022 that is trying to manage the crisis situation caused by Russia’s invasion of Ukraine.

If policymakers respond to the crisis with tariffs, such as a steep duty on Russian aluminum and timber, the primary challenge for this manufacturer is financial and operational planning. Costs rise, and then the company must decide whether to absorb the increase, reprice contracts, or switch suppliers, even if alternatives are more expensive.

Check out for more on the Supreme Court’s tariff decision here

If policymakers respond with sanctions, however, the situation can escalate quickly. Restrictions on major banks and key import categories, combined with aggressive designations of targeted companies and individuals can disrupt the entire supply chain. Payments can freeze, and goods can be delayed or seized. Even indirect connections to the sanctioned party can create problems, including for banks, shippers, insurers, and in some cases for logistics providers or warehouse owners. Indeed, what looked like a routine transaction can become non-compliant without warning.

The scale of sanctions use

Over the past several decades, the US has increasingly relied on economic sanctions as a core foreign-policy tool. In fact, by the early 2020s, US sanctions programs were targeting more than 30 countries and thousands of individuals and entities, with the sanctions primarily being administered by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC). That trend has not only continued but accelerated under the current administration, which has turned to sanctions more frequently amid a volatile political environment. As the use of sanctions has expanded on a massive scale, their breadth and effectiveness have come under growing scrutiny.

Indeed, the phrase economic warfare reflects how modern sanctions often operate.

Many sanctions now target entire sectors, not only military goods. Secondary sanctions can threaten foreign companies that do business with sanctioned parties, effectively using access to the US financial system and the dollar as leverage. Critics argue that sanctions can also cause harm to civilians through inflation, shortages of essential goods including medicine, and broader economic damage. While targeted sanctions are intended to focus on elites, broader measures can affect entire populations.

What makes sanctions risky

The overuse of sanctions can create several problems. Yet sanctions can be politically attractive because they offer visible action without direct military risk, which may increase the temptation to use them even when they are unlikely to work.

As sanctions become routine, however, their impact may weaken as countries and companies develop workarounds, find alternative payment channels, and establish sanctions-resistant trade networks. Broad pressure from US sanctions can also encourage efforts to reduce reliance on the dollar-based financial system. China, Russia, and others have invested in alternative payment mechanisms such as cross-border interbank payment systems (CIPS) and systems for transfer of financial messages (SPFS) and expanded the use of non-dollar currencies. Over time, this response can reduce US financial leverage.

Sanctions can also provoke retaliation, including cyber activity, support for US adversaries, or wider regional instability. Sanctions also may harden diplomatic positions and make negotiation more difficult. In some cases, shared sanctions pressure can push sanctioned states closer together, strengthening the very coalitions that the US is trying to disrupt.

The argument for a middle ground

Supporters of sanctions argue that they provide an option between doing nothing and using military force. They can impose real costs on harmful actors, signal resolve, and respond to domestic demands for action, while still preserving diplomatic channels and avoiding full-on armed conflict.

The central question, however, is whether sanctions are being used as a substitute for strategy rather than as a single tool within a broader strategy. As sanctions continue to expand, it is worth weighing their benefits against their limits and long-term consequences. For policymakers and businesses alike, understanding these dynamics is critical to making informed decisions and managing risk.

You can find out more about here

Key takeaways:

• • • The Strait of Hormuz crisis threatens a global recession — The effective closure of the Strait, which is being driven more by insurance withdrawal and risk perception than a physical blockade, has effectively halted roughly 20% of global petroleum flow. If this disruptions persist beyond 30 days, economic modeling points to overwhelming recession risk for major importing economies, with oil potentially reaching $100 to $200 per barrel depending on severity.

    • The world is facing an unprecedented dual-chokepoint shipping crisis — With the Strait of Hormuz effectively shut and the Houthis resuming attacks on the Suez/Bab el-Mandeb corridor, roughly one-third of global seaborne crude trade is compromised simultaneously. All five major container lines have suspended Hormuz transits, and the cascading delays will hit supply chains far beyond the Middle East, including those companies with no direct Gulf exposure.

    • Companies that act now will fare far better than those that wait — Supply chain disruptions propagate on a lag of two to four weeks, meaning that the pain from today’s anchored tankers hasn’t arrived yet. Businesses should immediately audit their Gulf supply chain exposure, secure alternative freight capacity before it disappears, and prepare for a significant escalation in cyber threats from Iran and its allies.

Just days into the largest military operation undertaken by the United States since the 2003 Iraq invasion, the potential closure of the Strait of Hormuz has triggered the most severe energy supply disruption since Russia’s invasion of Ukraine. The conflict with Iran has removed roughly 20 million barrels per day of crude from global markets and sent oil prices to above $80 as of press time. The conflict’s trajectory over the coming weeks will determine whether the world faces a manageable price shock or a full-blown recession.

How we got here

The February 28 strikes order by President Donald J. Trump followed weeks of negotiations around Iran’s nuclear program that ended without a deal just two days before the strikes began. Administration officials have since acknowledged that the timing was driven in part by Israel’s plans to strike Iran independently.

Iran’s Supreme Leader Ayatollah Ali Khamenei, age 86, along with his defense minister Brigadier General Aziz Nasirzadeh, the commander of the Islamic Revolutionary Guard Corps (IRGC), and approximately 5 to 10 senior Iranian officials, died in the opening salvo of the operation.

Even after the destruction of a large segment of Iran’s senior leadership, the war continues on. Hezbollah launched a rocket strike on March 3 with Israel initiating a ground invasion of Lebanon in response. Iran’s retaliation has extended across the region as drone and missile strikes have hit targets across Qatar, the United Arab Emirates (UAE), Kuwait, and Bahrain, while the US Embassy compounds in both Kuwait and Riyadh have been struck directly. Six American service members have been killed thus far.

Indeed, the regional escalation has given Iran the context to play one of the most feared cards in its arsenal — and one with the potential to throw an already fragile global economy into recession.

On March 2, Iran closed the Strait of Hormuz, vowing to attack any ship trying to pass through the strait. An European Union official said that began receiving VHF radio transmissions from the IRGC stating that no ships would be permitted to pass.

Ship-tracking data based on the MarineTraffic platform showed at least 150 tankers — crude oil and LNG vessels (those specifically built to transport liquefied natural gas — anchored in open Gulf waters. At least five tankers have been struck near the Strait, including one off Oman that was set ablaze, while the US-flagged tanker Stena Imperative was hit by two projectiles near Bahrain. On March 2, Marine insurers Gard, Skuld, and NorthStandard stated publicly they would effective March 5. One day later, four more of the 12 global insurance groups joined them, with London P&I Club, American Club, Steamship Mutual, and Swedish Club announcing similar moves.

Energy markets absorb the most severe supply shock in years

In light of 20 million barrels per day of crude being frozen out of the global markets, brent crude surged as much as 13% before settling at $83 per barrel, while WTI crude jumped to $76 at press time — both at their highest levels since the June 2025 conflict. Further, that several major oil companies and trading houses suspended shipments through the Strait as soon as strikes began.

“Unless de-escalation signals emerge swiftly, we expect a significant upward repricing of oil,” said , head of the company’s geopolitical analysis, citing the immediate impact of halting of traffic through Hormuz. UBS analysts warned clients that a material disruption scenario could send brent crude above $120 per barrel, while Barclays projected $100 per barrel as increasingly plausible. Just twenty-four hours later, that range has widened considerably. Goldman Sachs now models $120 to $150 per barrel in a prolonged war, JPMorgan sees $120 if the war lasts beyond three weeks, and Deutsche Bank’s worst-case approaches $200 if Iran mines the Strait.

OPEC+ announced a modest 206,000 barrel per day output increase for April, but as LeĂłn told Reuters, markets are now more concerned with whether barrels can physically move than with spare capacity on paper. If Gulf export routes remain constrained, additional production provides limited immediate relief.

Global shipping faces an unprecedented dual-chokepoint crisis

While the energy supply shock is severe, it is only one dimension of a broader shipping disruption that has no modern precedent. For the first time in history, two of the world’s most critical maritime chokepoints are simultaneously compromised — the Strait of Hormuz and the Suez Canal/Bab el-Mandeb corridor, the latter under renewed threat after the Houthis announced they would resume attacks. Together, these two passages that connect Asia to Europe handle roughly one-third of the global seaborne crude oil trade and a significant share of containerized cargo. All five major container lines — Maersk, MSC, CMA CGM, Hapag-Lloyd, and COSCO — have suspended or halted transits through Hormuz and are rerouting via the Cape of Good Hope, adding weeks to voyage times.

The practical consequences for businesses extend well beyond higher shipping costs. The rerouting absorbs vessel capacity that was already stretched thin, meaning delays will cascade across trade lanes that have no direct connection to the Middle East. Companies that source components from Asia, ship finished goods to Europe, or depend on just-in-time inventory models should expect weeks — not days — of compounding delays.

Dubai, Doha, and Abu Dhabi — three of the world’s busiest air cargo hubs — are also facing disruptions, meaning the usual fallback of shifting urgent shipments to air freight is itself constrained. For affected companies, the window to secure alternative routing and lock in freight capacity is closing fast; those companies that wait for the March 5 insurance deadline to pass before acting will find themselves competing for scarce logistics options in a market where scarcity is already the defining feature.

3 scenarios and their divergent economic consequences

There are three most likely scenarios as this conflict unfolds, each with their own challenges and potential outcomes:

Scenario 1: Rapid regime collapse and quick normalization

Credible but unlikely in the near term, this scenario banks on the fact that Iran’s opposition is real — the protest movement of the last year or so has been the largest since 1979, and the regime’s legitimacy has been severely eroded by economic collapse and violent crackdowns. If internal collapse occurs, energy markets would normalize rapidly.

Brent crude would likely retreat to the $70 to $75 range within weeks as the primary disruption drivers — fear and insurance withdrawal, not physical blockade — dissipates. Tanker traffic would resume once insurers restore war-risk coverage.

Scenario 2: Prolonged conflict, Strait mostly reopened

This is the most likely outcome based on available analysis. Energy Aspects founder Amrita Sen said she expects oil prices to , noting it is unlikely Iran could maintain a complete closure. She assessed that the US and Israel possess the military capability to neutralize Iran’s ability to fully shut down the Strait but acknowledged that sporadic attacks on individual vessels are far harder to prevent.

This is the critical distinction: A full blockade is unsustainable against US naval superiority, but one-off tanker strikes create an insurance and risk environment that chills commercial traffic almost as effectively. In this scenario, oil prices remain very high before gradually declining as the U.S. Navy establishes escort operations and mine clearance, with an open question revolving around insurance companies’ willingness to insure floating barrels of flammable liquid sailing into an open warzone, even under escort. Asian refiners face weeks of constrained supply access.

Scenario 3: Sustained Strait closure for weeks or months

This is the catastrophic tail risk. Roughly 20% of global petroleum consumption and significant LNG volumes moves through the Strait daily, representing an estimated $500 billion in annual energy trade. Saudi Arabia’s East-West Pipeline and the UAE’s Fujairah pipeline offer bypass capacity, but these routes can absorb only a fraction of the 15 million barrels per day now stranded.

Capital Economics estimated that a sustained $100 crude price could add to global inflation. And UBS warned that if disruptions extend beyond three weeks, Gulf producers could exhaust storage capacity and be forced to shut in output, pushing brent crude into the $100 to $120 range if not substantially higher if a significant blockade is held for a long duration.

The economic modeling is unambiguous, however, showing that disruption beyond 30 days carries overwhelming recession risk for major importing economies.

What companies should be doing right now

Of course, the economic impact of this conflict will not arrive all at once. Supply chain disruptions propagate on a lag — the tankers anchored outside Hormuz today represent goods and energy that won’t arrive at their destinations in two to four weeks. Companies that wait until these shortages materialize before they develop contingency plans will find themselves competing for scarce alternatives alongside everyone else. The window to act is now, not when the pain becomes visible.

Audit your supply chain exposure immediately

Any inputs, components, or raw materials that originate from or move through the Persian Gulf are at risk — and that extends well beyond oil. For example, one-third of global fertilizer trade passes through the Strait of Hormuz, meaning agricultural and chemical supply chains face disruption as well.

Business leaders should identify their companies’ Tier 1 and Tier 2 suppliers that have Gulf exposure, assess existing inventory buffers, and begin conversations with alternative suppliers before demand for those alternatives spikes. And companies with operations dependent on Middle Eastern air hubs — such as Dubai, Doha, Abu Dhabi — should assume they’ll face weeks of disruption to business travel and cargo routing and therefore plan accordingly.

Prepare for a serious escalation in cyber threats

Iran and its allies — including Russia, which has condemned the strikes and has well-documented cyberwarfare capabilities — have historically used cyber operations as an asymmetric response to kinetic military action. Indeed, there are signs already emerging that such actions are already taking place.

US critical infrastructure, financial services, and professional services firms are all plausible targets. The steps to prevent this are straightforward but urgent: Companies need to ensure that multi-factor authentication is enforced across all systems, verify that endpoint detection and backup protocols are current, brief employees on heightened phishing and social engineering risks, and confirm that incident response plans are not just documented but actually ready to be exercised.

The cost of preparation is negligible; the cost of a ransomware attack or data breach during a period of global economic stress is not.

Peering through the fog of war

As the conflict’s economic aftershocks move from risk to reality, the companies that act decisively now by diversifying supply chains, securing logistics, and hardening defenses will not just weather the disruption, but emerge more resilient whatever the outcome.

You can find out more about here

One concern over these new regulations voiced by compliance professionals is the lack of education on the requirements. This concern stems from a lack of widespread education and information on the new rule. For those enterprises with dealings in the US or those owned by US citizens, a beneficial ownership filing seems rather simple and like an obvious next step. However, this becomes more complicated in cases in which the company is formed in another country, or the owners are based there.

Most individual owners in that situation may not be accustomed to providing personal identifying information, and indeed, may be shocked when they realize how many individuals are considered beneficial owners under the new rule, despite at times being only tangentially related to the enterprise. The persons responsible for filing the report are often concerned about how they are going to get the correct information.

, a partner at the global law firm of Holland & Knight, points out one of the major issues in this situation is the complexity. “Cross-border legal structures designed to achieve tax efficiency and legal protection tend to be quite complex, so foreign investors need to move quickly and confidentially to determine how to comply with this new obligation to avoid hefty fines and criminal exposure, while preserving as much privacy as the law permits,” he said.

Arista noted that in his practice he has been proactively letting those clients with complex situations know what they would need to do in order to comply. Not every attorney is that proactive, and it is unclear how foreign beneficial owners will learn of this new requirement if they don’t have a relationship with a US-based law or tax firm.

“International private clients who are beneficial owners of companies in the US need to rush their legal planning to completion to preserve privacy without incurring hefty penalties and criminal exposure,” Arista noted. “This advice is both prudent and necessary.”

Five necessary steps

In such a complex situation, there are five basic steps that need to be taken by those enterprises concerned with compliance with the new rule:

1. 1. Consult with an experienced attorney that has expertise with the type of enterprise in question.

1. 2. Establish attorney/client privilege with that lawyer, making sure your business information remains confidential.

1. 3. Have the lawyer analyze the corporate structure and make a beneficial ownership determination.

1. 4. Collect the appropriate information from all individuals who must be reported as beneficial owners.

1. 5. File the report on time to avoid penalties.

While this might seem simple, each step requires time and care to ensure accuracy. Indeed, some of the steps have some delicate intricacies to them. For example, it’s crucial to make a clear delineation of who the client actually is – the individual or the company – and that determination should be made early.

Further, most law firms usually are not in the business of ongoing compliance, and filing into the BOI Reporting Database is not a one-time thing. The filing creates an ongoing obligation to update the information as any changes occur. Some lawyers will file, of course, but there must be a very close relationship with the client to ensure ongoing compliance.

“I don’t think the complexity of these entities will go away, as their complexity reflects the complex estate planning and tax laws.”

— Ed Arista

International filings for complex enterprises

In looking at the trajectory of international enterprises, Arista had a very intriguing thought. “I don’t think the complexity of these entities will go away, as their complexity reflects the complex estate planning and tax laws,” he explains. “I do think that the companies, banks, and family offices, and maybe even accounting firms will have systems in place to gather information more automatically at the beginning of the relationship and have a system to continually follow up if anything changes. Everyone involved in the filing of a beneficial owner report must have done their due diligence.” In short, the new normal for these complex enterprises will require a bit more meticulous behavior.

In the event that an attorney is not filing for a complex enterprise, they might be looking to their tax professionals to help, especially those that often deal with the IRS and the US Department of Treasury.

“Accountants are filing Foreign Bank Account Reports with [the Treasury Department’s] Financial Crimes Enforcement Network, which contain financial information. However, beneficial owner reports do not contain any financial information,” Arista says. “What they do contain is the personal data of the individuals who meet the legal definition of being beneficial owners, which makes it more complicated.” Also, an extension to the compliance filing can put tax professionals in the deep end of murky waters.

The American Institute of CPAs has taken the position (at least for their malpractice insurance benefits) that filing these reports may be considered an unauthorized practice of law. This is not a determination that was confirmed by any state bars, but it does give pause to boutique tax & accounting firms about what actions are appropriate. Some accountants in smaller firms may do it, but midsize or large firms are not likely to take such a risk.

Arista, like most attorneys, says he expects that over the next 6 to 12 months, there will be a lot of scrambling to update some corporate structures, especially around who has to be involved in the legal structure. Some entities could be split up because they don’t want to share information within the whole group. For example, a family business may split into separate entities in order to provide more privacy.

After the issuance of a summary judgment in an Alabama federal district court in , businesses are questioning their obligation to comply. And there are also concerns over the constitutionality of the BOI Reporting Database. This ruling has already been appealed, and attorneys like Arista believe reporting companies should continue gathering information for timely filing and comply with CTA’s reporting requirements.

Over the next year, the legal battle over the constitutionality of the database will move though the appropriate judicial and regulatory channels. After the legal battle is completed, businesses will be left with this additional requirement as the time continues to tick away for entities to comply with this new standard. With more than 32 million current enterprises – along with 5 million new ones estimated to be created each year – being proactive is going to be key. While 2024 will be an important year in this regard, it will also serve as the guide for years to come.

You can find more of Ed Artista’s here.

However, as sanctions are applied more often and extended over longer periods of time, it is unclear if the sanctions actually have the desired impact on the behavior in question or if the harms ultimately outweigh the good.

The term sanction is often used in a way that would lead one to believe it is just a single action, like stopping trade between businesses. On the contrary, sanctions are generally issued as programs based on the nature of the offending action and the current diplomatic status of the targeted country.

There are seven basic types of sanctions: economic, diplomatic, military, sports, individual, environmental, and United Nation Security Council (UNSC) sanctions. Any of these sanctions can be used to deter or reprimand countries for anything from human rights violations to smuggling drugs or human trafficking. The more egregious the action (or inaction) by the offending country, the more countries and organizations that will utilize their own sanctions program. The idea is that when a country or its economy is isolated by sanctions, it cannot afford to continue the behavior that led other countries to enacting these measures.

Narges Bajoghli, anthropologist and assistant professor of Middle East Studies at Johns Hopkins University’s School of Advanced International Studies, expounds on the two major ways sanctions affect change. “Either they’re supposed to put enough pressure on the regime and targeted state to change its behavior, or they’re supposed to put enough pressure on society to rise up against the state to then topple the state,” Bajoghli explains, adding that in either example, sanctions serve as a passive, but coercive tactic.

“Either [sanctions are] supposed to put enough pressure on the regime and targeted state to change its behavior, or they’re supposed to put enough pressure on society to rise up against the state to then topple the state.”

— Narges Bajoghli

Agathe Demarais, in her book  stated: “The reality is that sanctions are sometimes effective, but most often not, and it is hard to accurately predict when they will work… on one end of the response spectrum, it could make a strongly worded statement, which might feel like too little, and on the other end of the diplomatic spectrum, you have military interventions, deadly, costly, and unpopular. Sanctions fill the void in between these two extreme options.”

Choosing the type of sanction

The U.S. Treasury Departments’ administers and enforces sanctions programs against target groups. The two main types of sanctions lists maintained by OFAC are the Specially Designated Nationals (SDN) list, a list of individuals and companies in countries targeted by US sanctions; and the Consolidated Sanction Lists, which contain details about restricted parties not covered by the SDN list. In the US, these list help to track the sanctions programs and prevent people from unwittingly doing business with sanctioned actors. They also hold financial institutions accountable and remove financial advantages from doing business with these entities and individuals.

Two of the most recent examples of sanctions are the ones levied against Iran and Russia. These sanctions programs impact the countries and some individuals or entities doing business with or profiting from these countries, whether directly or indirectly. However, these are far from the only active sanctions enacted by the US at this time. The US currently has 32 active programs that sanction organizations or countries (and the individuals associated with them) for infractions like their support of terrorism, narcotics trafficking, weapons proliferation, or human rights abuses, according to the .

To illustrate, the program levying sanctions against Cuba is one of the oldest used by the US, with some iteration of the sanctions being active since 1962. The longevity of Cuban sanctions program suggests it is not achieving its intended goals; moreover, there are concerns that the sanctions actually limit humanitarian aid into the country. By almost any measure, the US sanctions program directed at Cuba has questionable effectiveness, and the longer the program continues, the more it requires review and consideration.

While the sanctions program against Russia was initiated more recently after that country’s invasion of Ukraine in February 2022, the sanctions have not fully curtailed the current military action it sought to cease. The impact of these sanctions has not been as immediate as originally hoped, even though cutting certain aid and restricting trade creates some of the intended immediate reactions. However, this is an example in which the sanctions program appears to be becoming more effective as other nations and multinational companies join in to enact their own sanctions.

It is important to note that the more countries that join in on a sanctions package, the more effective it will be. If countries or humanitarian organizations decline to joins a sanctions program, their continued contribution to the target country’s economy softens the blow to the population and the government, making it more difficult to create a situation that forces change.

You can learn here.

The extent of these sanctions has reached a point where there is now little scope for new measures. The focus now has shifted to tightening the implementation of those measures that are in place.

This means tougher regulation and enforcement, both to prevent deliberate evasion and to punish inadvertent breaches due to inadequate compliance. Businesses that have not already done so would be well-advised to review their procedures to ensure that they are not found on the wrong side of the law.

Tougher regulations

The Russia sanctions are being coordinated at the level of the G7 states (the U.S., Canada, the U.K., Germany, France, Italy, and Japan) as well as the E.U., which are cooperating to track down and freeze the assets of Russian and of the Russian state until Russia pays for the damage it has caused to Ukraine.

G7 states are also coordinating bilaterally, for example, through the designations by the U.S. and the U.K. of professional enablers suspected of helping Russian oligarchs hide their assets.

Reporting obligations have been broadened. In the U.K., relevant firms — not only banks, but others such as auditors, estate agents, and metal exchanges — must inform the Office of Financial Sanctions Implementation (OFSI) if a customer is a known or suspected designated person and provide any information they have about the designated person and any funds or economic resources held on behalf of the customer.

The E.U. has similar measures, but these apply to all persons and now require reports on assets that have not been properly frozen and on the assets of designated persons subject to any move or change in the two weeks preceding their designation.

Tougher enforcement

E.U. and U.K. penalties historically have been significantly lower than those in the U.S., and to date, in 2023, the United States has imposed 10 fines totaling more than $557 million.

By contrast, the U.K. total for 2022 was £45,000 and there had been none in 2023 until August, when a . There are, however, clear indications of a tougher approach being developed.

In the U.K., OFSI doubled its staff in 2022, and a breach of financial sanctions is now a strict liability offense, meaning that a person may be fined even if they did not know or have reasonable cause to suspect that they were in breach of sanctions.

OFSI may publicly name and shame organizations that have breached sanctions, potentially inflicting serious reputational damage.

The E.U. has appointed a special envoy to stop sanctions evasion and has issued  expected to be taken by firms to prevent circumvention. Sanctions violations now constitute an E.U. crime, alongside terrorism, money laundering, and corruption. The E.U. also is working on a  to stiffen penalties for sanctions violations to include up to five years in prison and, for companies, exclusion from access to public funding, disqualification from business, placement under judicial supervision, judicial winding-up, or a fine of up to 5% of total group worldwide turnover.

This tougher stance is also reflected in a stricter approach at the E.U. member state level. In 2022, for example, Germany adopted two Sanctions Enforcement Acts and established a Central Office for Sanctions Enforcement. At least 150 cases were reportedly under investigation there, and it is likely that this number has since increased significantly.

Tougher compliance

With governments gearing up, businesses need to ensure that their compliance mechanisms are fully effective and proportionate to their level of risk. Key steps include:

• • • rigorous screening for on-boarding and continuing relationships with business partners, checking not only the counterparties but also their major shareholders, directors, and senior managers to determine whether the counterparty is owned or controlled by a designated person;
    • identifying which jurisdictions apply to their transactions and whether U.S. jurisdiction applies — this includes not only transactions in U.S. dollars, but also those routed through U.S. servers or involving direction, facilitation, or back-office support by U.S. persons;
    • checking on the use of third-party intermediaries and trans-shipment points for Russia and Belarus (for example, China, Armenia, Turkey, and Uzbekistan) for possible sanctions evasion;
    • if conducting business under a sanctions license or exception, ensuring that the conditions (such as reporting and recordkeeping) are met;
    • keeping up to date on sanctions developments because the sanctions measures against Russia have evolved very rapidly, with new measures announced and in force the same day, sometimes without notice;
    • fulfilling all reporting obligations;
    • determining whether other financial or trade sanctions may apply to a proposed transaction, such as granting new loans, dealing in securities, making new investments, and exporting or importing sanctioned goods and services;
    • ensuring that staff have up-to-date guidance and training, and that robust internal reporting and audit procedures are in place; and
    • checking that contracts can be suspended or terminated without liability or serious risk of judicial challenge if sanctions prevent their performance.

Having effective compliance policies not only helps prevent violations but also, if one should occur, helps offset the risk and size of a penalty, as well as the related reputational damage. In the coming months, there is likely to emerge a growing list of businesses that failed to heed the warnings and suffered severe consequences.

The contents of this article do not constitute legal advice and are provided for general information purposes only.

The remarks, made recently at , are far from surprising, given the flood of targeted sanctions imposed by governments worldwide since Russia’s February 2022 invasion. And the fact that Russian oligarchs have sought to shield their assets and evade sanctions by assigning family members, associates, and others as nominee owners only has added to the work banks must do.

During early examinations, regulators found that banks were struggling to comply with “regional-focused sanctions” imposed by the United States Treasury’s Office of Foreign Assets Control (OFAC), said Lisa Arquette, associate director, anti-money laundering (AML) and cyber fraud branch with the Federal Deposit Insurance Corporation, and speaker at the ACAMS conference. “Those became a little bit more difficult for institutions to implement at the beginning,” Arquette noted. “But I think they’ve worked through that, and OFAC as a partner to financial institutions has done a lot of outreach.”

Arquette explained that it was vital that when there is a change in beneficial ownership of a legal entity customer, banks should “make sure you have a process to identify that person or those people so that they can also be scanned” against sanctions lists. “There are lots of moving parts related to a lot of commercial entities and legal entities — intentionally — and it’s difficult to know who to add to the scanning process to make sure that you’re not processing transactions that should be blocked or rejected.” she said.

“Malicious actors, threat actors, intentionally may change that information, which is why your diligence is so critically important.”

Stretching ‘finite resources’

As the deluge of Russia sanctions came in wave after wave, banks with “finite resources” needed to devote “an incredible amount of time and energy [to] sanctions compliance,” said speaker Koko Ives, manager,  AML compliance section in the Division of Supervision and Regulation at the Federal Reserve Board. “The pace, the number, the complexity, of Russia sanctions was really unprecedented,” Ives said.

“The global response with E.U., U.S. and U.K. coordination but not identical sanctions, made it particularly difficult for globally operated institutions to navigate all those sanctions, and that was done well,” Ives said. “I guess their existing sanctions programs were pretty strong because that was surprisingly well done in an incredibly time-intensive and difficult [environment].”

The Fed is examining “with the same frequency as before” and “nothing has changed with our examination process,” she added. “Any sort of [bank compliance] issues are garden variety… related to not being able to update software for [sanctions lists] timely enough so there might be something that slips through, or misunderstanding of [OFAC] general licenses, that kind of thing that causes compliance issues.”

Most banks have done ‘really good job’

Another speaker, Donna Murphy, deputy comptroller for compliance risk with the Office of the Comptroller of the Currency (OCC), said she “would echo” what Arquette and Ives said and added that “institutions spent a tremendous amount of resources dealing with those very fast-moving and complex sanctions programs, and in general did a really good job.

“Where we’ve seen issues is where the sanctions programs were not dynamic enough and sometimes maybe didn’t have the capability — at least initially, and it had to be built — to deal with targeted, regional sanctions as opposed to country sanctions, or the complex and evolving structures of some of the sanctioned entities,” Murphy said.

Changes in beneficial ownership or control of legal entities “are very difficult to keep up with as sanctions are evolving and the entities are evolving,” she explained. “It is challenging and needs a lot of focus. I think in general the institutions have done a very good job of implementing these really critical programs for our national security.”

Murphy said the OCC has “spent a lot of time focusing on providing as many resources as possible to our examiners.”

She noted that sanctions have not always been a major focus of OCC supervision, but “we’ve really tried to make sure that our examiners understand these evolving and changing sanctions, and [that] we can provide the support for the exams and the institutions.”

Ives added that some Fed supervised institutions have taken “a forward-looking view of the next geopolitical target.

“Some of the institutions are already developing potential strategies if there are going to be new sanctions in a new part of the world, how might that affect the supply chain, assets that could get hung-up, parties you can no longer transact with, and how that may impact their operations,” Ives noted.

Using interagency regulatory guidance

On the topic of third-party risk management, both Arquette and Ives noted that updated interagency regulatory guidance is imminent and could be released any day. Use of third parties by financial institutions is increasing, Ives added. “It can be incredibly beneficial, especially in the fintech area where [banks] may need the expertise,” she said. “But how is [suspicious activity report] information going to be shared? Do you have what you need to be on the right side of sanctions compliance?”

The intent of the updated interagency guidance is to make consistent federal banking agency guidance on third-party risk management “to make it manageable and holistic” for financial institutions, Ives said.

 available on the  channel, we speak to Suzanne Offerman, Senior Product Manager at ¶¶ŇőłÉÄę, about how this current environment in which companies that import and export goods must operate has become an ever-evolving puzzle to solve with shifting paradigms that some might say are moving at speeds not previously experienced before.

Of the companies surveyed in the Global Trade Report, many reported more significant concerns arising around retaliatory taxes and fees for those companies in the United State and the United Kingdom. In fact, more than 60% of US companies and about 40% UK and European Union companies surveyed said tariffs were greatly impacting their businesses. At the same time, companies doing business in Asia saw supply chain risk as a significant concern.

Given changing sanctions regimes and regulations, companies exporting from Asia must exercise caution in selecting with whom they do business. Indeed, companies utilizing Asian vendors in their supply chain are now required to know more than before about the identity and labor practices of their suppliers.

Talent & trade

To keep pace with the new and evolving landscape, companies are looking for new and additional trade management professionals to increase their available pool of expertise, skills, and technology prowess. In regard to talent, Offerman says in the podcast that the role and requirements of a trade manager are quite different now than they were when she started in the industry.

You can access , featuring a discussion about the recent , here.

In the podcast and in the Global Trade Report, Offerman points out that there is a list of must-have skills for today’s global trade managers. “The technical know-how of an engineer, the legal sense of an attorney, the carefulness of an accountant, the organizational skills of a project manager, the business acumen of an executive, the cultural awareness of a diplomat, and the communication skills of a leader that says a lot — and that’s one that’s supposed to be one person,” she explains, adding that this description underscores the importance of this role and how global businesses are coming to rely on trade managers to mitigate and manage more of the day-to-day operations of trade.

As the podcast explains, this situation has left global businesses challenged as to where to find the right talent and skillset to fill these roles. Businesses have looked at consulting firms, colleges, and even competitors to find the right professionals, but that has proven daunting.

Offerman explains that historically, someone got into global trade management by coming up the ranks within a company’s supply chain, working at a warehouse and then being promoted while receiving hands-on training throughout their employment. Now, universities are offering undergrad and graduate global trade classes (or eLearning classes for working professionals), alongside the study of such subjects as trade law, for example.

The technology solution

In regard to technology, the Report showed that more than 80% of the companies surveyed said they need technology to solve many of the issues they face today — a fact made all the more clear by recent events. “Because of the severe disruptions in supply chains and international trade, companies realized they couldn’t get their goods just from sourcing from one country,” Offerman says, adding companies learned they needed to move production to another country in the region or closer to their own home base. Thus, companies were pressured to come up with  for specific regions.

However, Offerman says in the podcast, this may not be the best solution, and she urged companies to move to a holistic approach by using technologies that cover the entire supply chain, not just specific problem areas or regions.

Indeed, the need for the right technology goes far beyond increasing efficiencies — it’s needed to keep pace with governments that are increasingly leveraging more technology in order to gather more information and collect taxes and tariffs. “Companies cannot focus on only one aspect, talent, or technology but must be intentional at all aspects of trade in this way,” Offerman notes. “It is talent plus technology that get you to the finish line.”

In fact, as the podcast demonstrates, one will drive the other. To compete for the necessary talent, the technology that companies need to utilize will be a factor in attracting the very type of trade management professional with the skills they need. No one wants to work on outdated software or equipment, of course, especially when it can impact their quality of work. Therefore, any investment companies make in trade solution software that keeps them in compliance will also ease additional work processes and drive further efficiencies.

Trade compliance rules and work will not get less busy, Offerman explains in the podcast, it’s that businesses will grow and evolve along with the regulatory space. And that means that companies must enable their top professionals with the right technology in order to stay compliant and competitive.

For many, these sanctions have meant that they have had to expend considerable resources to know their customers better to keep doing business with unsanctioned parties in Russia. Some financial institutions have opted to “de-risk” and avoid the country entirely, exiting account relationships and disentangling themselves from funds transfers tied to Russia.

 available on the  channel, we speak to the Rachel Wolcott and Brett Wolf of ¶¶ŇőłÉÄę Regulatory Intelligence and the co-authors of a new white paper, The fog of sanctions: Global banks & businesses face unprecedented challenges in applying measures against Russia.

In the podcast, we examine the evolving sanctions environment in several countries, including the United States, the United Kingdom, and the European Union. In addition, the authors also look at the bumpy road to cooperation among allies as they attempt to apply the sanctions that would arguably have the greatest impact.

You can , featuring a discussion about the “Fog of Sanctions” white paper, here.

The authors describe how today’s sanctions environment imposed on Russia is one of the most complex economic punishments ever meted out by the United States, EU, UK, and other nations. And while the U.S. Treasury has been pushing out reams of guidance, other governments have offered little clarity, leaving an information vacuum and major compliance challenges. Not surprisingly, legal, regulatory, and reputational risks faced by banks and businesses have skyrocketed, they explain.

In the podcast, Wolf and Wolcott examine the ways in which many countries are addressing gaps in their anti-money laundering and countering the financing of terrorism (AML/CFT) efforts exposed by the sanctions. The invasion and resulting sanctions have raised scrutiny of private fund managers such as hedge and private equity funds too. With some Russian oligarchs known to be prominent investors in such funds (and some oligarchs subject to sanctions for their ties to Russian President Vladimir Putin), the need to know who is investing in a fund and what it means for compliance are challenges that virtually all private funds face, they add.

The podcast delves into other complex challenges with which governments and global banks are dealing because of the Russian sanctions. These challenges — beyond the application and execution of the sanctions themselves — include everything from the rise of so-called reputation launderers who are working with Russian oligarchs to help them evade the sanctions or obscure their assets, and the problem of asset flight as more global players (both Russian and not) move their assets out of the oversight of regulatory agencies or sanction officers.

Finally, the podcast notes another significant complication stemming from this situation: Many financial services firms within the international finance and trade sectors are finding it difficult to hire financial crime compliance professionals to help meet added demands. In fact, the state firms’ financial crime compliance teams remain in worrisome condition as compliance teams find themselves lacking the resources and the talent to address fully the burdens that the new sanctions regime.

Indeed, those compliance professionals who find themselves short of desperately needed funding may have to make their case to their boards to provide additional resources to beef up compliance teams, the authors argue.

You can access a full copy of the white paper, The fog of sanctions: Global banks & businesses face unprecedented challenges in applying measures against Russia, here.

The sanctions have meant that many of these banks and businesses have had to expend considerable resources on getting to know their customers better so they can keep doing business with unsanctioned parties in Russia; while other financial institutions have opted to “de-risk” and avoid the country entirely, exiting account relationships and disentangling themselves from funds transfers tied to Russia.

In a new white paper, , the TRRI team examines the evolving sanctions environment in several countries, including the United States, the United Kingdom, and members of the European Union. In addition to examining what each country is doing by itself and in concert with others, this paper also looks at the troubling lack of clarity and cooperation among allies in properly applying sanctions against Russia on a global basis that would arguably have the most impact. (Besides Russia, Belarus and Russian-occupied areas of Ukraine also have been targeted for sanctions.)

You can access a full copy of the white paper, , here.

Indeed, Western sanctions against Russia following its invasion of Ukraine are some of the most complex economic punishments ever meted out by the United States, EU, UK and other nations. While the US Treasury Department has been pushing out reams of guidance, other governments have offered little clarity, leaving an information vacuum and major compliance challenges. As the paper explains, varying expectations among nations and a widespread dearth of guidance are making compliance with the unprecedented complexity of Russia sanctions difficult and costly. Not surprisingly, legal, regulatory, and reputational risks faced by banks and businesses have skyrocketed.

Meanwhile, US bank regulators have publicly stated that their examiners will be looking into compliance with sanctions, with the US Treasury Department continuing to offer guidance aimed at helping financial institutions avoid compliance pitfalls. Further, the EU and UK have issued broad sanctions and prohibitions on corporate services, while drawing criticisms that they have failed to provide clarity regarding regulatory expectations.

The paper also looks at the ways in which many countries are addressing gaps in their anti-money laundering and countering the financing of terrorism efforts that have been exposed by the sanctions. The invasion and resulting sanctions have as well raised scrutiny of private fund managers such as hedge and private equity funds.

Varying expectations among nations and a widespread dearth of guidance are making compliance with the unprecedented complexity of Russia sanctions difficult and costly.

With some Russian oligarchs known to be prominent investors in such funds — and some oligarchs subject to sanctions for their ties to Russian President Vladimir Putin — the need to know who is investing in a fund and what it means for compliance are challenges that virtually all private funds face.

Other complex and steep challenges with which governments and global banks are dealing because of the Russian sanctions are also detailed in the paper. These challenges — beyond the application and execution of the sanctions themselves — include everything from the rise of so-called reputation launderers that are working with Russian oligarchs to help them evade the sanctions or obscure their assets, and the problem of asset flight as more global players (both Russian and not) move their assets out of the oversight of regulatory agencies or sanction officers.

Another significant complication is that many financial services firms within the international finance and trade sectors are finding it difficult to hire financial crime compliance professionals to help meet added demands. In fact, the state of financial services firms’ compliance teams remains in worrisome condition as compliance teams find themselves lacking the resources and the talent to fully address the burdens that the new sanctions regime has place upon them.

Indeed, compliance professionals who find themselves short of desperately needed funding may wish to share this reality, and this paper, with their boards as they push for additional resources.