Originally published by Thomson Reuters on Regulatory Intelligence on12-Jul-2024, written by
Denisse Rudich and Dr. Tristen Naylor

Amid growing geopolitical uncertainty, the G7 countries began their annual summit last month in Apulia, Italy. The G7 leaders’ focus remained on sanctions, with both direct and indirect references featuring heavily in this year’s summit communiqué.
The leaders met in the immediate wake of the European elections, which signalled the continuing growth of right-wing politics on the continent. While the right’s electoral fortunes solidified the stature of the summit’s host, Italian Prime Minister Giorgia Meloni, it shook the position of her French counterpart, President Emmanuel Macron, prompting him to call a snap parliamentary election, setting the scene for a potentially transformative French presidential election in three years’ time.
Macron’s gambit led to a crushing defeat of the far-right National Rally party but plenty of uncertainty remains in France. Across the Atlantic, with the looming U.S. election too close to call, the G7 met not knowing whether it would be their last before needing to brace for the return of Donald Trump.
The war in Ukraine topped the G7’s agenda for a third consecutive year, with Volodymyr Zelenskyy, Ukraine’s president, attending the summit on June 13 as a guest. In addition to reaffirming undivided support for Ukraine, the G7 reached a landmark agreement to use interest accrued from Russian assets frozen under G7 country sanctions to finance a $50 billion loan to help Kyiv continue defending
itself against Russia’s invasion.
If political trends hold, though, this may well be the last time the G7 voices unanimous resolve: a second Trump presidency will likely mean a withdrawal of U.S. support for both Ukraine and the NATO alliance and a major change in the sanctions landscape.

Ukraine
Addressing the conflict in Ukraine, the G7 signalled its continuing use of secondary sanctions and trade restrictions on industries and commodities being used to prop up Russia’s war. More specifically, the G7 committed to “raising the costs of Russia’s war by building on the comprehensive package of sanctions and economic measures already in place,” indicating the designation of additional persons
and entities as well as more complex sanctions measures.
In terms of targeting entities or individuals that facilitate sanctions circumvention by doing business with countries or legal and natural persons subject to sanctions, the G7 will focus on: financial institutions profiting from the conflict and those based in third countries that provide material support to Russia’s military and related industrial base and Chinese entities that facilitate the acquisition of goods used in Russia’s defence industry.
Regarding industries and commodities, the G7 said it would target energy sector revenues by taking steps to “tighten compliance and enforcement” of the price cap on Russian oil and targeting the metals industry.
Additional measures listed include the application of “innovative enforcement activities leveraging respective geographies” to target Russia’s shadow tanker fleet and deceptive shipping practices, including those facilitating such practices. This includes alternative service providers who operate networks that sidestep oil price caps. G7 leaders also committed to curbing Russia’s future energy
projects by disrupting its access to necessary resources. Firms should be aware that this could be a reference to critical minerals.
The G7 said it will limit access to their own financial systems by imposing “severe costs on all those who fail to immediately cease providing material support to Russia’s aggression,” accelerating enforcement action and promoting corporate responsibility. These measures could prompt legislation permitting higher fines and penalties in G7 countries that have been weaker on enforcement than the United States, which at the end of 2023 had imposed more than $1.5 billion in penalties through 17 enforcement actions.
The group further called out Russia’s seizure of more than 93 Western companies and $400 million in assets reported to have been
seized since February 2022.

Indo-Pacific
The G7 cited concerns about military activities in the East and South China Seas, the need for stability in the Taiwan Strait, increasing proliferation and human rights breaches.
While citing the need for constructive relations with China and urging it to promote peace and security, G7 countries said they would protect their own national security interests. This included efforts to “disrupt and deter persistent, malicious cyber activity” from China, which could lead to the sanctioning of state-sponsored actors and the protection of advanced technologies that could be misused to
threaten national security.-1

Measures could include a combination of sanctions, trade restrictions and embargoes. G7 countries further raised concerns about China’s “industrial targeting” and issued a request that China not apply export controls to critical minerals, which could affect energy markets.
The group warned about China’s activities in the Taiwan Strait, militarisation of the East and South China Seas and human rights breaches in Tibet, Xianjing and Hong Kong.
Leaders also denounced the repression of civilians by Myanmar’s junta and called for accountability for the “serious crimes” committed in the country. The G7 also called for all countries to stop providing arms and dual-use materials, including jet fuel.

Higher-risk countries
The G7 also listed numerous additional countries which could be subject to coordinated or unilateral sanctions by members and partner countries, such as Australia. Countries featured in the G7 warning include:
• Belarus: For supporting Russian aggression against Ukraine and ongoing human rights breaches.
• Haiti: Citing widespread violence and instability.
• Israel/Palestine: For continuing conflict and terrorist attacks.
• Libya: Calling for peace and stability
• Sahel: Citing terrorism and human rights breaches,
• Sudan: For human rights breaches
• Venezuela: For political, humanitarian and economic crises.
• Yemen: Citing Houthi attacks against Red Sea shipping.

Thematic sanctions
The G7 also focused on thematic sanctions against individuals and entities that facilitate the proliferation of weapons of mass destruction (WMD), cybercrime and child sexual exploitation.
G7 leaders pledged to prevent the proliferation, delivery and use of non-conventional weapons, rebuking several countries for developing WMD or the use of “irresponsible” nuclear rhetoric by countries such as Russia. They called out Belarus for supporting Russia’s deployment of nuclear weapons in Belarussian territory.
Iran was told to stop transferring ballistic missiles and other military equipment to Russia, cease its uranium enrichment activities and cooperate with the International Atomic Energy Agency (IAEA). North Korea was condemned for exporting weapons to Russia and its continuing development of ballistic missiles, with G7 countries committing to punish sanctions evasion and enforce United Nations
Security Council Resolutions. Lastly, the G7 cited severe consequences for the use of chemical, biological, radiological or nuclear weapons.
Turning to cybersecurity, the G7 leaders said they were determined to hold malicious cyber actors accountable for threats to national security, including actions “to impose costs on malicious actors” to tackle the rise in ransomware attacks.
In the area of child sexual exploitation, G7 leaders emphasised their “unwavering commitment” to address child exploitation and abuse in all forms and to dismantle organised crime networks. They called on the tech sector to prioritise the fight against “this horrific crime.”

Practical pointers for firms
Firms should be aware of countries, industries, commodities, clients and financial exposures that could attract additional sanctions so they can respond quickly to new measures.
Firms should also consider adding the above-listed countries to their list of higher-risk jurisdictions subject to enhanced due diligence and transaction monitoring. They must also remain aware of entities in neighbouring countries that are friendly to sanctioned targets, as well as countries known to facilitate sanctions circumvention, which could be subject to secondary sanctions.
In addition to having sanctions systems and controls in place, firms should ensure they are conducting frequent assurance testing for those policies, processes and technology tools to ensure they remain fit-for-purpose and are operating as intended to mitigate any risk of failure and subsequent sanctions breaches.
Lastly, firms should provide enhanced and tailored training about sanctions evasion to all staff operating in regions subject to sanctions and high-risk industries, such as energy, metals, defence and precious minerals. These industries pose an elevated risk for sanctions evasion and money laundering.

(Denisse Rudich, director of the G7 and G20 Research Groups (London) and CEO of Rudich Advisory, and Dr Tristen Naylor, deputy director of the G7 and G20 Research Groups and assistant professor of international politics and history at the University of Cambridge)