A transaction can be legal under corporate law, properly documented for tax and commercially agreed by both parties — and still be prohibited, frozen or require authorisation because of sanctions.
That is the sense in which sanctions operate like a parallel legal system.
The phrase is a metaphor, not a claim that sanctions exist outside law or without review. Sanctions are themselves legal instruments, with defined authorities, scope, exemptions, licences and procedures.
The practical point is that they ask a different question from tax law.
Key takeaways
- Sanctions can independently block assets, counterparties or transactions even when the underlying business is otherwise lawful.
- A name search is not enough. Ownership, jurisdiction, goods, services and the legal nexus can all matter.
- Sanctions and private de-risking must remain separate. A bank may refuse a lawful transaction because its risk appetite is narrower than the legal prohibition.
What changed after 2022
The response to Russia’s invasion of Ukraine dramatically expanded the practical significance of sanctions for ordinary international businesses.
The EU, United States and other jurisdictions added extensive designations, transaction restrictions, trade measures and sector-specific controls.
The architecture continued to evolve. In July 2026, the EU adopted its twenty-first sanctions package against Russia, extending measures across financial services, crypto, energy and export restrictions.
Iran and other programmes illustrate a broader point: there is no single universal sanctions rulebook. Each programme has its own legal basis and perimeter.
How sanctions work
A sanctions analysis can begin with a listed person, but it cannot always end there.
OFAC explains that blocking can extend to property and interests in property of blocked persons. Under its 50 Percent Rule, an entity owned directly or indirectly, individually or in the aggregate, 50% or more by one or more blocked persons can itself be blocked even if not separately named.
EU regimes have their own legal tests and instruments.
Other measures may restrict sectors, exports, services, vessels, financial transactions or dealings with specified territories.
The correct question is therefore:
who is involved + what is being done + what is being transferred + where + under which legal nexus?
Why this is separate from tax
Tax law generally asks how income, gains, persons or entities should be classified and taxed.
Sanctions ask whether a transaction, dealing or asset relationship is permitted at all under a particular restrictive-measures regime.
A perfectly calculated tax position does not authorise a prohibited payment.
A company incorporated in a reputable jurisdiction does not neutralise a sanctioned beneficial owner.
The strongest countercase: sanctions are not lawless
Sanctions regimes include legal authority, exemptions, licences and review procedures. OFAC publishes general and specific licences. The Council of the EU describes procedures for periodic review of listings, and listed persons and entities may challenge relevant acts before EU courts.
Sanctions can be far-reaching, but that does not make them a substitute for law.
They are part of law.
Sanctions versus private de-risking
A payment can be legally permissible and still be rejected by a bank.
The institution may have a narrower risk appetite, correspondent-bank constraints, inadequate information or a policy against certain exposures.
That is not automatically the same as saying “the law prohibits this customer”.
Conflating the two creates bad advice.
Scenarios, not forecasts
Sanctions can tighten, through additional listings or prohibitions.
They can undergo selective relaxation, through licences, delistings or amended measures.
They can also become structurally persistent, surviving long after the event that initially triggered them.
The relevant evidence is legal: regulations, Council decisions, executive actions, licences, delistings and court judgments.
Practical consequences
International businesses need sanctions screening before execution, not after a payment fails.
That means understanding counterparties and beneficial ownership, identifying relevant countries and currencies, checking the goods or services involved and determining which legal systems touch the transaction.
Where exposure is material, legal advice may be essential.
Sanctions compliance is not a tax-planning add-on.
It is a separate permission layer over the transaction.
Sources
- OFAC, Consolidated Frequently Asked Questions: https://ofac.treasury.gov/faqs/all-faqs
- Council of the EU, 21st package of sanctions against Russia, 23 July 2026: https://www.consilium.europa.eu/en/press/press-releases/2026/07/23/21st-package-of-sanctions-eu-hits-russian-energy-financial-services-and-crypto-hard/
- Council of the EU, Sanctions adoption and review procedure: https://www.consilium.europa.eu/en/policies/sanctions-adoption-review-procedure/
Disclaimer
This Insight is general information and is not sanctions or legal advice. Sanctions regimes change frequently and can depend on ownership, control, nationality, residence, location, goods, services, currency, counterparties and other legal nexus. Specialist current advice should be obtained before acting on a material sanctions question.
