In the current era of an interconnected world economy, businesses involved in foreign trade are constantly faced with some of the most important issues there are —-sanctions and export control compliance. Indian firms, as they become more involved with expanding supply chains and markets globally are coming under closer scrutiny in terms of compliance with international sanctions regimes and export control systems. India has always followed an independent foreign policy, and also has its own regulation; yet Indian companies cannot be indifferent to the extraterri- torial effect of sanctions coming from powerful jurisdictions like US, EU or UN. The endangerment is not only legal, but to damage reputation, business exclusion and interference with the smooth operation of business.
“Sanctions are a foreign policy and national security tool, used by the government, that can have a major impact on trade and commercial activity by both companies and individuals,” said OFAC. Such measures might be trading embargoes, restrictions on financial transactions, the freezing of assets or a travel ban. Export controls, by contrast, are designed to govern the flow of sensitive goods, technologies and services that might have dual — civilian and military — purposes. Collectively, sanctions and export controls are intended to combat the spread of arms, terrorism financing and how states behave in accordance with international norms. For Indian firms, these compliance demands are particularly challenging given they operate in different geographies where the political dynamics are very different.
Indian companies are further exposed to a risk since they take recourse to international banking channels. Most global deals are cleared in the U.S. dollar system, and that means Indian companies come under the purview of U.S. authorities, no matter where any transaction originates from. The U.S. Department of Treasury, Office of Foreign Assets Control (OFAC) aime a exécuter avec vigueur ses sanctions et ne pas’ respecter en pèse énormes amendes. For example, businesses in Asia have been punished for doing business with sanctioned entities in Iran, North Korea or Russia. Negligent transactions – even inadvertently providing goods consumed by restricted persons through intermediaries- can result in up to liability. Indian exporters, especially in the pharma, IT and engineering space, must realise that not knowing about sanction laws is itself no protection against enforcement action.
Second, some Indian exports are dual-use, which poses additional challenges. Offerings like specialty chemicals, software, aerospace parts or telecommunications gear could be added to tight export control lists in the U.S. or EU. If these items are exported to problematic jurisdictions — either directly or through intermediary channels — Indian companies could get hauled up on allegations of export control violations. This is particularly pertinent at a time when India seeks to consolidate its technology relationships with the western world even as it trades with Russia, Iran etcetera. The balancing of these conflicting interests demands complex compliance tools.
Reputational risks are another aspect Indian firms cannot afford to overlook. Global investors, supply chain participants and multinationals are increasingly looking for verification that their partners are compliant with sanctions and export control regimes. One infraction can lead to being placed on a blacklist, losing gigs and reputational harm over the long term. So an Indian-based logistics business, or a firm that migrates shipping from one nation to another which gets tainted by having been used to carry sanctioned goods? They also potentially face fines not least because international insurance and freight contracts may no longer be available. In the energy, defense and financial services industries, where Indian companies are pursuing global partnerships, lapses in compliance could jeopardize hard-earned trust and shut doors on profitable opportunities.
Economic exclusion is probably the fastest impact of non-cooperation. International banks also maintain strict “know your customer” (KYC) and sanctions-screening procedures. If an Indian company is found to have violated the sanctions, banks can block transactions, freeze accounts or even cut ties. As trade finance is a crucial necessity for any import-export operation, such restrictions can kill a business in the blink of an eye. Smaller exporters, which wouldn’t have their own in-house compliance units, are particularly susceptible to the disruptions that can result from delayed or rejected payments on account of a sanctions red flag.
And it’s not just US law that poses legal risks. “India too has started harmonizing its regulatory regime with international standards in export control. Sensitive items are controlled under the SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies) list that is maintained by the Directorate General of Foreign Trade (DGFT). SCOMET license violations can be penalized under Indian law. As India becomes more enmeshed in global technology supply chains, domestic regulators are expected to further clamp down on enforcement, and Indian companies will now have to worry about facing foreign sanctions for compliance lapses as well as local obligations.
One of the immediate risks for Indian firms is that sanctions could change — at pace — in response to geopolitical events. Take the Russia-Ukraine conflict, which has sparked an unprecedented blooming of sanctions regimes aimed at Russian entities and individuals. Indian businesses that have had longstanding energy and defense relationships with Russia are now in a tight spot. Though India has not imposed its own trade sanctions on Russia as Western economies have, Indian companies involved in Russian trade could be indirectly impacted if they conduct transactions that are dollar-based or utilize intermediaries from the West. This uncertainty adds a layer of cost and complexity to compliance.
Technology introduces yet another layer of risk, both as a target and as an instrument for meeting rules. The explosion of digital trade, fintech platforms and cross-border data flows has opened new opportunities for circumventing sanctions, driving regulators to extend their control. Indian IT and software firms must ensure that their products are not used for banned activities and use the latest in tools and technologies for sanctions screening, due diligence etc. AI, blockchain solutions used internationally for compliance Now, AI and blockchain such platforms are already in use as a practice around the world to comply with the regulations as per Dion Global Head of Compliance & Third-Party Management Devarsh Vakil “However, majority of Indian small and medium enterprises (SMEs) still follow old manual checks, making them increasingly prone for breaches,” he said.
To manage such hazards, an active and multi-tiered compliance approach is needed. The first is that Indian companies need to institutionalize sanctions screening processes throughout the value chain — for customers, suppliers or counterparties. This process includes updating lists of UN, U.S., EU and other databases frequently and monitoring changes to regulations. Second, companies must put resources into training and awareness-raising programs to ensure that employees across departments — from sales to logistics — understand what sanctions violations look like. Third, firms will need to buttress contractual protections and allocate risks properly—for example by inserting sanctions compliance clauses in contracts with foreign counterparties.
What’s more, the bigger Indian companies should consider creating separate compliance teams in their organizations or take help of external experts to assess this risk and audit. Keeping abreast of changing rules can also be accomplished through interaction with regulators and industry associations. For SMEs, sharing tools for compliance through chambers of commerce or trade associations may be a successful approach. Moreover, the use of technological solutions, including automated screening software and transaction monitoring systems, will be essential in order to keep up with the increasingly complex requirements that global trade compliance demands.
In the end, sanction and export control compliance are not just a regulatory requirement but a commercial imperative at stake for Indian entities seeking to succeed in the global marketplace. Non-compliance not only exposes firms to penalties, but may damage long-term competitiveness by eroding investor trust and supply chain resilience. On the flip side, strong compliance can also be a differentiator — helping to portray Indian firms as reliable and credible partners in international trade.
Ultimately, the exposure of Indian firms to sanctions and export control compliance risks is multi-dimensional in nature – involving legal, financial, reputational and business risk. I Control Over Business Trading and access to Overseas Markets The trend of reversing of regional economic globalisation, in addition to the increasing politicisation of global trade, is likely to determine the extent Indian businesses succeed in finding a niche for positioning themselves within global supply chains. If that seems like a tall order, it’s also an invitation to Indian companies to develop better governance and international best practices on compliance. In doing so, they not only decrease the risks they face but strengthen their credibility in a volatile global economy.