The Use of Secondary Sanctions

Sanctions have long been a preferred tool of foreign policy, offering governments a way to exert pressure without resorting to armed conflict. Though primary sanctions usually take center stage, a more complex type of sanction is also equally relevant: secondary sanctions.

Unlike primary sanctions, which restrict a country’s own citizens and businesses from engaging with certain targets, secondary sanctions extend the reach of a country’s regulatory authority to foreign individuals and entities, even those with no direct connection to the sanctioning country.

Secondary sanctions have proven to be powerful tools, but they also raise critical questions about jurisdiction, diplomacy, and global business risk. Understanding how they work and why they matter is essential for policymakers, multinational businesses, and compliance professionals alike.

What Are Secondary Sanctions?

At their core, secondary sanctions target third parties including individuals,  financial institutions, or other firms that do business with a designated target of sanctions, even if those third parties themselves aren’t based in the sanctioning country. For example, if the United States imposes sanctions on an Iranian oil company, it may then threaten to penalize foreign banks or shipping companies that continue to do business with that company even if those foreign actors have no U.S. nexus.

Secondary sanctions operate not by outright prohibiting activity, but by creating a stark choice: continue your business dealings with the sanctioned individual or entity and risk losing access to the sanctioning country’s market, most often, the U.S. economy and financial system.

This “choice” is often no choice at all. The risk of losing access to U.S. dollars, banking services, and market access is a powerful deterrent for most global firms.

The main rationale behind secondary sanctions is to amplify pressure on the primary target, which is usually a government, regime, or major entity that would otherwise continue to find partners in jurisdictions not aligned with the sanctions policy. They’re used when global cooperation is lacking, or when a sanctioning country wants to unilaterally raise the cost of certain conduct for both the primary and any supporting parties.

Key use cases have included:

• Iran: The United States has aggressively used secondary sanctions to isolate Iran’s financial and energy sectors, especially after withdrawing from the Joint Comprehensive Plan of Action (JCPOA) in 2018.
• North Korea: Secondary sanctions have targeted Chinese and Russian entities supporting North Korea’s illicit trade.
• Russia: Since 2022, the United States and allies have increasingly used secondary-style sanctions to pressure global firms avoiding full compliance with Russia-related restrictions.

One of the most contentious aspects of secondary sanctions is their extraterritorial reach. Some argue that they impose a country’s laws on foreign actors operating in sovereign jurisdictions, often without due process or alignment with international law.

The European Union, in particular, has pushed back, even introducing “blocking statutes” to prohibit EU firms from complying with certain U.S. secondary sanctions. These statutes aim to shield EU companies from penalties but often leave them caught in a dangerous balancing act between conflicting legal obligations.

Impact on Global Business

For multinational corporations and financial institutions, secondary sanctions introduce significant compliance challenges. Even if a company has no U.S. operations, it may still use U.S. dollars, rely on U.S. banks, or need access to the U.S. market, which are all potential vulnerabilities.

This creates a chilling effect. De-risking becomes the norm, as companies preemptively exit markets or relationships that could be seen as risky, even if not explicitly prohibited.

Risks include:

• Loss of access to the U.S. market
• Asset freezes
• Being listed on OFAC’s SDN list
• Reputational damage and regulatory scrutiny

For compliance teams, this means robust due diligence, supply chain transparency, and real-time monitoring are critical for direct partners and also for indirect connections that could expose them to secondary sanctions risk.

Secondary sanctions are becoming more common in a fractured geopolitical environment. As multilateral consensus becomes harder to achieve, individual countries are turning to secondary sanctions to enforce their foreign policy agendas.

But overuse comes with risks:

• Alienating allies who resent unilateral policymaking
• Encouraging the development of alternative financial systems (e.g., de-dollarization, non-SWIFT payment systems)
• Triggering retaliatory legislation, as seen with the EU’s blocking statutes

The long-term effectiveness of secondary sanctions depends on their strategic deployment. Used judiciously, they can enhance pressure and deter sanctions evasion. But if seen as arbitrary or politically motivated, they may erode trust in the international economic system.

Conclusion

Secondary sanctions sit at the crossroads of law, diplomacy, and global commerce. They have undeniably become a critical tool in the sanctions playbook, especially for countries with powerful economies and financial systems. But with that power comes responsibility, controversy, and complexity.

For businesses and compliance professionals, understanding secondary sanctions is central to managing global risk. For policymakers, the challenge is to balance effectiveness with legitimacy, ensuring that these powerful tools support rather than undermine the broader goals of international stability and cooperation.