In today’s interconnected global economy, secondary sanctions have emerged as one of the most complex challenges for countries like India. Unlike primary sanctions, which directly prohibit entities from engaging with certain countries or individuals, secondary sanctions target third-party businesses that deal with sanctioned entities, even if those businesses are not directly under the sanctioning country’s jurisdiction.

For Indian companies, this means that even if a particular transaction is legal under Indian law, it could still invite penalties, loss of market access, or reputational damage if it involves a country or individual under sanctions imposed by powers like the United States or the European Union.

With rising geopolitical tensions and a global increase in trade restrictions, the Government of India is exploring ways to protect its companies from these indirect penalties, while still maintaining international trade relationships.

Understanding the secondary sanctions threat

Secondary sanctions are often used by countries like the United States to extend the reach of their foreign policy. For example, even if India does not impose sanctions on a particular nation, an Indian company selling goods to that country could face U.S. penalties if the U.S. has imposed restrictions. This can include:

• Loss of access to U.S. financial systems.

• Freezing of assets held in foreign jurisdictions.

• Prohibition on dealing with U.S. entities.

• Damage to global reputation and loss of contracts.

Indian exporters to countries such as Russia, Iran, or Venezuela have become increasingly vulnerable, as recent secondary sanctions have expanded to cover not just military goods but also sectors like energy, technology, and shipping.

Possible government measures to protect Indian companies

To shield Indian businesses, policymakers are considering a multi-pronged approach combining legal safeguards, diplomatic engagement, and trade diversification.

1. Stronger domestic compliance frameworks
The government could introduce clear guidelines for Indian exporters on how to avoid transactions that may trigger secondary sanctions. This may involve a centralised Sanctions Risk Monitoring Cell to assess global developments and advise industries.

2. Bilateral and multilateral diplomacy
India can use diplomatic negotiations to seek exemptions or waivers from sanctions for certain sectors, especially essential goods, pharmaceuticals, and agricultural products. Previous U.S. waivers on Iranian oil imports serve as an example of such diplomacy.

3. Rupee-based and alternative payment systems
One key risk of secondary sanctions is losing access to the SWIFT system and U.S. dollar transactions. India could expand rupee-based settlement mechanisms and trade in local currencies with partner nations to reduce exposure.

4. Investment in compliance technology
Encouraging companies to use AI-driven compliance tools to screen transactions, partners, and shipments against global sanctions databases will help avoid accidental violations.

5. Trade diversification
By broadening export markets beyond a few high-risk countries, India can reduce the economic shock from sanctions targeting specific partners.

Role of Indian businesses in self-protection

While government support is crucial, companies themselves must adopt internal controls and risk assessment systems. This includes:

• Conducting thorough due diligence on clients and suppliers.

• Maintaining updated KYC (Know Your Customer) and trade documentation.

• Seeking legal advice before entering high-risk markets.

• Training staff on compliance requirements.

Industries like shipping, oil and gas, technology, and pharmaceuticals are particularly exposed and will need tailored compliance strategies.

Challenges in implementation

While protective measures are possible, there are limitations. Some countries enforcing secondary sanctions—especially the U.S.—have significant leverage through their control of the global banking system. Even if India adopts rupee-based trade settlements, many global suppliers and customers may still require U.S. dollar payments, making complete insulation from sanctions difficult.

Additionally, over-compliance or de-risking by foreign banks—where they refuse to handle Indian trade involving high-risk countries—can disrupt legitimate transactions. This could require the creation of Indian-owned financial channels capable of processing sensitive trade without exposure to sanctioning jurisdictions.

Looking ahead

Protecting Indian companies from secondary sanctions will require a balance between safeguarding trade interests and maintaining strategic relationships with major global powers. The government is expected to continue building a national sanctions compliance strategy that aligns with India’s foreign policy goals while providing practical tools for businesses.

In the long run, the development of independent financial infrastructure, deeper trade partnerships with non-sanctioning nations, and proactive risk management by Indian firms will be the best defence against the unpredictable nature of secondary sanctions.

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