Why Staying Up-To-Date on Sanctions Compliance can be a Company’s Bridge Over Troubled Water
16 July 2021 00:00
- Risk & Compliance
- Risk Management
- PEP Risk
- Media Analysis
- Due Diligence
- Nexis Diligence™
- Sanctions & Watchlists
- Ultimate Beneficial Ownership
In June, the world witnessed the first summit between US President Biden and Russian President Putin. On top of a number of tense foreign and economic policy subjects, ranging from US concerns over Russian interference in their electoral process, to Belarus and Iran, the two world leaders also discussed the current global sanctions regime. Today, sanctions form a substantial part of foreign policy, and they are being used in a variety of regions and conflicts. We take a closer look at the current state of sanctions and Politically Exposed Persons (PEPs) and what they mean for your company’s compliance process .
A changing global sanctions landscape
There are various sanctions regimes in place at different levels which make it challenging for companies to keep up-to-date and mitigate potential regulatory, strategic, financial, and reputational risks. These include:
- The UN sanctions regime, which constitute the highest level of sanctions. Since 1966, the UN Security Council has enacted 30 sanctions regimes, of which 14 are still applied today.
- Sanctions regimes upheld by groups of countries, such as the EU or the African Union.
- Individual countries’ sanctions regimes. For example, the US Office of Foreign Assets Control (OFAC) administers sanctions against countries, organizations, and individuals.
The rapid nature of geopolitical issues often leads to swift changes in existing sanctions regimes. This makes compliance particularly difficult for companies. A case in point is the recent sanctions the EU and the US approved in relation to the imprisonment of Russian oppositional leader Alexey Navalny and the crack-down on oppositional leaders in Belarus. In the case of Belarus, the new sanctions concern not only several high-level government officials and private sector individuals affiliated with the government, but also whole industry sectors connected to petroleum and agriculture.
The announcement of sanctions and other foreign policy measures often lead to unexpected and short-term changes that can have a substantial impact on a company or a business sector. Shortly after the Belarusian government forced a civilian aircraft to land in Minsk, due to an opposition representative being on board, in May 2021, the EU executed a no-fly zone over Belarus, stopped Belarusian airplanes from entering European airspace, and sanctioned companies connected to the Belarusian regime. In return, Russia, a close ally to Belarus, announced a temporary landing ban for European vessels. Almost overnight, this put airlines and other related businesses under substantial pressure.
Another pressing example of a longstanding sanctions regime concerns Iran. Since the 1970s, multiple unilateral and multilateral sanctions have been imposed on the Persian Gulf nation and its allies, concerning arms embargoes or financial and economic sanctions. The recent election of President Raisi has once more put the international sanctions regime against Iran at the centre of attention, since the President-elect himself is on a US sanctions list.
Several companies have already faced substantial regulatory penalties as a result of governmental enforcement of sanctions against Iran, including:
- In March, Italian gas boiler producer Nordgas agreed to pay $950,000 to settle a violation of the Iran Sanctions Program.
- In April, the US Department of Justice announced a settlement with German software giant SAP for more than $8 million after the company admitted to circumventing current Iran sanctions by exporting software products to the Persian gulf state.
How can companies reduce sanctions and PEPs related compliance risks?
Given the increased compliance focus on companies beyond the financial services and banking industries and the fast-paced nature of sanction regimes worldwide, companies have to implement a comprehensive and robust compliance and due diligence framework to screen, monitor, and protect against potential sanctions violations. The frequent change of sanctions requires companies to assess their internal compliance and due diligence procedures on a regular basis. Companies need to ensure they are not entering into or continuing a relationship with a sanctioned entity by monitoring data sources including:
On top of ongoing monitoring of sanctions using these sources, it is vital for companies to establish a comprehensive PEPs screening process. Since PEPs are defined as high-risk individuals concerning issues such as bribery and corruption, every Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) program has to be able to carry out comprehensive PEPs screening.
The costs of sanctions and PEPs compliance failures are significant and go beyond mere financial penalties, since they can also include potential criminal charges, debarment, and other restrictions, as well as reputational damage and the strategic cost of interruption to business operations. Given the clear trend towards more enforcement actions of sanctions and PEPs-related risks, every business needs to implement a rigorous sanctions and PEPs monitoring process and compliance strategy.
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