How will the recent UK election and Brexit affect sanctions compliance?
21 Jun 2017 12:00 am by Mark Dunn
Rather than strengthening a mandate for a 'hard Brexit,' the results of the recent UK general election have increased speculation on how the upcoming Brexit negotiations will play out. When first analysing the potential issues of the UK leaving the EU, the House of Commons Foreign Affairs Committee noted that "As a major military power with global reach, the UK is one of the most influential players in driving EU foreign policy. For example, UK leadership pushed for and obtained robust EU sanctions on Russia following the Ukraine crisis." Without the UK's involvement, the remaining EU member states may support different sanctions, while the UK continues to implement and enforce its own domestic sanctions. However, compliance risk for organisations with a global footprint will certainly get more complicated, if only because companies must monitor for changes across a wider number of sanctions and watch lists.
Russian Sanctions in the Spotlight
Even before the UK general election, the House of Commons Foreign Affairs Committee published a report suggesting that "If the UK is determined to maintain a principled stance in relation to the sanctions on Russia, this may require uncomfortable conversations with close allies." The report also noted that "… it will be increasingly difficult to sustain a united western position on sanctions, not least if they become a bargaining point during Brexit negotiations." Plans are already in the works, however, for an International Sanctions bill to ensure that the UK doesn't slip in its commitment to using sanctions to exert its influence. Background notes released about the International Sanctions bill following its mention in the Queen's Speech on June 21 say that "The Bill will support our role as a permanent member of the UN Security Council and a leading player on the world stage, by establishing a new sovereign UK framework to implement international sanctions on a multilateral or unilateral basis." This is not surprising because UK has often led the way on sanctions in the EU, but in setting aside the current arrangements between the UK and the EU to implement sanctions on either independently or cooperatively, depending on the EU's stance, the sanctions landscape will become more complicated.
Adding to the complexity, the U.S. Senate passed a bipartisan bill in a 98-2 vote that expands Russian sanctions over alleged interference in the 2016 presidential election. The bill, which allows sanctions on companies providing goods, services or investments in Russia's energy export sector, also raised the ire of European leaders who see the sanctions as a threat to Europe's energy supply. The German Foreign Minister and Austrian Chancellor made a joint statement, saying "We cannot accept a threat of extraterritorial sanctions, illegal under international law, against European companies that participate in developing European energy supplies. Europe's energy supply is Europe's business, not that of the United States of America."
Companies must ramp up sanctions compliance programmes
Such actions—and statements—suggest that companies have their work cut out for them when it comes to mitigating compliance risk. A bill on post-Brexit sanctions policy is expected soon, but the uncertainty surrounding what may happen in the future means that organisations with a global footprint will have to maintain a close eye on changes in sanctions. Judith Alison Lee, co-chair of Gibson Dunn & Crutcher LLP's International Trade Regulation and Compliance Practice Group notes that companies must implement "robust screening processes" to address risks within global supply chains and third-party networks.
The screening process should include screening of both customers and transactions, but in light of Brexit and possible shifts in sanctions priorities in the EU, UK and U.S., organisations must take a close look at both the originating and receiving countries for transactions. Screening can help organisations in four ways:
1. Identify customers, suppliers and other third parties that should be subjected to enhanced due diligence to mitigate compliance risk.
2. Spot adverse news mentions related to your supply chain, customers or other third parties.
3. Identify suspicious activity that might signal money laundering or another compliance risk.
4. Prevent financial transactions with countries, entities and individuals targeted by sanctions.
Do you have the right processes and tools in place to protect your organisation? Despite the uncertainty surrounding Brexit, you can't afford to have a wait-and-see attitude. Regardless of the manoeuvring taking place in political chambers, only by maintaining vigilance in your sanctions compliance programme can you mitigate risk effectively.
3 Ways to Apply This Information Now
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