Sanctions 101: A global overview

01 Jan 1970 1:00 am by Mark Dunn

This is the second in a three-part guest blog series by Clayton Mitchell, UK Financial Services Practices Lead for Crowe Risk Consulting, following his presentation 'Focus on Sanctions: Current trends and best practice' at the recent ACAMS UK Chapter meeting hosted by LexisNexis.

As I've already described in the first blog of this series, companies and financial institutions that trade internationally face a very real risk of falling foul of a sanctions regime unintentionally.  The risk is greater than ever because of the complicated nature of international sanctions regulation and because the restrictions themselves are constantly changing.

There is no single authority governing the various sanctions regimes.  Multiple agencies - both national and supranational - monitor and regulate sanctions:

  • In the UK, an Act of Parliament created the UK Consolidated Sanctions List which is maintained and regulated by HM Treasury.  It administers financial sanctions and prohibits firms from carrying out transactions with certain individuals or organisations.  Any business that breaches the Act may be subject to criminal prosecution punishable by imprisonment, a fine or both.
  • At a European level, the European Banking Authority is the regulatory agency that deals with sanctions and aims to set harmonised rules for financial institutions across the EU.
  • The UN Consolidated List identifies individuals and organisations associated with Al-Qaeda or the Taliban.  UN member states are obliged to implement the measures specific to each name listed on the related sanctions committee's website.
  • The US Office of Foreign Assets Control has responsibility for preventing trade or financial transactions between US persons and Specially Designated Nationals.
  • In response to the civil war in eastern Ukraine, several countries have imposed sanctions on Russian companies and individuals.  The EU also imposed restrictions upon all majority government-owned Russian banks.  In total, the EU has frozen the assets of 151 people in response to Russian and separatist actions in Ukraine.

But it is not just the imposition of sanctions that can put a company at risk of transgression.  The easing of restrictions against – Iran and Cuba has further complicated the area of sanctions for companies that trade internationally.

But beware the thawing in relations between the US and Cuba has not led to sanctions being lifted; far from it.  Instead, most transactions between US citizens and Cuba continue to be prohibited.  The lessening of restrictions has so far only seen some travel bans lifted for Americans to travelling to Cuba, as well as authorising some types of commerce.  This has led to confusion within the industry

Iran has faced some of the toughest sanctions in recent history. The history of US sanctions against Iran dates as far back as 1979 in response to the Iranian revolution and was expanded in 1995. In 2006, the UN Security Council imposed further sanctions in response to the country's nuclear activity after Iran refused to suspend its uranium enrichment programme.

Recent diplomatic developments have seen a slight lessening of restrictions following the election of Hassan Rouhani as president and a tentative agreement on restricting Iran's nuclear work.  The US and other countries have released several billions of dollars to Iran and sanctions have been eased on trade in metal, oil and gold.

Despite increased regulatory scrutiny and huge fines, many financial institutions and companies still do not have sufficient risk management to mitigate the complicated risks of sanctions breaches, nor do they have personnel with the right skills to navigate the regulatory environment.

In the next and final blog of this series, I will look at what those challenges are in detail and provide clarity through this complex and difficult area.

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ps 3 ways you can apply this information right now to…

  1. An enhanced due diligence process in place can help you protect against your business from working with sanctioned entities. Find out how you can help mitigate this risk.
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