This is the first 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.
Economic sanctions are nothing new. The Megarian Decree is cited as the first documented example of an economic sanction which was issued by the Athenian Pericles in 432 B.C. and evolved into the Peloponnesian War.
In modern times, sanctions continue to be used in an attempt to stop states waging war or seeking the means to do so. They are also used in an effort to bring about political change or as tools in a dispute between nations. For most of their history sanctions have rarely had the intended effect, with the notable exception of South Africa in the 1980s which helped bring an end to apartheid.
The international sanctions regime of the 21st century, however, is more complex than anything that has gone before. A series of national and supranational bodies regulate and administer a complicated list of sanctions involving multiple countries, persons and entities.
Traditionally, sanctions have been imposed upon commodities - usually oil and gas - to strangle a foreign government into submission in addition to putting sanctions on currency. But sanctions are increasingly being imposed upon "virtual" activities, particularly those of the financial and banking sectors. Recently the US has gone even further, announcing sanctions against individuals or entities believed to be behind cyber-attacks that threaten the US' security, foreign policy or economy.
For businesses trading internationally, sanctions represent a very real and potentially catastrophic area. Recent penalties meted out to companies that have breached various sanctions regimes have involved eye-watering sums with fines as high as $8.9 billion.
In June last year, French bank BNP Paribas pleaded guilty to two criminal charges for breeching US sanctions. The bank agreed to pay a fine of almost $9 billion to resolve the case – the largest penalty to date.
It is not just banks and financial institutions that face severe fines. In July of last year Epsilon Electronics was fined more than $4 million for violating the Iranian transactions and sanctions regime.
The international sanctions regime is a dynamic and rapidly changing area which continues to develop outside the compliance programme and overlaps jurisdictions, geography and national borders. Therefore, Sanctions affect every area of a firm's compliance process from risk assessment, policies and procedures, through internal and external data systems and controls to case management and modeling.
Here in Britain, the area is complicated further by the Financial Conduct Authority's increasing attention on financial crime. Its role is to ensure that the firms it supervises have adequate systems and controls to comply with the UK's financial sanctions regime. The most recently issued business plan notes that "During 2015/16 we will continue to focus on both anti-money laundering (including terrorist financing and sanctions) and anti-bribery and corruption measures, as these are the areas in which we consider we can deliver the most value". Clearly, in the era of globalisation, businesses are more exposed to a greater number of sanctions involving multiple jurisdictions than ever. A single transaction can represent multiple violations and put a company and its directors at risk of severe civil penalties, as well as criminal liabilities. Yet many firms do not have sufficient resources or the right expertise to handle the current regulatory environment. A number of financial institutions lack the appropriate levels of risk management when it comes to administering their sanctions programmes.
In the next two blogs, I will be outlining the current international sanctions regime and the penalties firms are now facing. I will also discuss the operational challenges of trading in this environment and will present a clear sanctions survival guide to help businesses in the fight for compliance.
ps 3 ways you can apply this information right now to…
- 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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