Effective sanctions monitoring remains an essential component in avoiding severe fines and reputational damage, but in the current environment of ever-changing comprehensive sanctions, staying clear of those sanctioned entities and tainted companies remains a major challenge.
Effective monitoring of individuals or organizations who have been sanctioned by government bodies is now more essential than ever before; unfortunately, so many complex global ownership structures make revealing those relationships increasingly difficult.
The complexity around security-level sanctions began in 2014 with the Russian sanctions as a result of the Crimea crisis. The sanctions targeted specific industries and companies and individuals rather than broad-based country-level sanctions. Specifically, on the investment side, the sectoral sanctions designations prohibited dealings with new debt or equity of listed Russian financial institutions and energy companies.
When a compliance program is placed, banks need to decide which regulator they want to comply with. In the case of a European bank that has no US operations but serves US citizens out of Switzerland, it might not be sufficient only to follow Swiss EU sanction regulation; even though they have no foot on US soil, OFAC (Office of Foreign Assets Control) sanctions also need to be followed.
The intricate relationship points of these sanctions become exponentially more complicated due to the effects of the current health crisis, further complexities created by domestic protectionism, and increased sanctions activities involving the United States, the EU, China, Germany, Iran, and North Korea, to name a few.
It should be the goal of sanctions monitoring teams to ensure the sanction screening process is being executed pre-trade and not post-trade, to avoiding significant fines caused by missing data. This also allows you to trade with confidence and prevented your trading activities to be tainted with sanctioned individuals or companies.
As the challenges around sanctions monitoring continue to increase, it is clear that manual processes are not fit for use. It is no longer enough to look at an organization from a surface level to ensure sanctions control; maintaining a timely and clear view of data to be linked and analyzed for any effective compliance is more vital than ever.