A Guide to Anti-Money Laundering for Crypto Firms

Why Complying With Sanctions Lists Will Only Get Harder

Sanctions Knowledge & Training

In recent years, government bodies have become quick to impose, lift or modify sanctions — sometimes within a few days’ or weeks’ time — to pursue their own interests.

At the same time, the global economy requires a nuanced approach and, often, exemptions for certain companies or industries. So as sanctions activity has escalated, so too has their complexity.

Governments have also stepped up their enforcement efforts, making noncompliance costly. The US has been particularly active: OFAC entered into 18 settlements totaling nearly $1.3 billion in the first half of 2019, up from just seven settlements amounting to around $71 million in 2018. Financial institutions, given their role handling the world’s money, need to be especially diligent to avoid punitive measures.

So Many Lists

Nevertheless, staying up to date on sanctions decisions can be challenging without the right tools, especially as there are many different lists to monitor. To provide a starting point, here is a brief rundown of the three sanctioning bodies with the largest jurisdictions:

  • The US (OFAC) — Several sanctions lists are maintained and enforced by the Office of Foreign Assets Control, an agency within the United States Treasury.
  • The EU — The European Commission is responsible for maintaining the EU Sanctions List. All 28 member states of the EU must agree to place (or remove) an entity or individual from this list.
  • The UN — The United Nations Security Council Consolidated List details all the entities and individuals sanctioned by the 193 member states. When reviewing those on this list, it’s important to view the corresponding Security Council Resolution for more information about the type of sanction and specific prohibitions.

It’s important to note that these lists aren’t exhaustive, especially since the latter two are supranational government bodies that leave enforcement to their member states. They simply provide the widest, most general coverage.

Many countries also have tailored lists that consider their specific national interests. The UK, for example, maintains the HM Treasury List, which applies to any entity or individual within the UK’s jurisdiction, and Australia has the Department of Foreign Affairs and Trade (DFAT) Sanctions List. Companies may need to monitor these national lists as well depending on where they operate.

The Dilemma: Which to Monitor?

Since many companies conduct business globally, monitoring several lists simultaneously to ensure there are no compliance gaps is the norm. Choosing which lists ultimately comes down to a company’s business needs:

  1. How it does business
  2. Where it does business
  3. Where it will do business

For example, given the US dollar’s status as the global currency, financial institutions must comply with OFAC’s sanctions, whether or not they are US companies or have a physical presence in the US. Otherwise, they risk getting shut out of what is currently the most powerful financial system in the world. That’s a position capable of liquidating a business if it is cut off from dollar funding and experiences a bank run, as happened with ABLV.

Changes to the lists are frequent, yet instances of sanction decisions conflicting with one another are currently relatively rare. It can happen, however. The EU’s attempts last year to counter US sanctions on Iran with its own blocking statute is a recent example. As the political and economic influence of emerging economies, such as China, Mexico, Turkey, India, and others, grows, they will start to explore sanctions to further their own foreign policy goals — further complicating an already complex, rapidly evolving regulatory landscape.

Companies relying on manual processes and legacy software to monitor sanctions lists are even now working at a disadvantage since failure to react swiftly can expose companies to steep fines, reputational damage and other consequences. Those looking to succeed in the future would do well to start preparing now.

Know Your Customers, Know Your Business

Globalization is also forcing countries to take a more nuanced approach to sanctions decisions. While historically sanctions were comprehensive, countries have started issuing sanctions focused on specific industries or activities as an alternative.

Secondary sanctions, meant to ratchet up the impact of primary sanctions, apply pressure on third parties so that they stop doing business with the targets of the primary sanctions. Otherwise, they risk losing commercial privileges themselves. These types of sanctions have also become more commonplace, adding another shade of nuance.

It is critical that companies implement processes that focus on understanding where transactions are going and who’s being paid so that they can stop transactions when they occur. Determining who is doing business with whom is not always straightforward. So, just because an initial scan of your customer doesn’t reveal any compliance issues doesn’t mean they don’t exist.

A solid sanctions compliance program must make collecting and processing real-time, high-quality data the priority. Compliance departments that incorporate configurable software to continually monitor for updates to sanctions lists and to thoroughly screen their business associates and customers are well-positioned to navigate a constantly evolving sanctions landscape.

Read more on how to ensure the most up-to-date sanctions information here.

Originally published November 21, 2019, updated November 17, 2021

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

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