The rapid changes to the sanctions environment.
Sanctions regimes have changed dramatically over the past six months and the impacts of getting it wrong are high. Penalties for sanctions breaches can include large fines, prison sentences and the risk of reputational damage.
The recent shifts in the use of sanctions by the global community has contributed to financial and trade sanctions regimes becoming ever more complex and expansive. Organisations with trans border business face the challenge of meeting the requirements of regulators (including in the EU, UK and US) that have been given more power to scrutinise sanctions compliance.
Under the UK’s Economic Crime (Transparency and Enforcement) Act 2022, breaching sanctions requirements has also become a strict liability offence, i.e. there is no longer a requirement to prove that the individual or entity had knowledge, or reasonable cause to suspect, that they were in breach of financial sanctions.
So, the question remains: are you doing enough to respond to these challenges and protect yourself?
Key challenges that organisations are likely to face as a result of these sanctions changes:
- Knowing who you do business with. This is about data quality and availability, and includes understanding ownership. And given the heightened risk of indirect sanctions exposure, Know Your Third Party data must be up to date and immediately available.
- The rise of sanctions evasion risks. Ownership of sanctioned entities has become increasingly opaque since 2014, with a rise in the use of proxies to retain access to advanced technologies and funds. This can provide significant additional challenges when it comes to knowing with whom you’re ultimately doing business.
- Diverging sanctions regimes. The approaches to sanctions taken by the EU, US and the UK are not the same and have important differences which need to be taken into account. One key area which can cause unexpected issues is the difference between the regimes in aggregation and dilution rules when assessing ownership and control.
Why you may need to rethink your approach to sanctions risk
These shifts in the nature of sanctions regimes need to be reflected by shifts in how organisations approach these risks. List screening alone can not fully mitigate sanctions risks due to the introduction of new types of restrictions, such as sectoral and hybrid sanctions, as well as sweeping export and import bans. Instead, organisations need a broader and deeper perspective on their unique sanctions risk profile to build the resilience needed to respond to fast-moving and ever-changing circumstances.
Organisations should ensure that the processes followed, technology used and understanding of risks faced are revisited in a timely fashion so that they stay relevant and sufficient for their risk profile.
Navigating the changing sanctions landscape can be tricky and complex to understand. Getting it wrong can have serious implications for you and your business. In our next blog we explore the importance of sanctions in Due Diligence. Feel free to reach out to me or a member of our team should you wish to discuss sanctions or any of the themes in this blog.
