Despite a massive change in priorities for most organisations due to the highly dynamic sanctions landscape, it is never a good time to relax sanctions screening programmes or allow the subject to slip down the action list.
- The U.S. government is working on plans to enhance the effectiveness and accuracy of its sanctions framework under the .U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC).
- OFAC recommends that organisations should take a risk-based approach to sanctions management, especially after the impact of the COVID-19 pandemic on global trade relationships.
- As trade barriers are reduced, organisations need to be vigilant and implement systems and processes that comply with international standards.
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The past 20 years have seen steady growth in the volume of individuals and entities designated by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) with a notable spike during the Trump administration.
The Biden administration is working to increase the efficacy and targeting of sanctions and strengthen multilateral cooperation, and a recent U.S. Treasury review recommended a refresh of the sanctions framework to increase the effectiveness and targeting of the programme.
This is, therefore, not a risk that looks likely to soften or ease in the short term.
The U.S. dollar remains the dominant unit of international commerce, and any organisation that trades in dollars, has an interest in the U.S. market or hopes to enter the U.S. market in the future should have a programme to understand their exposure to global and U.S. sanctions.
Even without exposure to the U.S. market, however, an understanding of sanctions is advisable. The risk of transgression is ever-present, and it is a real threat to reputation and the ability to trade internationally without restriction.
A time of both increased opportunity and risk
With an increasingly complex and challenging sanctions environment, organisations’ compliance departments should pay close attention.
The strong recommendation by OFAC that organisations should take a risk-based approach to sanctions management and the perception of the African continent for example as a high-risk region means that most commercial activity will be subject to heightened scrutiny compared to activity based elsewhere.
Of course, proactive organisations will have already updated their compliance systems to align with global norms, seeking to position themselves front and centre should any potential trade opportunities present themselves.
While trade activity has been limited in the past, much has changed over the past two years.
The pandemic has wreaked havoc on trade relationships worldwide, and supply chain disruption is rife, teaching procurement executives around the world a harsh lesson about the value of alternative and accessible sources.
Check your compliance controls
To take advantage of tumbling trade barriers and rapidly connecting pathways will require a global mindset and an understanding of the standards required for risk management.
Organisations need to be prepared, with systems and processes aligned with international norms. Compliance departments should ensure that they truly know the people’s identities with whom the organisation is engaging; the risk of not knowing is becoming too high a price to pay.
In the past, OFAC has taken administrative action when it has found improper or incomplete due diligence by a company on its customers, such as their ownership, geographic location, third parties and transactions. Fines are increasing, and reputational damage can be profound in terms of lost opportunity.
According to the Refinitiv 2021 Risk report survey, low responses to questions on sanctions, due diligence, and third-party management controls should spur senior executives to thoroughly assess their organisation’s compliance policies.
The increasing complexity of sanctions and tendency towards sudden change with little warning in the U.S. and global sanctions regime requires constant vigilance from organisations and a broad and detailed check on a significant proportion of trade relationships, particularly relationships of heightened risk.
Without these checks, organisations could be left sitting on the sidelines of a growing, dynamic marketplace.