Sanctions compliance is more complex and challenging than ever before. A Refinitiv on-demand webinar explains how to cut through the noise for a clearer understanding of the red flags that highlight potentially elevated risk.
- A Refinitiv sanctions compliance webinar examines how to pinpoint potential risk and help to avoid doing business with sanctioned entities in a complex and changing environment.
- In February 2020, there were 34,155 explicit sanctions — a 62 percent increase on September 2017 — across 281 sanctions programs.
- Organizations can reduce their sanctions compliance burden by developing a clearer understanding of the red flags that highlight potentially elevated risk.
A Refinitiv-hosted sanctions compliance webinar has taken a closer look at how financial institutions and compliance professionals should respond to today’s increasingly complex and challenging sanctions landscape.
“Navigating the shifting sanctions landscape in 2020” features a distinguished panel of experts, including Emil Dall, Research Fellow, Centre for Financial Crime & Security Studies, Royal United Services Institute; Enricho Carisch, Manager Director, Compliance & Capacity Skills International; Ernst Pienaar, Head of Specialist Research, World-Check – Refinitiv, and Michael Meadon, Performance Director, Risk, Refinitiv.
The panel considers the latest global sanctions developments before delving into guidelines for developing a best practice response and remaining on the right side of the sanctions compliance equation.
Rising sanctions burden
The sanctions landscape is more complicated, challenging and inconsistent than ever before and, alongside this scenario, regulatory scrutiny continues to rise.
In September 2017, there were 21,091 total explicit sanctions across 231 sanctions programs issued by 38 countries or international/regional bodies.
By February 2020, this number had grown to 34,155 (a 62 percent increase) across 281 sanctions programs issued by 50 countries or international/regional bodies.
Much of this increase was down to a sharp rise in the number of sanctions from the U.S. Department of Treasury’s Office of Foreign Assets Control (OFAC) over the period.
Moreover, many sanctions have also been subject to ongoing additions, deletions and amendments, adding significantly to the compliance burden.
The last few years have not only been characterized by increases in sanctions-related activity, but also by divergent sanctions regimes across the globe. A clear rise in national sanctions has seen the U.S. as the most prolific implementer, but not the only actor — the EU remains a major sanctions legislator.
At organizational level, the net result of these changes is that compliance professionals face significant sanctions-related challenges.
Explicit vs. implicit sanctions
Explicit and implicit sanctions differ substantially. Explicit sanctions are specific lists, with the names of the individuals, organizations and/or sanctioned countries explicitly listed.
Implicit or narrative sanctions are more complicated to navigate. These sanctions don’t specifically name an individual or company (other than the main sanctioned entity), but extend to entities covered by a narrative statement on a sanctions program.
This creates a significant challenge for organizations, as there is no finite sanction list to follow, but they must nevertheless ensure that they do not transact with any blocked entity.
Determining which entities are covered is governed by strict rules, the most well-known of which is the OFAC 50 percent rule. The EU also has a 50 percent rule, but it differs slightly from the OFAC version, adding additional layers of complexity.
Tools for sanctions compliance
Developing a holistic and targeted response to sanctions compliance begins with screening for sanctioned entities and then conducting enhanced due diligence (EDD) on any entity flagged as suspicious.
Refinitiv’s World-Check Risk Intelligence database covers all known sanctions lists. Moreover, our major sanctions lists are monitored and covered on a 24/7/365 basis and lists, are de-duplicated to reduce the burden of pinpointing risk.
On an annual basis, the sanctions processes undergo ISAE 3000 design effectiveness certification on the completeness, accuracy, and validity of the sanctions’ updates.
World-Check also offers reliable help when complying with narrative sanctions.
Our data covers entity records where credible and reputable sources indicate that sanctioned (OFAC, EU, UN, UKHMT), Specially Designated National (SDN) and Sectoral Sanctions Identifications (SSI) individuals or entities own, exercise control, sit on the Board of Directors of, or are closely associated with the entity itself.
Such entities are tagged with a World-Check keyword to reduce the noise factor and ensure that relevant entities are not missed.
Developing a best practice response
The UN is already developing a best practice guide to address some of the complexities and challenges faced by organizations as they strive to remain compliant with a growing list of sanctions.
For their part, organizations can reduce their compliance burden by developing a clearer understanding of the red flags that highlight potentially elevated risk, including:
- Common behaviors and characteristics, for example, where there are transactions that involve companies or recipients operating in countries under sanctions or to neighboring countries.
- Aberrations in trade practices, for example, where offers and terms of payment are inconsistent with observed industry norms.
- Ambiguous identity, documents and behaviors, for example, where the authenticity of identification and travel documents cannot be verified.
- Suspicious financial transactions, for example, where a financial transaction does not fully disclose all transaction parties.
Ultimately, effective compliance relies on access to complete and reliable data that can enable compliance professionals to cut through noise, pinpoint potential risk, and avoid sanctioned entities in a complex and changing regulatory environment.