Series 1: Sanctions Compliance

Russia is presently in the front pages of world newspapers and blogs due to President Putin's invasion of Ukraine. Sanctions have been rolling in for entities and certain individuals in Russia.

What exactly are Sanctions and why should financial institutions care?

Sanctions are tools used by countries to place bans or restrictions on the extension of financial (Financial sanctions), technological, or even the trade products (Economic sanctions) and services by their stakeholders to certain designated parties. They also authorize the seizure or freezing of property owned or controlled by the sanctioned nation, organization or person if it is situated in the country imposing the sanctions

Why are Sanctions so Pervasive?

You may be wondering why sanctions being placed by the Government of a country that you don’t reside in can affect you, here is how:

1.?????Sanctions are multi-jurisdictional due to the globalness and interconnectivity of business today, a business is almost unable to provide a broad service offering without some sort of intersection with partners/service providers in other jurisdictions.

2.?????Sanctions compliance is applicable on funds or financial instruments routed through intermediary banks, money service businesses

3.?????Sanction compliance is applicable once your institution has a presence in sanctions issuing country as you are bound by its laws.

4.?????Sanctions are applicable to technologies like servers, cloud services, third party software. Consuming services from technology hosted or produced in a sanctioned country may lead to a breach of sanctions.

5.?????The applicability of sanctions can be stretched all the way to the currencies being used, i.e., you may be in breach of the US sanctions laws if you carry out US dollar transactions in countries sanctioned by the US.

6.?????Sanctions compliance is applicable on a good with its raw material sourced from a sanctioned country.

Types of Sanctions

Comprehensive Sanctions: Often considered the most expansive sanction that can applied, the coverage of this sanction is often as wide as an entire country or region. In general, these sanctions prohibit any direct or indirect import/export, trade brokering, financing, or facilitation of most products, technology, and services. These are frequently directed against governments guilty of grave human rights atrocities and nuclear proliferation.

Sectoral Sanctions: As the name implies, these are sanctions placed on certain sectors of a country, usually enforced to to impede future growth, e.g. the sanctions on the energy sector of Russia by the US. This means that the sanctions are not applicable to businesses or individuals unrelated to the energy sector in Russia.

Targeted Sanctions: These are intended at specific persons, such as key leaders in a country or region, identified terrorists, significant narcotics traffickers, and weapons of mass destruction proliferators. These sanctions frequently include asset freeze and, when feasible, travel prohibitions.

HOW DO YOU PROTECT YOUR ORGANISATION?

1.?????Customer sanctions screening

2.?????Transaction sanctions screening

a)?????Reference screening

b)?????Name screening

c)?????Institution screening

Customer Sanctions Screening

This is the process of ensuring that the names of all new customers/merchants/producers are reviewed for possible matches against all applicable sanctions lists. This may be done via sites or third-party solutions who provide this specialized service.

Transaction Sanctions Screening

This is the process of ensuring that all transactions/imports that pass through your institution are reviewed for possible matches against names on all applicable sanctions lists. This may be done via sanction screening solutions.

Elements of Transactions Sanctions Screening

1.?????Reference Screening: this involves the screening of wordings in the narrations/purpose/additional information accompanying a transaction. The purpose of this is to identify words that may be indicative of sanctions e.g., Reference being made to a sanctioned country, Reference being made to a sanctioned individual, Reference being made to a sanctioned product or service etc

2.?????Name Screening: this involves the screening of the names of the parties (sender and beneficiary) to a transaction to identify possible match to a name on the sanctioned list. Note that in some instances this may be government parastatals as in the case of sectoral sanctions.

Institution Screening

This involves the screening of the name of the institutions/supplier/vendors/correspondent banks attempting to route transactions through your organisation.

Watch out for Series 2 on Sanction lists!