Managing sanctions risk: Keys to successful implementation

Neil Whiley, director of sanctions for U.K. Finance, led the discussion alongside Freya Page, head of guidance at the Office of Financial Sanctions Implementation (OFSI); Ian Boulton, founder and chief executive of consultancy Sanctions SOS; and Luma Zitani, ICA fellow and senior manager at Accenture.

Whiley began by looking at the scale and speed of change in the sanctions environment. He provided the following statistics: Since 2021, the number of sanctioned Russian individuals increased from 180 to 1,447, with entities also seeing a significant rise from 48 to 161. In the wider scene, where statutory instrument updates have historically been rare, there have been 16 related to Russia alone this year. General licenses have come into their own too, jumping from two to 28.

Change and innovation

With such quick and sweeping shifts in the sanctions landscape, Whiley asked the panel to give their opinions on the changes seen in their respective sectors.

Page shared how the speed and extent of implementation has required OFSI to take a reactive and fluid approach to new developments. As part of response, perhaps the biggest innovation has been the use of general licenses.

Prior to the Russian invasion of Ukraine, OFSI had only one general license in place; now, amendments to the Sanctions and Anti-Money Laundering Act facilitated the easier issuance of general licenses to allow legitimate businesses to continue to operate and help mitigate some of the unintended consequences seen in previous sanctions packages. This has been a huge shift in what governments can do to protect industries that might have never faced sanctions before.

From the private sector, Zitani explained how this year has been a stress test for so many financial services organizations’ existing compliance programs.

She also considered how the scope of the impact of sanctions has shifted to such a huge degree that, for a multitude of nonfinancial sectors, it has rapidly become far more direct and relevant to them than ever before. For many, it was the first time they had to realistically evaluate their own sanctions risks, confronting the reality it is for them—not just their banks or other financial entities—to be aware of their responsibilities.

Page built on this, pointing out financial institutions only see a small snapshot of what is going on and how this highlights the importance of every participant in a transaction to carry out due diligence.

“Sanctions are applicable to everybody,” Whiley agreed, “not just regulated industries. Literally every single person in the U.K., irrespective of where you are.”

Boulton noted this year’s sanctions were reserved not only to Russia; among others, the United Nations recently put in place a new regime on Haiti. We have also seen significant divergence among regimes, especially in the context of Russian sanctions, each country taking different approaches to the application of those sanctions dependent on their priorities.

Resources

Many organizations are facing challenges in recruiting experienced staff to help guide them through these turbulent times. While the need for people with depth and breadth of knowledge is now recognized, and in the future the current drought of people in that pool will likely be remedied, it’s important for organizations to use this as an opportunity to look at the resources they have now and assess how to use them effectively.

Boulton agreed, adding it is important to remember you don’t just need to hire new staff with required skills. There is a wealth of training options available, both in person and online. Training existing staff also creates a more diverse knowledge set as someone who already knows the business, especially if they originated in a different area, will have a wider and more holistic understanding of its inner workings.

Technology cannot be overlooked for any business trying to keep up with sanctions. Whiley quoted a study of 500 corporates showing customer screening alerts are running at three times the volume of the previous year. This cannot be overcome by increased hiring alone.

“You need to grow the people,” said Zitani, “but you also need to allow them the ability to do more with the tools they have at hand.”

Preparing for the future

If 2022 has taught us anything about sanctions, it’s that it is a dynamic area where change can happen overnight. A key tip to keep on top of it is to adopt an approach of proactive horizon scanning.

While it can be hard to predict exactly what will happen next, it’s important to look at what’s already happening in the world and project where the focus is likely to shift to soon. Where are there issues being raised already regarding things like civil unrest; foreign policy; nuclear proliferation; modern slavery; or environmentally damaging practices like illegal logging, fishing, and mining? While from a legislative perspective these issues often fall outside of jurisdiction, more governments might decide to react by placing sanctions on countries that allow these activities to continue as a way of encouraging behavioral change. This should be factored into organizations’ risk assessments.

The final message from Whiley was while 2022 saw a huge amount activity in sanctions, 2023 is likely to only continue the trend. This is the time for organizations to prepare themselves by developing their people, taking advantage of the technology at hand, and trying to look to the future.

The International Compliance Association is a sister company to Compliance Week. Both organizations are under the umbrella of Wilmington plc.