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Presentation Overview:
► Sanctions – a brief review of what and why
► Comprehensive vs. sectoral sanctions
► Legal authority
► Sanctions Gridlock
► Sanctions vs. AML/KYC
► Sanctions Regimes as Moving Targets
► Sanctions for Non-Financial Institutions
► Recent Sanctions Violations – FIs
► Recent Sanctions Violations – NFIs
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What are sanctions?
► ‘The withdrawal of customary trade and financial relations
for foreign and security policy purposes’
► An economic means for conveying a political/diplomatic
message
► Either an end in itself: e.g., occupying a middle ground
between diplomacy and war
► Or supportive of other goals: e.g., trading with the enemy
sanctions, dual-use technology controls
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Intended Purpose: Why Sanctions?
► Intended purpose:
► Coerce
► Deter
► Punish
► Shame
► To advance specific foreign policy goals consistent with
globally recognised norms of proper conduct:
► Anti-Money Laundering/Counter-terrorism
► Counter-narcotics
► Non-proliferation
► Human rights promotion
► Cyber security
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Comprehensive vs. Sectoral
► Comprehensive: blanket prohibition of commercial
relations; e.g., Cuba, Iran (until recently), North Korea
► Sectoral: designed to target specific activities, persons
and/or entities
► Modern history of sanctions: Gradual evolution from
comprehensive (blunt) toward sectoral (precise) sanctions
regimes
► At least in theory, sectoral sanctions are more interactive,
coercive
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Legal authority for sanctions
► United Nations: UN Security Council can impose
mandatory sanctions; member states are required to
adopt implementing legislation; commercial entities must
comply
► European Union: applies sanctions within the Common
Foreign and Security Policy
► Applied on autonomous EU basis, or
► Implements UN Security Council Binding Resolutions
► United States:
► Federal laws (passed by Congress)
► Executive (presidential) Orders
► ‘Pick & choose’ – Switzerland, Canada, Australia, Japan
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The Result: Sanctions Gridlock
► Especially for multinational companies heavily engaged in cross-
border business activities, the possibilities for inadvertently violating
an applicable sanctions control are myriad.
► Many ‘permanent’ sanctions lists are frequently updated; e.g., OFAC
lists
► When names of persons or entities are removed from relevant
sanctions lists, the sanctions monitor must be timely informed so as
not to prohibit a compliant transaction.
► When names of persons or entities are added to relevant sanctions
lists, the sanctions monitor must be timely informed so as not to
permit a non-compliant transaction.
► The sanctions monitoring function operates between this mirrored pair
of threats.
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Sanctions vs. AML/KYC
► AML/KYC is an extremely important Compliance function; but if
Compliance properly aligns its risk appetite and risk management
profiles, the consequences for the overall organisation are properly
mitigated.
► One or even two bad apples can slip through a properly gauged and
implemented AML/KYC programme that makes proper use of risk-
based monitoring.
► For sanctions monitoring, one mistake is one too many. A single
violation of an applicable sanctions regime can have dire
consequences for all concerned.
► Sanctions monitoring is analogous to a government’s anti-terrorism
programme: The anti-terrorist forces need to get it right every time;
but the terrorist needs to get lucky only once.
► Unlike AML/KYC Compliance, sanctions monitoring is a zero-sum
game: ‘I win, you lose’ or ‘You win, I lose’
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Sanctions Regimes: Moving Targets
► As sanctions are an economic means of enforcing
political/diplomatic agendas, sanctions regimes change in
sync with changes in the political-diplomatic landscape.
► Iran, Cuba, Burma and Belarus: sanctions regimes
gradually easing (or expected to in near future)
► Russia: the applicable (US/EU) sanctions regimes are
regularly enhanced with the addition of new names
► This dynamic complicates even further the mirrored pair of
threats between which the sanctions monitor operates.
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Sanctions for Non-Financial Institutions
► Non-Financial Institutions (NFIs) do not get a free pass; to
the contrary, NFIs may have even more perilous terrain to
navigate than banks.
► Financial Institutions (FIs) operate in a highly regulatory
environment. Whether or not they like it, Boards of FIs
know that a robust compliance programme is the sine
qua non for maintaining the trust of their regulators and
staying in business.
► With certain well-known exceptions – e.g., pharmas, auto,
aviation, telecoms – NFIs tend not to perceive
‘compliance’ as such to be a relatively major overall
priority.
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Sanctions for Non-Financial Institutions
(cont’d)
► This inadequate or improperly gauged threat assessment
leaves NFIs susceptible to being blind-sided by sanctions
violations.
► Even NFIs that do maintain a robust compliance function
streamlined for their specific industry sector may not be
properly equipped for the painstaking and subtle nature of
adequate sanctions monitoring.
► In this context, retaining the expertise of qualified third-
party consultants can provide vital insights into otherwise
overlooked and/or underestimated potential exposures to
violations of sanctions regimes.
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Recent Sanctions Violations – FIs
► US$8.9bn – BNP Paribas – June 2014 (largest sanctions fine in DOJ history)
► BNP pled guilty to criminal charges of multiple transactions with Sudan, Iran and Cuba
► French President Hollande personally protested the size of penalty to US President Obama
► US$1.3bn (plus US$665mn in civil penalties) – HSBC – December 2012
► Per terms of Deferred Prosecution Agreement (DPA)
► Found to have completed transactions on behalf of clients in Cuba, Iran, Libya, Sudan and
Burma
► US$787mn – Crédit Agricole – October 2015, for illegal funds transfers, mostly to Iran
► US$619mn – ING – June 2012, for alleged transactions with Cuban and Iranian entities amounting
to billions of dollars
► US$536mn – Crédit Suisse – December 2009, CS employees were alleged to have trained Iranian
clients how to falsify transfer instructions to avoid triggering US transaction monitoring filters
► US$350mn – Lloyds TSB – January 2009, for transactions with Iranian clients by manipulating
correspondent bank accounts so as to evade detection
► US$298mn – Barclays – August 2010, for allegedly stripping wire transfers for clients in Cuba, Iran,
and other sanctioned countries
► US$258mn – Deutsche Bank – November 2015, for violating sanctions in both Syria and Iran
► US$227mn – Standard Chartered – December 2012, for stripping identifying information from wire
transfers for customers in Iran, Cuba and Burma
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Recent Sanctions Violations – NFIs
► US$4,073,000 – Epsilon Electronics – March 2014, civil penalty levied by
Office of Foreign Assets Control (OFAC) for violations of Iran sanctions
regime
► US$614,000 – CGG Services, SA – February 2016, for violations of Cuban
Assets Control regulations
► US$304,000 – Halliburton – February 2016, for violations of Cuban Assets
Control regulations
► US$250,000 – Johnson & Johnson – January 2016, for violations of
sanctions against Sudan
► US$141,000 – WATG Holdings, Ltd. (UK) – January 2016, for violations of
Cuban Assets Control regulations
► US$123,000 – Barracuda Networks (USA) – November, 2015, for violations
of sanctions regimes for Iran and Sudan
► US$97,500 – Gil Tours Travel – US$43,000 – October 2015, for violations of
Cuban Assets Control regulations and for facilitating travel to Cuba
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