Sanctions are now very much headline news; companies have to be sure that they remain in-line with the latest sanctions lists, says AJ Thompson, CCO at Northdoor plc
The beginning of 2022 has seen a huge rise in the profile of sanctions lists. There is now real pressure on organisations to make sure they are not dealing with banned organisations or individuals. Those companies that fail to check are not only falling foul of regulation, but also potentially ruining their reputation.
The process of checking sanctions lists has always been complicated, especially for organisations that are dealing with multiple companies and individuals across multiple countries. However, with the sanctions landscape now constantly moving and increasingly complex, the process is more difficult than ever.
The increasingly complex sanctions landscape
The process for checking sanctions lists has long been an onerous one. With multiple lists depending on which sector you are doing business in, in which country you are operating and which individual or company you might be working with, the effort needed to ensure you are in-line with regulations was huge – especially when this process was a manual one.
For UK companies Brexit had already added a layer of complexity to the sanctions checking process. The move away from the EU meant that companies within the UK were longer subject to EU sanctions and had to abide by the UK’s own sanction regime, the Sanctions and Anti-Money Laundering Act 2018. Companies were forced to review all lists to ensure that there were no changes.
However, in the first few months of 2022 the UK Government has added 750 extra companies and individuals to sanctions lists since the start of the Ukrainian crisis. Suddenly the checking of sanctions has become even more complex, and frankly important. The penalties for failing to ensure you are dealing with individuals and companies not on sanctions lists are increasing all of the time too.
Even as far back as March 2020, Standard Chartered Bank was fined £20.47million by the Office of Financial Sanctions Implementation (OFSI), for dealing with Denizbank A.S., which was wholly owned by Sberbank in Russia, which was on the Ukraine sanctions regulations after the annexation of Crimea. This fine marked a significant shift in the OFSI’s approach and one that presumably marks a line in the sand for anyone caught dealing with sanctioned Russian organisations.
It is not just the financial implications though. We have seen over the past few weeks real pressures on organisations that were perceived to be continuing to operate within the Russian state or with Russian companies. For those UK organisations who may have missed a name on a sanctions list and been pulled up by the OFSI, the resulting publicity could have a hugely detrimental impact on reputation.
Time to automate the sanctions checking process
With so many names being added on such a regular basis companies cannot afford to take an on/off approach to checking sanctions lists. Many companies continue to give responsibility to one person to manually check every time a payment is due to go out or a new contract is about to be signed. This is obviously, no longer an effective way of ensuring adherence to sanctions.
Companies are turning to an automated approach. Implementing easy-to-use, easy to integrate and powerful systems that enable organisations to check their clients against current international sanctions lists on an ongoing basis, takes the responsibility away from individuals. Automating the process like this means organisations can be confident of adherence even when, like now, the lists are in a constant state of flux.
Such systems can automatically search all assigned, relevant, sanctions lists and quickly identify any new additions that had not been previously identified. It is clear that the sanctions landscape is not going to be getting any clearer or less complex in the coming weeks and months. Certainly, we should expect more names to be added on to sanctions lists or increased sanctions placed on those already included.
For organisations dealing with multiple companies and individuals in multiple territories, across multiple sectors it is now almost impossible to successfully navigate the sanctions landscape without automating the process. Failing to adhere sanctions is undoubtedly going to have an increasingly severe impact on companies from both a financial and reputational perspective.