Managing challenges of sanctions screening in your third-party risk program

Control Risks experts Henry Smith, Jonathan Wood and Emily Morgan joined FeiFei Ren of Miller & Chevalier on a Compliance Week webinar to explore current trends in the global sanctions landscape, the keys to building a successful sanctions compliance program, and advice on screening and management of third parties.  These are excerpts from their conversation. For the full discussion, you can watch the webinar on demand by clicking on the button below.

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Henry Smith: On the topic of the Global Sanctions Landscape, what are some of the most salient trends and themes that we currently see in the world of sanctions? 

Jonathan Wood: I'd like to begin by talking first about Russia and the geopolitics of sanctions in the global environment as the first key issue. We have over the last few months, seen the most expansive sanctions regime ever imposed on a major economy and that has inspired an unprecedented degree of global coordination and cooperation, but only among a certain set of countries. Many major economies, including key Western allies, are not directly participating in this sanctions regime, these include India, South Africa, Brazil, Thailand, Saudi Arabia, Mexico, Turkey, and of course, China. Whilst this is an unprecedented sanctions regime, 20 years ago the countries that are today involved in imposing sanctions on Russia were about 80% of the global economy. Today, they're about 60% and in 10 years, that will be an even smaller proportion. 

One of the questions about the geopolitics of sanctions is how effective sanctions can be in the long term, when there are questions about the impact of those sanctions on Western unity and solidarity. We've also seen geopolitical issues come to the fore in the application of these sanctions when it comes to exemptions, or derogations, which have been inserted to protect certain national interests. Whilst it is necessary to maintain this unprecedented degree of unity and solidarity, it also means that geopolitical considerations are never far from sanctions policy.

Henry Smith: Thanks Jonathan. Fei Fei, what are some of the trends that we're seeing in US sanctions enforcement? 

Fei Fei Ren: Very similar to what Jonathan was discussing; Russia is the fire that's sucking most of the air this year. The US has spent a lot of effort coordinating with EU and UK partners to ensure that the sanctions imposed on Russia are aligned. In March, the Department of Justice launched the task force “KleptoCapture”, which is an inter-agency law enforcement task force dedicated to enforcing the new sanctions export restrictions and economic countermeasures that the US imposed along with the allies and partners in response to the Ukraine conflict.

As Jonathan also pointed out, OFAC has identified cryptocurrency as a threat to the effects and effectiveness of the US sanctions regime. Similarly, the Financial Crimes Enforcement Network issued an alert about how certain parties are evading sanctions recently imposed by the US on Russia as well as some of the common red flags. 

Finally, the Bureau of International Security and Non-proliferation has been identifying a list of airlines from Russia and one from Belarus, as having flown into Russia in violation of US export controls measures. So those are some of the trends and highlights in US sanctions enforcement this year.

Henry Smith: So Fei Fei, when regulators are looking at an organisation's approach to sanctions in light of a potential enforcement action, what are they typically looking for? And what are they typically asking? 

Fei Fei Ren: There are three questions that they always ask. First, assessing the effectiveness of a compliance program; is it well designed, and does it fit in with the company's business and customer base? The second question is is it being applied in good faith, or does it only exist on paper and not implemented throughout the organisation? And the third question is does it work? 

When you look at the elements of an effective sanctions compliance program considering those questions, the authorities would typically look at these eight elements to assess whether a company's compliance program is effective. 

  • Management commitment
  • Risk assessment
  • Compliance policies and procedures
  • Oversight, autonomy and resources
  • Screening, systems and controls
  • Training and continuing advice
  • Periodic testing, updates and review
  • Handling violations and taking corrective action

Those are the eight essential elements that the DOJ and other authorities in the US consider when they assess the effectiveness of a company's compliance program.

Henry Smith: Emily, what are the primary concerns when it comes to sanctions risks with third parties?

Emily Morgan: Sanctions Risk can really be a minefield to navigate, and one of the things we initially advise clients if they haven't got a screening and due diligence process around third parties in place is to consider subscribing to a screening solution. We have worked with third parties and clients that already check their third parties manually on lists that they're aware of, such as OFAC or other specific sanctions lists that they know are of a concern to their organisation. But there are some risks around doing it that way, not least the fact that it's time consuming and very cumbersome. 

You must be sure that you're checking every possible list that might apply to you and your organisation. In essence, sanctions can apply to pretty much any company, industry, or country however, they are wide reaching so it isn't always obvious which list might apply to you.

When you've got a screening solution, you can search across every international sanctions and national sanctions list across the world. This allows you to determine whether the sanctions list applies to you, identify new concerns about third parties and determine at that point whether that is something you need to report or decide about in terms of going ahead with them.  I think being able to screen hundreds of lists all at once is a real benefit of having a screening solution.

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