How are international sanctions implemented?
Sanctions are imposed by: international and supranational organisations such as the United Nations (UN) and the European Union (EU); and, national government departments. In the UK this would include OFSI - part of Her Majesty’s Treasury (<a href="/glossarycollection/her-majesty's-treasury" style="color:#48277C;" target="_blank" title="Her Majesty's Treasury"><u>HMT</u></a>) - and in the US, the Office of Foreign Asset Control (<a href="/glossarycollection/the-office-of-foreign-assets-control" style="color:#48277C;" target="_blank" title="Office of Foreign Assets Control"><u>OFAC</u></a>).<br/><br/>
Sanctions can be targeted at individuals, entities, vessels, aircraft and specific industry sectors. A financial institution must, directly and indirectly, ensure that it is not: <br/><br/>
- conducting transactions or maintaining accounts with or for sanctioned targets; <br/>
- supporting or facilitating prohibited activities, including trade; <br/>
- providing financial products and services to parties resident in, or with exposure to, restricted countries (subject to policy). <br/><br/>
Firms must also prohibit employees, including directors, from knowingly undertaking an activity which would, (directly or indirectly): <br/><br/>
- evade sanctions regulations or firm policy; <br/>
- enable the provision of financial benefit or service to a sanctioned target; <br/>
- result in the concealment or reference to a sanctioned element; or<br/>
- allow customers or third-parties to carry out any action that would facilitate any of the above.<br/><br/>
Clients should be screened for sanctions: during client onboarding, (before you trade); when making payments; and, continually, (not least to check for regulatory list changes). Screening checks will include but are not limited to: company name; directors; shareholders; signatories; and, persons of significant control (<a href="/glossarycollection/person-with-significant-control" style="color:#48277C;" target="_blank" title="Person With Significant Control"><u>PSC</u></a>).
Adverse Media Screeing<br/><br/>
Running adverse media screening isn’t just a question of protecting your company from reputational damage or building a helpful image of a client’s risk profile: it’s also a regulatory requirement of financial authorities around the world. Accordingly, financial institutions should be aware of the regulatory environments in which their media screening process runs - and ensure it meets the needs of the authorities in the wider fight against money laundering and financial crime. <br/><br/>
The EU’s 4th Anti Money Laundering Directive (AMLD4) requires firms to perform enhanced <a href="/glossarycollection/customer-due-diligence" style="color:#48277C;" target="_blank" title="Customer Due Diligence"><u>CDD </u></a> for high-risk customers, a process which includes “carrying out open source or adverse media searches”. AMLD4 was strengthened by <a href="/glossarycollection/fifth-anti-money-laundering-directive" style="color:#48277C;" target="_blank" title="Fifth Anti-Money Laundering Directive"><u>AMLD5</u></a> on 10 January 2020: the new Directive focusses on digital CDD and encourages the use of automated adverse media screening. On 03 June 2021, <a href="/glossarycollection/sixth-anti-money-laundering-directive" style="color:#48277C;" target="_blank" title="Sixth Anti-Money Laundering Directive"><u>AMLD6</u></a> will take effect across the EU. AMLD6 will add both cybercrime and environmental crime to the list of money laundering predicate crimes and extend the criminal liability of money laundering to enablers and legal persons. That adjustment will expand the necessary scope of the adverse media checks that obligated financial institutions must perform. <br/><br/>