Once again, the evolution of sanctions in 2022 is highlighting the importance of taking a structured approach to the analysis of new regulatory developments. Anyone taking part in a specialist seminar in 2021 who chose to focus exclusively on details of existing sanctions would have found themselves ill-prepared for developments over the last few months. Rather than focusing on specifics, it is essential to analyse the nature and structures of sanctions, so that one can more rapidly classify new initiatives based on a systematic understanding of their implications.
Since February alone, the EU has published more than 30 bulletins in the official gazette updating the regulations in the six existing “packages” of sanctions – and these are just the sanctions applying to Russia’s war with Ukraine. As experienced practitioners already know, it is also important to keep a close eye on the Office of Foreign Assets Control (OFAC), which reports to the U.S. Treasury Department and has already released more than 20 related publications. In both cases, the publications are supplemented by numerous updates to the accompanying materials (such as FAQs).
The best approach for compliance officers responsible for such areas of activity depends, first of all, on their employer’s business profile, given that not all of the many sanctions will be equally relevant. Thus a financial services provider, for example, will not (as a rule) have to worry too much about import and export restrictions – unless, of course, they are involved in financing such commercial transactions. Similarly, an SME specialising in mechanical engineering will rarely have to worry about exemptions to financial sanctions, but should be well aware of any restrictions imposed on its own products and markets.
It is also important to distinguish financial sanctions from the many other types of sanction. The two components of financial sanctions – the prohibition of disposals and prohibition of supply – together result in (to oversimplify somewhat) a total ban on all transactions with the persons specified in the relevant sanctions.
Until 2014, the technical conditions for dealing with persons on a list of sanctions were more or less clear. But then so-called “sectoral” sanctions were introduced. Suddenly, lists included other (legal) persons and entities that were not subject to the familiar financial sanctions, but governed by different sets of rules. Meaning that not all business dealings were prohibited – only certain credit and securities transactions. There were also bans on the financing of certain goods and technologies.
The various instruments in the six above-mentioned packages of sanctions have seen much subsequent development. In particular, the various prohibitions on the provision of funding or financial assistance are now associated with multiple criteria such as products, technologies, services, regions and persons. Threshold-based bans on financial deposits have also been introduced.
It may make political sense for these measures to be meticulously differentiated and fine-tuned so that any associated impacts on foreign policy – notably escalation – can be managed in appropriately judicious ways. As a result, however, a set of complex regulations enforced by stringent penalties has emerged in a very short period of time, confronting practitioners in the industries concerned with many challenging questions concerning real-world implementation.
Here, a structural understanding of the origins, analysis and application of these regulations can serve as the key to successfully reducing risks to your own company and workforce. This should be accompanied by an understanding of the correlations between compliance with financial sanctions and compliance with the Money Laundering Act. In particular, the new sanctions require that you should be able to swiftly identify and continuously monitor any and all Russia-related references in your own customer and business portfolios. This is much easier to do if your company has, in the course of fulfilling its due diligence obligations (“know your customer”), already established suitable technical and analytical frameworks on which you can now rely. Such country-specific analytical and monitoring systems help you to identify relevant risks faster and more reliably in the future, even when new kinds of sanctions are imposed.
Frankfurt School’s Certified Compliance Professional and European Certified Compliance Professional are taught by experienced practitioners specialising not only in sanctions and embargoes, but in all compliance-related matters. Systematic explanations accompanied by case studies help course participants learn how to deal with today’s compliance issues and tomorrow’s risks.