Importance of Sanctions for Businesses

I was recently discussing with our CEO, Johnny Ayers, that there's a new OFAC regulation that's coming out from Congress (as part of H.R. 815 signed by President Biden in late April as part of the foreign aid package) that says that instead of five years of review, organizations now have to double that review period to 10 years of history. Why are they going to go back 10 years? Functionally, it means the U.S. government will be able to investigate and pursue enforcement actions against potential violations of U.S. sanctions laws for an additional five years, increasing the risk for companies that may violate U.S. sanctions. It is likely that OFAC will expand its recordkeeping requirements to match the ten-year period specified in the new statute from its current five-year retention period subjecting them to additional fine events under the expanded scope.That means accountability for civil and criminal penalties over a longer time horizon. Strategically, as the AML regime shifts its focus from non-state actors to state actors, sanctions are an increasingly popular tool to exert influence and force the hands of nation state programs hostile to US interests. Simply put, the government wants expanding ability to shut off access to the financial system, to disincentivize these nation states from doing the things they do. It’s a viable tool. And not surprisingly, this new rule gives the government increased capability to seize assets identified in sanctions programs. Fortunately or unfortunately, depending how you look at it, we in financial services, and any organization doing business in the U.S. continue helping to enforce government policy.

STOP SANCTIONS VIOLATIONS BY DESIGNATING AN OFAC OFFICER IN YOUR SHOP Once, when I was the Financial Crime Consultant at World-Check, having an extra day before my flight back to the US from South Africa, I spent several hours inside the company's Cape Town research center. That day, the publication of American sanctions against a transnational financial criminal spurred the staff to immediately update information, in detail, on the database of high-risk individuals and entities. I was suitably impressed with the priority basis for that action, verifying and placing, the new information online literally within minutes. While most compliance departments don't have forty competent, multilingual people on staff, to jump to meet any new challenges forthwith, the constant threat of the threat of unwittingly banking new OFAC sanctions violators, as well as the embarrassment when someone else discovers this, is something that perhaps you can reduce your risk of problems by establishing OFAC Officer as a position within your shop. That individual would be charged with reviewing, at least twice daily, all new OFAC and FinCEN releases, to insure that you are not caught flat-footed by regulators, for failure to promptly catch an new sanctions notice. That individual can do double duty, provided their primary role in your department gies them adequate time to check out new regulatory developments on a daily basis. Don't rely upon notices in the financial press about sanctions, or the accidental discovery that a counterparty is newly sanctioned; get ahead of the game by having someone always watching the regulatory horizon, to reduce the risk of finding out, too late, that your bank is, ir is about to, conducting business with an individual or entity that you must avoid at all costs.

Sanctions! I was discussing sanctions with some professional friends, and we all agreed there is still work to be done to ensure risk is being mitigated and the organization is in compliance. Here are some ways (not all) to protect your organization and deter sanctions violations: Stay Informed: Stay updated on the latest sanctions regulations and changes. Regularly review official government websites and resources, such as the Office of Foreign Assets Control (OFAC) website, to understand the specific sanctions programs and restrictions. Screen Transactions: Implement robust screening processes to identify potential sanctions violations. Use screening software or services to check individuals, entities, and countries against the OFAC sanctions lists and other relevant lists. Know Your Customers and Partners: Conduct due diligence on or screen your customers, suppliers, and business partners to ensure they are not involved in sanctioned activities. Verify their identities, perform background checks, and assess their compliance with sanctions regulations. This is a crucial component of AML/FCC (financial crime compliance) compliance programs and assists organizations in making compliant risk decisions. Establish Internal Controls: Develop and implement internal policies, procedures, and other controls to ensure compliance with sanctions regulations. This includes but is not limited to training employees on sanctions awareness, conducting regular audits, and maintaining accurate records. Monitor Transactions: Continuously monitor transactions and activities for suspicious or potentially sanctioned behavior. Implement automated systems or manual processes to flag and investigate any red flags or anomalies. Report and Self-Disclose: If you discover a potential violation, promptly report it to the appropriate authorities, such as OFAC. Consider voluntarily self-disclosing the violation, which may lead to mitigated penalties. Seek Professional Advice: Consult with professionals who specialize in sanctions compliance to ensure that your business practices align with the regulations and to address any specific concerns or questions To ensure you are not violating sanctions, it is essential to take proactive measures and implement effective controls. Remember, compliance with sanctions regulations is crucial to avoid legal and financial consequences. By implementing these and possibly other measures (consult with professionals), you can help protect your organization and maintain a strong compliance posture. I welcome your comments and suggestions.

U.S. Department of the Treasury #OFAC just dropped a small enforcement penalty ($22,172) for a New York based aviation products company. This brief read is a good reminder for any industries involved in #shipping products of any kind to overseas companies. The penalty could've been $2.2MM in this case. 1) Rescreening of customers is a hot topic. The date of order vs. the date of shipping - if they are not the same day, then the customer and their country information should be rescreened prior to shipping/executing the service. 2) For refunds, the customer and their country info should be rescreened prior to execution of the refund. This applies to all #banks, #fintechs, and #companies that provide products/services to overseas entities. Big takeaways - know your jurisdictional risk (KYJ) and know your industries (KYI)... not that we need more KYXs in our world. But really, relying on just name matching will lead you down an expensive path of penalties and remediation. We *must* get out of that "well, we screen the name" approach to sanctions. It goes beyond that. Indicators of all your #sanctions threats can only be found once you gather up your industry and jurisdictional data. Let's make 2025 the year where businesses of all kinds, have a good grasp of the sanctions threats. This can happen by operationalizing the Treasury's Framework (link in comments below). Your company does not need an expensive talking head to execute this. Do you have an employee that has an eye for detail, likes #data, and can read? Great! You're hired. Let's get it done. 💪 Happy New Year! 🎇 #ifollowdirtymoney

Doing business with the enemy? It’s an expensive mistake to make… Let’s be clear. Even if it’s by mistake, breaching sanctions is a criminal offense. It can lead to eye-watering fines of up to $20 million, and 30-year jail sentences. If you breach the Trading with the Enemy Act, expect a fine of up to $65,000 per infringement. The International Emergency Economic Powers Act? $250,000 for each offense. Don’t even mention the Foreign Narcotics Kingpin Designation Act - each infraction could cost $1,075,000. Now that would sting. 💲 Companies are often tentative about reporting breaches in case they’re found complicit. However, the US and UK governments are saying that honesty is the best policy, even for unintended sanctions breaches. As Giles Thomson, director of the UK’s Office of Financial Sanctions Implementation (OFSI), explains: “We’re not going to come after people with a sledgehammer who are seeking to do the right thing.” Companies that do due diligence, and self-report breaches, will be treated in good faith - albeit unofficially. So what should you do if you suspect you've unwittingly broken the Trading with the Enemy Act? Your first move should be to root out the breach and put a stop to it. A breach could mean many things - a party or country that’s restricted, a type of transaction or product that is prohibited. Next, it’s time for a preliminary review. Scope out how serious the breach is, which will help you decide how to report it to the authorities. This also means calling in the lawyers. After that, it’s time to look internally with a step-by-step investigation. That’s where we can help you. At The Owl, we manage specialized investigations, taking a bespoke approach to each challenge. Need to report a breach? Not feeling sure about a potential client or associate? Sanctions targets can be skilled at hiding their guilt, and this is what we can investigate for you. 🔎 Sanctions avoidance covers countless different areas. Targets might sidestep sanctions by transferring assets to family members, or using front companies. 🏠 Real estate provides a usefully opaque way of laundering money and giving the appearance of legitimacy. For instance, Russian elites around the world have been trying to obscure their property investments since February 2022, for obvious reasons… One of the most popular ways to get around sanctions is through the use of legal entities and complex corporate structures that seem clean on the outside while hiding sanctioned assets. Our job is to unpick those layers, to see where a sanctions breach could have occurred. You really want to avoid having to report yourself to the authorities, so investigate any new individuals or companies you’re looking to do business with that. We can help with that. And we’re there if you discover something suspicious after the fact, too. Make us your first call and The Owl is primed and ready to swoop in. 🦉Want to know more? Shoot us a hoot