The Rising Bar of Sanctions Compliance
An Expert Forum that discusses sanctions compliance and enforcement in Asia Pacific and the lessons to learn in identifying the root causes of sanctions failures
This Forum was first published in the Risk & Compliance Magazine.
At a Media Forum focused on the topic ‘Economic Sanctions Compliance and Enforcement in the Asia Pacific Market’ Chris Linde, Partner, Risk Advisory shared his views on the many lessons to learn in identifying the root causes of sanctions failures and the necessary steps to develop systems, processes and controls to prevent future breaches.
1. Could you provide an overview of sanctions enforcement in the Asia-Pacific region? To what extent are regulators becoming more sophisticated, and stepping up their monitoring and enforcement efforts?
There is a common perception in the financial services industry that the signature standard for economic sanctions trends has been set by the UN. There has been little motivation for countries to develop autonomous sanctions lists, rather choosing to adopt those imposed by the UN and US lists. As a consequence, regulators in Asia Pacific have not imposed alternative standards of supervision and enforcement and tend to rely more on the application of the UN and US approach.
It is also arguable that many countries still view UN sanctions as representative of US foreign policy and perceived as activity by the US to try and give ‘teeth’ to the UN proclamations.
There have been some observed “enforcement” shifts by regulators notably in Singapore and Australia. The Monetary Authority of Singapore (MAS) recently included sanctions as part of its financial sector compliance reviews, placing forth the requirement for a minimum of two foreign banks to conduct sanctions investigations.
In Australia, there is an ongoing review on the shifting of regulatory responsibility with respect to sanctions from the Department of Foreign Affairs and Trade (DFAT) over to AUSTRAC, the Money Laundering Regulator.
2. How would you describe the general level of sanctions awareness among companies operating in the Asia Pacific market? What methods can companies use to keep abreast of regulatory developments and current restrictions?
There appears to be limited awareness among non-bank financial institutions and other corporates operating in the Asia Pacific region. These include exporters of high risk goods like explosive and armaments, where there may not be full appreciation of the importance of adhering to sanction controls.
As regimes and sanctions lists are continually evolving, including the creation of new sanctions and the lifting of old ones, it is important for companies to stay on top of the latest developments to navigate and mitigate risk while doing business in Asia Pacific.
The strategy for sanctions compliance really should operate on a risk-based continual loop. This means that information obtained from the results of sanctions screening, regulators, industry peers, internal audit, compliance reviews, and any other relevant sources should feed back into the consideration of the sanctions risk assessment and the strategy for the organisation.
3. Have any recent, high-profile sanctions violations caught your eye? What lessons can we learn from such cases about the risks companies face in this area of the law?
There has been an increasing level of high-profile sanction violations that demonstrate how a breakdown in effective controls in any aspect of a sanctions compliance programme may place companies at risk of a breach.
Even simple agricultural goods to a sanctioned country can create a regulatory problem. This underlines the importance of establishing clear system based controls that ensure the accurate recording of end-users and beneficiaries including geographies and testing against sanctions lists, even for those that deal in goods that are not military or dual-use goods.
Companies must have sound due diligence processes, especially in high risk jurisdictions. There is an increasing expectation from regulators that transactions will be rigorously scrutinised in regard to beneficial owners and controlling interests.
Perhaps the highest profile sanctions violations in Asia Pacific recently were the prosecutions by the US on Chinese firms suspected of breaching economic sanctions on North Korea.
Forensic Foresight: July 2016