Maura Rezendes speaks to Financier Worldwide on sanctions compliance and enforcement

In broad terms, what do you consider to be the key developments and trends to have arisen in sanctions compliance and enforcement over the past 12 months or so?

There have been several developments and trends in sanctions compliance and enforcement. We have seen a pervasive use of sanctions by authorities to impose sanctions on those determined to circumvent or evade US sanctions prohibitions or assist those targeted by US sanctions. There has been an increasing overlap and synergies between the Office of Foreign Assets Control (OFAC)-administered economic sanctions and Commerce Department-administered export controls. Also notable is increasingly robust analyses around whether activity with or involving US sanctions targets includes a US nexus of any kind, and appropriate interrogation of any such nexus.

In your opinion, what are the most pressing sanctions-related issues facing companies engaged in international trade?

As the US and global sanctions landscape becomes ever more complicated, with overlapping and, at times, competing, restrictions, prohibitions and obligations, the most pressing sanctions-related issues facing companies grow out of the increased need to evaluate activity holistically. It was once the case that the US was considered the most rigorous sanctions regime, and in fairness, it likely still is, but strengthening of other regimes by allies and otherwise necessitates a more comprehensive review and diligence exercise when contemplating activity that may involve sanctions targets.

Have you observed any intensification of recent enforcement activity? How aggressively are regulators pursuing and punishing companies that breach sanctions?

While the number of overall public enforcement actions by OFAC did not materially increase in 2023, it is fair to say that enforcement activity has intensified. OFAC issued 17 public enforcement resolutions in 2023, up one from the 16 public resolutions in 2022, and down three from the 20 in 2021. The overall settlement amount across the 17 public resolutions in 2023 was just north of $1.5bn, and notably nearly 96 percent of that amount relates to just two of the 17 resolutions: British American Tobacco and Binance. The approach of fewer, more impactful, resolutions is consistent with the OFAC’s public statements around using enforcement as a messaging tool to clearly signal the types of activities OFAC deems particularly troubling from a national security and foreign policy perspective. In addition, in March 2023, the US Departments of Commerce, Treasury and Justice issued a tri-seal compliance note detailing their collective crackdown on third-party intermediaries used to evade Russia-related sanctions and export controls, and in July 2023, a further note was issued addressing the agencies’ collective expectations around the submission of voluntary self-disclosures of potential violations.

What, in your opinion, are the key requirements of a robust sanctions compliance programme? To what extent are companies utilising technology to strengthen their processes and controls?

OFAC detailed the key requirements of a robust sanctions compliance programme in its 2019 issuance of ‘A Framework for OFAC Compliance Commitments’, which highlighted management commitment, risk assessment, internal controls, testing and auditing, and training as the foundational hallmarks and baseline expectations of such a programme. Furthermore, companies are indeed utilising new and emerging technologies to enhance their processes and controls, both because certain technologies are proving useful and because OFAC expectations on this front are increasing. For example, in September 2022, OFAC published ‘Sanctions Compliance Guidance for Instant Payment Systems’, in which it noted that it was aware of artificial intelligence tools and other innovative compliance solutions, such as those that leverage information sharing mechanisms across FIs, which may enhance sanctions screening functions and reduce false positives. OFAC went on to say that where appropriate, based on an institution’s assessment of risk, OFAC encourages the use of such tools and other emerging technologies and solutions to manage sanctions risks that could arise in the context of instant payments. The availability of more advanced technological tools is moving the needle on what OFAC will consider to be reasonable when assessing whether compliance systems and efforts were adequate.

How important is it for companies to carry out sanctions-related due diligence in their global business dealings? Are more companies seeking suitable assurances from entities they engage with, to reduce their exposure?

While assurances from counterparties on sanctions compliance is expected and can be valuable, given that US sanctions generally impose strict liability, such assurances would typically not operate to insulate a company from violations of US sanctions. As a result, the importance of sanctions-related due diligence cannot be overstated. It is incumbent on companies to carry out robust and adequate due diligence on their global business dealings, which can be strengthened, but not replaced, by counterparty assurances on compliance.

In your opinion, do companies need to improve their ongoing compliance processes? To what extent should they proactively review and update internal controls in line with regulatory changes, new business strategies and shifting market conditions, for example?

Compliance processes should be living, breathing and dynamic, such that they can be tweaked or updated to reflect regulatory changes, which often are immediately effective, requiring near-immediate compliance. Further processes should be capable of change to capitalise on new and more advanced tools and resources, which will be expected by OFAC and other stakeholders.

Looking ahead, what are your predictions for the sanctions landscape in the coming months? Do you anticipate increased government enforcement, and greater risks for multinational companies?

As has been the trend for some time now, and certainly since February 2022, the sanctions landscape is likely to become even more complex and, as a result, likely more difficult to navigate. Many have considered that Russia is a ‘nearly’ comprehensively-sanctioned jurisdiction – it is not, at least not yet. Change on this front is certainly an area to watch in the coming days and months. The days of new comprehensively sanctioned countries may be a feature of the past, replaced in modern times by more surgical or ‘smart’ sanctions. While much is already restricted and prohibited with respect to Russia, comprehensive, country-wide sanctions targeting Russia, such as an Iran or Cuba-style US programme, would, in many ways, be the ultimate escalation and a game-changer.

This article has been reproduced with permission from Financier Worldwide.