I read a very interesting article in the New York Times recently about how North Korea are still able to defy sanctions after having done so for years. It describes large amounts of cash (in US dollars) being taken from a Chinese border town into North Korea to pay for clothes that are being made there but bearing the label ‘Made in China’. This makes them easier to sell overseas. Apparently these labels can be justified by small amounts of additional work made to the clothes when they are shipped back to China.
It also states that North Korea manages to circumvent banking sanctions by using front companies and overseas agents as well as using Chinese intermediaries who facilitate payments for North Koreans for a price, despite a ban on ‘bulk cash’ transfers.
The penalty for breaching sanctions is high; in March 2017 for example, OFAC reached a settlement with Zhongxing Telecommunications Equipment Corporation after an investigation into 251 violations of Iranian sanctions. This settlement included the payment of over $100 million to the US Department of the Treasury.
The UN, the EU, OFAC, and OFSI (the new UK sanctions body) have sanctions against various countries, people, organisations and even inanimate object such as boats. This is why it is extremely important to manage sanctions risk and have a sanctions governance framework in place, which will include effective due diligence. This would, for example, prevent countries like North Korea from being able to hide behind front companies etc.
Defining a Sanctions Governance Framework
Global sanctions regimes and export controls are designed to prevent terrorism and organised crime and firms are required to ensure compliance with them.
In order to meet these requirements firms will have to define a strong firm-wide sanctions risk appetite, maintain an internal framework to ensure that customers, third parties, and transactions do not breach sanctions rules, and monitor regulatory changes globally to ensure that systems and controls are updated in a timely manner.
A robust governance framework will typically include:
- documented policies and procedures
- systems for monitoring and screening clients and transactions against sanctions lists
- forums with a sanctions agenda
- clear roles and responsibilities, including designated officers with key responsibilities
- escalation processes
- requirements for reviewing sanctions-related processes (e.g. risk assessments, quality assurance procedures)
- reporting requirements.
Issues with volume, false positives, and updates to screening systems are common and, if not dealt with, can cause problems when screening names, customers, and transactions. This can lead to attempts to circumvent sanctions actually being successful.
How can ICT help?
To be honest, the list above doesn’t end there and with all of these details for firms to remember and perform, it is imperative that a firm’s knowledge of sanctions management and risk is developed and that they don’t wait for a sanctions-related investigation to invest in their sanctions programme, especially when it comes to training.
ICT have identified a need for advanced training in managing sanctions risk and created an innovative and recognised qualification designed specifically to explore the intricacies and challenges of meeting sanctions obligations, the latest sanctions best practice, and provides case studies to demonstrate the risks that sanctions present to firms and the frameworks used to manage these risks.
This is why the new ICA Advanced Certificate in Managing Sanctions Risk is a must have qualification for anyone involved in identifying, understanding and managing sanctions risk exposure.