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Insight

Sanctions are constantly changing. Here’s what firms can do.

Written by Teodora Harrop, FICA on Tuesday May 4, 2021


Over the last five years, there has been a significant shift in the sanctions world, from traditional jurisdictional and list-based sanctions to those that are more nuanced and thematic.

This ICA Insight piece will explore the jurisdictional evolution of sanctions, with a focus on sanctions concerned with human rights.

It will also discuss the ongoing importance of complying with sanctions requirements and of developing a robust sanctions framework.

Sanctions trends: Targeting corruption and human rights abuses

Firms which operate in multiple jurisdictions are always under pressure to review and assess the impact of new sanctions legislation and regulation.

This, to many in organisations, will be nothing new: it’s part of the perennial challenge of ensuring they comply with evolving sanctions regimes.

But the volume of emerging legislation is novel, and something to which organisations must adapt.

In March 2021, the UK government committed to introducing a global corruption sanctions framework; the aim of this framework was to ‘prevent those involved in corruption from freely entering the UK or channelling money through our financial system.’[1]

A month later, HM Treasury published a list of 22 individuals involved in corruption cases.

The introduction of the corruption sanctions framework will, according to the government, contribute towards achieving the wider objective of tackling ‘economic crime and illicit finance, which fund organised crime groups, terrorists and other malicious actors, undermine good governance and faith in our economy, and tarnish our global reputation by allowing corrupt assets to be held in the UK’. [2]

This is a certainly a positive development, complementing the human rights sanctions regime (the so-called ‘Magnitsky sanctions’) introduced in the UK through the Global Human Rights Sanctions Regulations in July 2020.

The US first implemented human rights sanctions back in 2012, through the ‘Sergei Magnitsky Rule of Law Accountability’, but it has taken several years for similar provisions to be implemented elsewhere.

Following the introduction of the UK’s regime, the European Council announced the EU Global Human Rights Sanctions Regime.

The Directive, unveiled in December 2020, is similar to the US legislation, in that it established a ‘framework for targeted restrictive measures to address serious human rights violations and abuses worldwide’.[3]


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Cooperation at jurisdictional level to target human rights abuses

The human rights regime enabled the UK to take swift action and for the first time; in March 2021, the government announced the introduction of new sanctions against perpetrators of human rights breaches in Xinjiang, China against Uyghurs and other minorities.

A joint statement was published on 22 March 2021 by the foreign ministers of Canada, the UK and the US Secretary of State, reinforcing their commitment to end human rights abuses: ‘We will continue to stand together to shine a spotlight on China’s human rights violations. We stand united and call for justice for those suffering in Xinjiang’.[4]

Further underlining the gravity of the new regimes, the Westminster Foundation for Democracy (WFD) commented that the ‘Magnitsky Sanctions create real world consequences that human rights violators and their masters are terrified of: individual accountability’.[5]


Develop ​your knowledge in managing sanctions risk:


How to keep up and comply with the evolving sanctions landscape

Whilst such regimes are welcome, they are a lot to keep up with. To ensure firms do so, understanding and documenting their sanctions risk exposure is key. Whilst the guidance issued by regulators varies depending on the jurisdiction, the Office of Financial Assets Control (OFAC) guidelines are a useful starting point when designing a sanctions framework or programme.

In their guidelines, OFAC state that a sanctions programme can be the greatest mitigating factor (if there is one in place) or the most significant aggravating factor (if there is not one in place) in determining the penalties imposed on organisations.

A risk assessment is also a fundamental part of a sanctions programme, and an excellent starting point with which to encourage business areas to think proactively about the impact of sanctions on their operations (current and proposed) in all jurisdictions.

Consideration also needs to be given to human rights compliance when making key choices with regards to onboarding suppliers and carrying out due diligence on supply chains.

Appropriate legal clauses also need to be drafted for inclusion in legal agreements, considering the possible outcomes, including licensing requirements and termination.

Increasingly, organisations are moving away from the ‘traditional’ approach of carrying out an overall ‘money laundering, terrorist financing and sanctions risk assessment’.

Instead, they are undertaking ‘standalone’ sanctions risk assessments, often using different risk weighting for the sanctions risk factor.

This approach provides flexibility to tailor the overall  sanctions programme to specific risks.

It also facilitates the design of appropriate controls to mitigate the risks, with consideration given to the organisation’s risk appetite.

When such measures are implemented, firms will find the ever-evolving sanctions landscape much easier to navigate, providing reassurance that they can adhere with confidence to sanctions legislation in their own jurisdiction, and around the world.

 

About the author:

Teodora Harrop, FICA, is the Head of Financial Crime and MLRO at Link Group. She moderated a session at the BIG Compliance Festival on 'Sanctions Risk' on 29 April. To watch the session on demand or book your place at the festival click here

 

References:

[1], HM Government, Global Britain in a competitive age: The Integrated Review of Security, Defence, Development and Foreign Policy, March 2021: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/975077/Global_Britain_in_a_Competitive_Age-_the_Integrated_Review_of_Security__Defence__Development_and_Foreign_Policy.pdf – accessed April 2021

[2] HM Government, Global Britain in a competitive age: The Integrated Review of Security, Defence, Development and Foreign Policy

[3] European Council, ‘Council Decision (CFSP) 2020/1000 of 7 December 2020 concerning restrictive measures against serious human rights violations’, 7 December 2020:

https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L:2020:410I:FULL&from=EN#page=15 – accessed April 2021

[4] HM Government, ‘Press release: Human rights violations in Xinjiang: Canada, UK and US joint statement’, 22 March 2021:

https://www.gov.uk/government/news/joint-statement-canada-uk-and-us-statement-on-xinjiang – accessed April 2021

[5] Westminster Foundation for Democracy, ‘The Magnitsky sanctions and the politics of individual accountability’, 17 September 2020:

https://www.wfd.org/2020/09/17/the-magnitsky-sanctions-and-the-politics-of-individual-accountability-2/ – accessed April 2021


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