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Written by Holly Thomas-Wrightson on Wednesday December 14, 2022
In early December, we hosted a webinar looking at the challenges faced by organisations in light of the huge changes in the sanctions landscape in 2022, and at a particularly rapid pace regarding Russia. Neil Whiley, Director of Sanctions for UK Finance led the discussion with Freya Page, Head of Guidance at the Office of Financial Sanctions Implementation (OFSI), Ian Boulton, Founder and CEO of Sanctions SOS Consultancy, and Luma Zitani, ICA Fellow and Senior Manager at Accenture.
Whiley began by looking at the scale and speed of change in the sanctions environment; since 2021, the number of sanctioned Russian individuals has leapt from 180 to 1,447, with entities also seeing a significant uplift from 48 to 161. In the wider scene, where statutory instrument updates have historically been rare, there have been 16 Russia-related alone this year, and general licenses have come into their own, too, jumping from 2 to 28.
With such quick and sweeping shifts in the sanctions landscape, Whiley asked the panel to give their perspectives on the changes seen in their respective sectors.
Page shared how the speed and extent of implementation has required OFSI to take a very reactive and fluid approach to new developments. In response to which, perhaps the biggest innovation has been the use of general licenses. Where prior to the Russian invasion of Ukraine OFSI had only one general license in place, amendments to the Sanctions and Anti Money Laundering Act facilitated the easier issuance of general licences to allow legitimate businesses to continue to operate, and to help mitigate some of the unintended consequences seen in previous sanctions packages. This has been a huge shift in what governments can do to protect so many industries that may have never faced sanctions before.
From the private sector, Zitani explained how this year has been a huge stress test for so many financial services organisations’ existing compliance programmes.
She also considered how the breadth of scope of the impact of sanctions has shifted to such a huge degree that, for a multitude of non-financial sectors, it has rapidly become far more direct and relevant to them than ever before. For many, it was the first time that they had to realistically evaluate their own sanctions risks, confronting the reality that it is for them – not just their banks or other financial entities – to be aware of their responsibilities.
Page built on this, pointing out that financial institutions only see a small snapshot of what is going on, and how this highlights the importance of every participant in a transaction to carry out due diligence.
‘Sanctions are applicable to everybody’, Whiley agreed, ‘not just regulated industries. Literally every single person in the UK, irrespective of where you are.’
Boulton noted this year’s sanctions were reserved not only to Russia; amongst others, the UN quite recently put in place a new regime on Haiti. We have also seen significant divergence in the application of regimes, especially in the context of Russian sanctions, each country taking different approaches to the application of those sanctions and at different times dependent on their priorities.
We are also seeing a difference in the way that sanctions are used. The EU appears to be moving away from the traditional approach of employing sanctions just to push behavioural change, into potentially using frozen assets as a means of rebuilding in Ukraine, moving towards treating them more like a punishment for a criminal offence.
Many organisations are facing challenges in recruiting experienced staff to help guide them through these turbulent times. While the need for people with the depth and breadth of knowledge is now recognised, and in the future the current drought of people in that pool will likely be remedied, it’s important for organisations to use this as an opportunity to look at the resources that they have now and assess how to use them effectively.
Boulton agreed, adding that it is important to remember that you don’t just need to hire new staff with the skills you’re looking for; there is a wealth of training options available, both in person and online. Training existing staff also creates a more diverse knowledge set, as someone who already knows the business, especially if they originated in a different area, will have a wider and more holistic understanding of its inner workings.
Technology also cannot be overlooked for any business trying to keep up with sanctions; Whiley quoted a study of 500 corporates showing that customer screening alerts are running at three times the volume of the previous year, with transaction screening at 497%, which simply cannot be overcome by increased hiring alone. ‘You need to grow the people,’ said Zitani, ‘but you also need to allow them the ability to do more with the tools that they have at hand.’
If 2022 has taught us anything about sanctions, it’s that it is a dynamic area where change can happen overnight. A key tip to keep on top of it is to adopt an approach of proactive horizon scanning.
While it can be hard to predict exactly what will happen next, it’s important to look at what’s already happening in the world and predict where the focus is likely to shift to in the near future: where are there issues being raised already regarding things like civil unrest, foreign policy, nuclear proliferation, modern slavery or environmentally damaging practices like illegal logging, fishing and mining? While from a legislative perspective, these issues often fall outside of jurisdiction, more governments may decide to react by placing sanctions on countries that allow these activities to continue as a way of encouraging behavioural change, and so they should be factored into organisations’ risk assessments.
The final message from Whiley was that while 2022 saw a huge amount activity in sanctions, 2023 is likely to only continue the trend. This is the time for organisations to prepare themselves by developing their people, taking advantage of the technology at hand and to try to look to the future.
Learn more about the ICA Diploma in Managing Sanctions Risk.
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