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Written by David Povey on Thursday March 10, 2022
As the terrible conflict in Ukraine intensifies, sanctions are making global headlines. This public and media interest has brought with it fresh challenges for those trying to keep pace with the complex measures imposed by governments on entities linked to the Russian state.
In response, an ICA webinar on 9 March sought to bring some clarity to the new sanctions landscape. Led by ICA Vice President Pekka Dare, our expert panelists came together from a variety of backgrounds to share their knowledge and advice.
The current state
Pekka Dare began with a summary of the collective international unilateral sanctions against Russia, noting that the attendees – who tuned in from Malta, the UAE, Lithuania, South Africa, Kenya, Nigeria, France, Australia, the UK and beyond – reflected the global interest in the topic.
Paige Berges observed that sanctions have so far been issued broadly, with large sanctions packages imposed in tranches in an attempt to deny the Russian government the funds to support its war effort.
Some context to the Russian invasion was then given, including Russian President Vladimir Putin’s decision to declare two regions of Ukraine breakaway states. In a speech on 21 February 2022, Putin declared that Russia had decided ‘…to immediately recognise the independence and sovereignty of the Donetsk People’s Republic and the Luhansk People’s Republic’.
What followed was, for those countries that had them in place, the extension of current sanctions related to Crimea to cover these two regions. However, when the conflict escalated, asset freeze sanctions were issued from the EU, the UK and the US. These were focused on Russian military leaders and others in important positions of responsibility.
When things escalated further, new sanctions were introduced in an attempt to deny the Russian state funding, targeting key areas of revenue, finance, energy and transport. Additional packages were then imposed on export controls and military dual-use goods, whilst others were enhanced on existing items.
Extending existing regimes
Neil Whiley picked up this theme, pointing out that as previous sanctions have been aimed at Crimea, there were some sectoral sanctions already in place. What we’ve seen now after the invasion, he said, is the framework on Crimea being used on these other areas. Whiley also noted the remarkable speed at which all this is happening, with six UK amendments issued on the Russian sanctions programme in a matter of days – an unprecedented rate of change.
There has rightly been a focus on targeting individuals in the Russian government, Whiley said, but this is now moving to add in those that benefit from the government (namely Russian oligarchs).
Whiley also highlighted the sectoral widening to target other areas, underlining that the UK was in the very early stages of sanctions frameworks. Currently, the UK has issued fewer sanctions on individuals (but more on entities) than the EU. So, though their approaches are similar, there is still work to do to ensure full alignment between the UK/EU and the US. This, Whiley explained, will soon change, with further UK sanctions on oligarchs expected shortly.
The issue within the UK, Whiley said, was that these individuals have become so embedded in UK/EU businesses that their designation would have a massive knock-on effect. This means that the UK government will be going after the elements that the oligarchs control rather than their entire business(es), he explained. However, this process takes time.
Dare noted that the discussion so far was providing a great insight into the EU, the UK and the US approach; he called upon Jee Meng Chen to shine some light on the situation in Singapore and the APAC region.
Chen advised that Singapore has so far issued some sanctions which are aligned with those of the US and the EU.
From a financial crime perspective, Chen said, financial institutions are restricted from engaging with or providing services to Russia, and all links have been banned. He noted that it was interesting that the Singapore government has also advised financial institutions against facilitating cryptocurrency activity linked to Russia, including NFTs, as this could be an attempt to circumvent sanctions.
Russia sanctions: A practical analysis
Next, the discussion shifted to focus on the practical implications of these changes. Ross Savage reiterated that the speed of the issuance of sanctions is unprecedented, which will create real difficulties when looking at any potential exposure.
This will be keenly felt, Savage said, by any firm without robust screening systems – even those with an automated system in place will see these changes adding serious amounts of work to an already busy process.
Manual processes will come under particular strain, he said, as there is a complexity in ensuring that you are fully compliant.
Savage also felt it worth pausing to reflect on something very important: even if screening is correct at a given moment in time, it may not remain that way given the volume and speed of changes. It can also be a challenge, he said, to get other parts of a business to focus on sanctions and to bring their knowledge up to speed quickly to ensure compliance.
With the speed of change, ensuring that you don’t breach now or in the future will be an ongoing concern, Savage warned. He then touched on the importance of horizon scanning, which whilst crucial, is so hard to carry out given the current rate of change. It is, however, possible to get an idea of the direction of travel, Savage said, by comparing sanctions issued by the UK to the EU, for example.
There is a real danger that things go out of date very quickly, so Savage urged everyone to reach out to experts and follow the updates as they are released.
Dare then pointed to the challenges faced by non-financial institutions in remaining compliant with new developments. Such organisations will often have fewer resources to carry out screening compared to a large financial institution, but Luma Zitani provided some key insight here.
Zitani pointed out that non-financial institutions are already beginning to look at screening controls, KYC checks and so on, often due to banks saying that they manage their own sanctions compliance and not their customers’.
It is important for a firm to map out the owners of businesses it deals with, Zitani said. Firms must be cognisant of 50% ownership rules and the complexities these create, as well as the fact that these can vary in different jurisdictions.
By carrying out this extra due diligence and gathering more intelligence, Zitani explained, a company can suddenly be faced with processing thousands of extra records: a huge additional volume of data to be screened. This may help to identify Russian exposure, she said, but at the same time you don’t want to impact other parts of the business.
This is a major challenge for banks that have automated software to carry out screening, let alone for non-financial institutions. The key question to consider, Zitani said, was whether you can ring-fence the additional output of this Russia data to not impact business-as-usual.
Sectoral sanctions and export controls are key to understanding the impacts on business, Zitani explained. The big challenge for banks and for the operators dealing with them is the supply chain – who are my clients’ clients? How far do you go? This highlights the significance of mapping as a key exercise in identifying potential exposure.
Breaches and licenses
Whiley was firm in his belief that despite the challenges faced by all parties, any breach of sanctions is still a breach. The specificity within a general license allows the regulators to show some leniency, he explained, but when it comes to a breach, they are still going to enforce the penalties.
However, this doesn’t have to mean a fine is issued; more often than not, Whiley said, there are mitigating circumstances which will reduce a penalty, and most culprits end up receiving remedial action notices instead.
With regard to licenses, there was a consensus from the panel that the devil is indeed in the detail.
For a firm concerned about when the sanctions came into place, or concerned about the links they may have, the key message from the experts was to check the specifics of the license, which will tell you all you need to know. Comparing this to the sanctions regime of concern will enable any company to stay on the right side of the law.
Within their closing remarks, the panel agreed that they expected the current situation to last a long time. Savage suggested that we each ‘get comfortable with discomfort’ in relation to the effects of the changes in sanctions.
Whiley offered some sound advice on looking at the prohibitions that exist in other regions, pointing out that this can give you can idea of what may be coming soon – particularly for sectoral sanctions, if you’ve got business interests in these areas.
Zitani echoed Savage’s sentiments and encouraged attendees to look beyond how you respond today to focus on longer-term technology and processes for the future.
When making de-risking decisions, Chen advised, caution is a necessity. Decisions made on impulse, he explained, are unwise, and he advised those present to consider any long-term consequences.
Burges emphasised that there will be key implications for the shipping industry and encouraged those affected to refer to the Maritime guidance.
The webinar concluded with an unwelcome, but sadly accurate, agreement: the tragedy in Ukraine isn’t going to end anytime soon and its impact will be long-lasting. The consequences will be felt by many industries, whether regulated or non-regulated, financial or otherwise.
After such an insightful discussion, it is difficult to distil the key messages aired by the panellists. Nevertheless, there were a few key points that are particularly crucial:
Overall, the webinar flew by, with many attendees eager to hear more from the panel and the questions submitted simply too many to cover in the one hour. In addition to this write up, ICA will be compiling a list of frequently asked questions within the webinar with some answers and publishing this piece soon.
Through webinars such as these, we aim to educate and support anyone in the compliance industry and beyond tasked with navigating this rapidly-evolving area. As the situation evolves, ICA will be holding further webinars to exchange insights and offer guidance on managing the sanctions challenge.
You may also like:
 Luhansk and Donetsk regions recognised as independent states by Russia – as it happened | World news | The Guardian – accessed March 2022
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